In a candid and occasionally contentious “Ask Me Anything” session on Saturday, January 25 at the 2020 American Library Association (ALA) Midwinter Meeting in Philadelphia, Macmillan CEO John Sargent discussed the publisher’s two-month embargo period for library ebooks, which went into effect on November 1.

During the 90-minute session—well attended by library directors, state librarians, and officials from ALA and other library organizations—Sargent repeatedly described digital publishing as an ecosystem that is being disrupted by changing consumer habits, including a rapid, relatively recent increase in library ebook borrowing.

“There are readers, there are authors, publishers, there are book stores, there are libraries, schools—that’s the ecosystem,” he said. “Our job as publishers is to be a good business—we are a for-profit business—and we have an enormous fiduciary responsibility to our authors.”

Reiterating a claim first stated in a July 2019 interview with the Wall Street Journal, Sargent told the audience that the monetary value of each ebook “read” had been declining in recent years due to significant growth in ebook circulation at libraries. Retail ebook sales also declined by ten percent during the past year, he said. Macmillan, it was repeatedly implied but not explicitly stated, apparently views profit per read as an important metric for gauging the performance of ebook titles. “As the number of lends went up and up, the value of each read—what [money] came to the author and publisher—started to drop,” Sargent said. More recently, “it started to drop precipitously.”

With libraries, Sargent described two primary “levers” that publishers can use to increase profit per read—raising prices and/or changing licensing terms to reduce the number of circs allowed. Macmillan’s new policy allows every library system to purchase one perpetual license during the embargo period, but otherwise the embargo effectively eliminates a title’s ebook circs during the two months after launch, limiting an ebook’s availability to full-priced retail sales.

“Think about when a movie releases,” Sargent said. “When are you willing to put down $18 to see something?... The first six weeks, four weeks, or three weeks. That’s true of all intellectual property. Its highest [commercial] value is when it’s new.”

Later, he noted that viewers who aren’t interested enough in a movie to pay a premium to see it in a theater will often watch it once it becomes available on cable, a paid streaming service, or broadcast television, depending on how they value the content and how long they are willing to wait, drawing a comparison between the library ebook embargo period and a movie’s cinematic release.

Separately, at several points Sargent took issue with how library ebooks are often described as “free” by both libraries and patrons, and how that message could potentially impact the way consumers view the retail ebook market.

“Libraries are paying publishers, but the value the consumer sees—what comes out of the consumer’s pocket—is zero,” Sargent said. “There are people saying ‘never buy [an ebook] again, you can get it for free.’”

FIGHTING BACK

Neither Sargent nor audience members directly raised the issue of the first sale doctrine, the provision of U.S. copyright law that allows libraries to purchase print books and other physical media at the same retail or wholesale prices charged to end consumers, and then loan them out without permission from a publisher. But essentially, digitally transferred content has no comparable protections for libraries or consumers. Macmillan and other publishers can set pricing and lending terms for ebooks however they see fit—in this case creating an eight-week window of exclusivity for retail sales in an effort to boost retail demand after launch—or discontinue licensing ebooks to libraries altogether. Altering this dynamic would require the courts to hold that the doctrine should apply to digital content, or else the passage of federal legislation amending copyright laws.

Libraries are not without leverage. Public opposition has primarily been shaped by broad arguments about how the embargo period will impact access for the communities libraries serve, with many citing the specific impacts on disabled or economically disadvantaged patrons. ALA’s #eBooksForAll campaign, for example, emphasizes this impact on social media platforms, and its petition demanding Macmillan discontinue the embargo had gathered almost 250,000 online signatures at press time.

In solidarity with the library field, Digital Book World on January 29 announced that all Macmillan employees would be banned from attending or speaking at the organization’s annual conference in Nashville this September, unless the embargo is lifted.

Sargent “continues to make the claim that by giving libraries unfettered access to purchase Macmillan titles in digital format, the company would lose money,” Bradley Metrock, CEO of Score Publishing, wrote in a post explaining the ban. “Amidst a barrage of b-school five-dollar words, he speaks of an imbalance in library lending that is damaging publisher profitability. It's disingenuous, and it's false. It merits zero further discussion. Somehow making this stance even dumber is that even if revenue gains were realized from the act of embargoing books from public libraries, that value is instantly outweighed by the PR fallout from all the negative publicity Macmillan has received by taking this action.”

During the session, Sargent said that the publisher had been surprised by the intensity of the pushback, but when audience members raised the issue of equitable access, he defended Macmillan by pointing out that libraries are still able to buy physical copies of the publisher’s titles upon release.

COSTLY CHOICE

The collective purchasing power of the U.S. library market may ultimately be the primary issue that forces Macmillan to rethink the embargo.

Audience member Patrick Losinski, CEO of Columbus Metropolitan Library, asked Sargent about the early impact of the embargo on Macmillan’s business, and his answer was frank.

“Of the reads in America today at Macmillan, 55 percent of the people who read our books electronically [are borrowing them] from the library,” Sargent said. For new titles “we’ve basically turned off 55 percent of our customers. So in the initial eight weeks? Bad news for us financially.” This sales loss was expected, Sargent noted, but he added that it would be at least another two or three months before Macmillan would have sufficient data to begin analyzing the impact on retail sales and other metrics.

Sargent later mentioned that prior to instituting the embargo, Macmillan had discussions with several librarians and library organizations. These discussions, he said, often led to demands for lower pricing and perpetual access licensing models, which he described as an unproductive “impasse.” However, while he declined to make any commitments during the forum, Sargent appeared open to audience suggestions for alternate licensing models that could end the embargo, such as price-per-circ models, or limited-time premium pricing for the first eight weeks following a book’s publication.

“We’d have to work together to find a way to do that—multiple models for different library systems,” Sargent said. “If we could find a way to do that, and make the plumbing for it,” he wouldn’t necessarily be opposed to it. However, he added that “we are trying to do something with the availability lever, as opposed to the price lever, to see if it works, and to see what the results are. I’m not saying that [the embargo/restricting availability] is the right lever to use. I’m saying it’s worth a try, because the price lever is actually not working that well for any of us either.”

DATA DISPUTES

Contacted after the session, ebook vendors also questioned aspects of Sargent’s discussion. David Burleigh, OverDrive’s director of brand marketing and communication, noted that OverDrive’s aggregated data makes it “difficult to see how libraries caused the imbalance” that Sargent and Macmillan describe in the consumer retail ebook market. Burleigh pointed to an August blog post by OverDrive CEO Steve Potash debating several comments made by Sargent in his July WSJ interview. Notably, Potash cites OverDrive data to dispute Sargent’s assertion that libraries have a negative impact on Macmillan’s value-per-read metric.

“For all the Macmillan ebooks that libraries acquired for lending, 79 percent expired and were removed from library catalogs because the two-year term limit occurred first—not because they were checked out 52 times [per Macmillan’s licensing terms],” Potash writes. “The data of actual lending of Macmillan ebook titles by public libraries supports an underutilization of the inventory. The average number of times a library loaned a Macmillan ebook during the two-year term for each title was 11.5 times (far from 52 checkouts). Using this data, the average cost to the library to lend the title was $6.07 for every time a title is borrowed, five times the figure [Sargent] shared in the WSJ story. Furthermore, this includes users who never opened the title or read it—so the cost for every ‘ebook read’ is still higher. This 11.5 average checkout includes Macmillan best-sellers such as [Michael Wolff’s] Fire and Fury and others, which by all accounts is an outlier and overperformer. For the vast majority (75 percent of Macmillan catalog of titles during the two-year term) an ebook was checked out an average of 8.3 times each.”

Thomas Mercer, SVP of digital products for bibliotheca, provider of the cloudLibrary ebook platform—who has gone on record accusing Amazon of actively promoting the narrative that library ebook lending is costing publishers sales—zeroed in on Sargent’s discussion of Amazon data, which Macmillan is not allowed to share with libraries or other parties, due to nondisclosure agreements (NDA).

“As long as libraries allow patron data to be shared with Amazon, I feel the digital lending ecosystem will remain at risk,” Mercer told LJ. “Amazon has no interest in equitable access of digital content for libraries and will continue to use data to advance their commercial goals. Eliminating Amazon’s access to library lending data may seem difficult now, but the long-term benefit to libraries would greatly outweigh the short-term pain. Today, Amazon offers publishers data from both consumer purchases and library circulation. By removing Amazon’s access to patron lending data, libraries would have unique data to share and discuss with the publishing community.  By controlling when and how library user data is shared, libraries would be better equipped to achieve their goal of equitable access to digital content.”

As audience member and lead for the Panorama Project Guy LeCharles Gonzalez noted, proprietary data and NDAs have clouded the discussion considerably.

“In the spirit of transparency, if you’re asking librarians for feedback and you want to work with these associations on [licensing] models, but all of these models are based on data that no [other parties] have seen because of NDAs, (A) how are you communicating this to authors if you’re not actually able to share this data? And (B) the summary data that you have shared has been publicly challenged as well,” Gonzalez asked. “Your calculation of a ‘read’ doesn’t actually play out in either the math on royalties, or the availability of Macmillan ebooks in [library] systems. How are you going to have a good faith conversation with libraries about this situation, without any compelling data that you can share?”

Sargent answered by reiterating the complexity of the situation.