First Sale Doctrine: Digital Threat or Opportunity?

One of the drawbacks with ebooks is that there is no second hand market for them. Unlike physical books you can’t sell a book once you have read it. You can’t even put it on your bookshelf. It is doomed to sit often forgotten on some virtual bookshelf.

The lack of ‘first sale doctrine’ on ebooks is a big opportunity lost today as we find ourselves tied up in DRM knots and fear of the digital unknown. Too much of what we do is negative and restrictive and denies freedoms, rights and norms taken as a given within the physical world. Denying established social practice just helps fuel further consumer piracy.

Music is probably the last sector media should look at for digital guidance.
Last week EMI filed two lawsuits against different online music services, Grooveshark and ReDigi for breach of contract and copyright infringement.

The first case against Grooveshark is understandable in that it is claimed that the digital music service has paid no royalties since entering a licensing agreement to stream music nearly three years ago. That it has taken three years to issue a lawsuit is somewhat amazing and EMI’s filing comes after three other major record companies; Universal Music Group, Sony Corp and Warner Music Group, all filing accusing Grooveshark of pirating thousands of songs.

Founded in 2006, Grooveshark claims 35 million users and has major adverting support contracts. It allows users to upload songs to their servers, which it then lets other users stream for free. A virtual ‘swopshop’. The music industry is starting to accept services like Spotify and Rhapsody that stream music by subscription, but Grooveshark is again different and operates heavily under the protection of the Digital Millennium Copyright Act.

Founded only last year ReDigi is different again and operates under the “first sale doctrine” legal concept, that allows users who buy a copyrighted item like a book or CD the right to sell it or give it away. ReDigi operates a ‘used music store’ where users upload unwanted songs and buy others at a discount. ReDigi claim that they can verify individual MP3 files were legally purchased and not ripped or downloaded from a file-sharing network. Interestingly the sellers must also install a ReDigi program on their computer that removes any copies of a song from the seller’s computer.

The case pivots on the claim ReDigi is infringing copyright in making copies of digital files as part of the process of uploading songs from a seller’s computer and transferring them to a buyer’s. EMI claim that, unlike selling a used CD, a used MP3 is theoretically the same as a new one and hence the infringement. ReDigi counters saying it is merely acting as a responsible marketplace. Again EMI is not alone and the RIAA (Recording Industry Association of America) has also sent ReDigi a cease-and-desist letter.

So we return to the question of opportunity versus restriction, or a glass half empty versus a glass half full. Digital files have been made different not by technology, but by unimaginative thinking, restrictive DRM and bad law that is no longer relevant to the times. We must all realise that just as like having different tax rules for the same product, having different consumer rights will just drive more honest consumers to cut corners and disrespect copyright. The publishers may protect today’s revenues, but in doing so may end up losing tomorrow’s and their customers.

Publisher be they music, games, ebooks all have to realise that the right to resell is a given and finding a way to allow that is a must. We already have digital rental and loans and restricting or denying resell is just plain lunacy. The resell markets could in fact blooster the price of the original sale and start to create value added ownership. It could even offer the independent bookstore a digital lifeline. The ebooks and publishing market is a very fragmented and getting consensus of vision let alone action is often a challenge in itself.

Digital Content Is Different

Yesterday we sat down with someone who is starting a new digital venture. As we discussed the potential, the market, the options and much more, it became apparent to us that there are a lot of things that applied to the physical book market, that simply do not apply, or should be questioned in the digital market. Walking blindly into the digital world assuming that all remains the same is in danger of establishing a set of urban myths that we have written about in the past but that continue to dog all our thinking and real digital opportunities.

We would like to take the opportunity to offer a dozen points as to why we believe digital content is different.

1. Size - 256 pages and x thousand words were mere economic parameters that prevailed and mattered in the physical world. They become meaningless and irrelevant in the digital world. The author is free to write as little, or as much as they feel appropriate and that convey his story and that the consumer can digest. One would argue that small starts to become beautiful and large may be present a page turn too many. Short stories present a great digital opportunity, but may only happen if they are thought through economically and cost is taken out. After all many successful authors started their writing with short stories and articles. We still have still to adopt and adapt the Keitai model in the West, but if Dickens could write and sell by instalments why are we waiting for the finished tome?

2. Price – Some would suggest that prices must relate to the physical book and that any major price reduction on digital could cannibalise physical sales and the market. Some also suggest that digital is a huge investment and that the costs of the physical product are still incurred in the pre production and marketing activities. The problem is all too often this thinking is based on ebooks being just ‘another rendition’ and that each must stand economically on its own two feet. Why aren’t ebooks ‘given away ‘as aperitifs, lost leaders and to stimulate and drive physical sales? Why doesn’t digital content adopt simple price points like other media? Finally, digital content must be different as demonstrated by the differentiation given to it by the vast majority of governments.

3. Age - The consumer may want the ‘latest book’ but this is often driven by media and promotion. How many consumers do you see opening a book at the copyright page to check when it was published before they buy it? Amazon’s advanced search has a publication date field which is missing on The Book Depository, Waterstones and Blackwell’s who has a ‘published between two dates’ option. We may be thick, but we couldn’t even find an advanced search at Barnes and Noble or Kobo. The eWorld now has to compete with, not just the remaining books on the shelf, or in the store, but all books ever published.

4. Rights - When you buy an ebook, it may be literally just for Christmas! eBooks do not have a second life, no first sale doctrine and being able to lend them to friends. Therefore, to say they are merely just another rendition is like saying there is no difference between a taxi and a car, both get you from A to Z, both are driven by an engine but both are very different .

5. Media - Today we see books, music, film, games, being offered separately on some sites and collectively, as a one stop media shop on others. Dedicated media offers will work as long as they offer the consumer value, but when the vast majority of digital media is now supplied through white labelled channels this makes the one stop shop attractive. As some start to ‘enhance ebooks’ the synergy between media sectors could further erode and the one stop shop appear even more compelling. As we have seen it isn’t difficult for supermarkets, associations or in fact anyone to sell white label stock off their brand with no inventory cost.

6. Taste – It used to be said that you could judge a person but the books on their bookshelf. However, when their collection is no longer visible, no judgement is possible. Some would advocate that this merely flips into a social network opportunity, where readers share their book experience, favourite reads and what they have bought. However, we would suggest that this is a different and ignoring the hype has still to be proven between strangers.

7. Device – The ebook evolution was born out of a combination of digital content and reading devices both being widely available. Today we have now passed that stage and replaced the device with a device agnostic platform. Importantly mobile devices have not stood still and we now have smart phones with sufficient power, Amoled screens, apps and broadband connectivity to challenge ereaders, games machines, laptops, and even the emerging tablet itself. Multi media devices have arrived to your hand and technology is going only one way – smaller, cheaper and smarter. We would suggest that the ereader device is fast becoming irrelevant.

8. Leadership – The largest players always dictated the game and the book market has been no different. Amazon has established itself as the largest driver and influencer in the market today and will be for some years and the largest retailers are no longer defined by square footage or constrained physically. Will tomorrows leading retailer be that with the best mailing list and management? As the retail internet offers become somewhat indistinguishable does this open the door for smaller specialists and innovators to survive and thrive? We also assumed the largest publishers will drive the market but is this a given? Will again the innovative and agile score over those who will find it hard to tack and change course in what will be choppy seas?

9. Re reading the novel - People often say that they re read their favourite books and its true, but they often do this after a long period of time. Guess what, the ebook format, device, technology may have changed by the time you get round to re reading it! It may be like going back to cassette, vinyl and eight track.

10. Metadata – We used to cringe when the dreaded ‘m’word was raised and often found ourselves in the uncomfortable position of having to use a word which itself was an instant turn off. Great strides have been made to rationalise the communication between trading partners and improve the physical supply chain and standards and metadata where pivotal to this. However, when you have all the content digitalised and the associated material and information is fully indexed the game starts to change. Some 80% of what you need to know about the book is retrievable from the digital content itself and some other information exists in real time. This must change how we communicate and what we communicate as we move from a transactional and physical supply chain to one that is driven by media content and social interaction. The library world has finally accepted that the old MARC record is past its sell by date and maybe it will be followed by others we regard as essential today. We now have to radically rethink information, access and retrieval and equally who is best to lead us through this revolution.

11. Rental and the public Library - We strongly believe that ebook sales are going to move from downloads as we know them today to online and cloud based rentals. Netflix, Last FM, Pandora and our favourite Spotify are among those leading the way. Many may see this as a huge threat but is this real or more based on the challenge it poses to the existing business model . We have written much on this radical change and on the redefinition of the library tomorrow. Some may resist the move to online and rental, but it will happen and it may well not be a top down driven but a bottom up revolution.

12. External agents –5 years ago, when we wrote the Brave New World report, we recognised that the digital world was going to be heavily shaped, not from inside but from the outside. Today we have all seen the impact that the likes of Amazon, Apple, Google and others continue to have on the market and the evolution of digital publishing. These new entrants have bothered to invest in the physical channel and when some suggest that they should acquire Borders, B&N etc the answer is obvious and negative.

There are many thoughts we all have as to how the market will evolve. It is important that we start to see digital content as different and free it from the physical book spine that will continue to choke it.

Are eBooks Being Straight-Jacketed by pBook Thinking?

Today many see digital as an evolutionary and perhaps it’s the assumption that are being made in this thinking that is causing the issues, conflicts and challenges we face today. Some would suggest that some of the very basic assumptions being made and used to determine digital strategy may be fundamentally ungrounded and not safe.

First, many assume that the ebook is a replacement for the physical book (pbook). Many may accept that both will coexists for some time, but many also believe that eventually, pbooks as we know them today, will be displaced by ebooks. Secondly, we assume that because today we buy pbooks that this model will naturally apply to ebooks. This assumes that all transactions of ebooks will be outright purchase sales. Finally, we all tend to assume all books are for life and once bought are ours to own, build into our library and even pass on to the generations to come.

Today when we buy a pbook it is enshrined in a rights licence that is based on the properties and limitations of the format. We can share it, sell it, bin it, even drawn all over it, but we are not allowed to copy it or exploit it for commercial gain. It is a physical ‘asset’ which we can value, add to our collection and pass on freely to others. In principle the physical format dictates what we can and can’t do and that contract is entered into on its initial purchase. Imagine someone saying that you can’t share it, can only keep it for only a specific period of time, can only retain it on certain bookshelves and are not able to resell it to whom you wish for what you want. These restrictions would be totally impractical and unenforceable.

This is in fact governed more by the physical format of the book than anything else.

Digital content changes these basic freedoms and in their place often imposes constraints and controls that were previously unenforceable. The number of times a file is copied can be controlled, sharing files can be severely restricted if not obviated altogether, the selling files negated and even what devices the files can be played on can be restricted. This shift in what can be granted under a licence makes digital different and demands that the rules and assumptions once applied to the physical book, are no longer relevant. The books aren’t different; it is digital that is different. All sales are rights sales, buy the rights associated with ebooks and the basic assumptions on which these are based now need to be reviewed as merely apply physical logic is unsafe and just results in the ill thought-out stances we have seen recently.

The next set of assumptions we must challenge are about the life expectancy of the ebooks themselves. Do we believe that digital formats are really persistent and perpetual? Maintaining access to digital archives within libraries may be a reasonable expectation, but maintaining the same access privately may not be so simple. Remember Microsoft Reader, or some of the other less popular formats? Remember betamax, eightrack, and formats tied to long forgotten devices. MP3 may not be the highest quality recording but until it was widely adopted DRM free music was being strangled by its own DRM and associated formats. Formats will evolve, but not all versions will remain backward compatible. Some formats will be superseded others may just disappear and that ebook that you thought was for life may have a very limited shelf life. Some believe that DRM (Digital Rights Management) protects and enforces copyright, others that it is yet another factor that radically changes the nature of the transaction and rights sold. Importantly we must recognise that DRM can tie the sale to a specific manifestation of a title and even to a specific service that distributed it. In other words an ebook today can be tied to a specific buyer, a specific distribution server and even a limited number of devices. Fine today but will those relationships still exist in say 10 or say even 5 years time?

Social DRM has yet to make its mark, but is gathering some momentum. This is about specific watermarking of digital content at a transactional level and to be effective needs to be both visible and invisible. Social DRM does not enforce restrictions and could enable the ebook rights to be aligned more closer to the pbook . However, today we still live in the draconian straight-jacket of encrypted files that can only be unlocked by DRM licence and with their own self interests in mind some want it to remain so.

So at one end of the spectrum we have the pbook trading its rights in what could be described as being driven by ‘market forces’ and sold outright. At the other end we have the ebook and its digital shackles, relationships and restrictions that make an outright sale a joke.

At the heart of the current challenges lies the question of what exactly are we ‘selling’? Some would suggest that we are trying to impose horse drawn carriage rules on today’s cars. They like pbooks and ebooks are fundamentally different. Moving towards a more open licence approach to ebooks may change to total way we sell rights, what rights are sold, educate the buyer into why digital is different and create a less volatile trading market. It could challenge still further the model conflict between libraries and the High Street, but rather than being a negative this could be a very positive move for all parties. We may see ebooks move into a rental, ‘pay as you read’, ‘loan on demand’ and subscription based models of consumption and away from today’s inappropriate outright purchase model. In doing so we may also find a commercial model that rewards stimulates and unites those that matter most the authors, illustrators and creators. Ironically we may also actually create an environment that actually enables the physical book to co exist alongside the ebook.