[Commons-Law] Re: Publishers want to invalidate first-sale doctrine

[Seth Johnson]

-------- Original Message --------
Subject: Re: pho: Publishers want to invalidate first-sale
doctrine
Date: Sat, 01 Oct 2005 16:54:59 -0700
From: "Gordon Mohr (PHO)" <gojomopho at bitcollider.com>
To: pho at onehouse.com


That article is imbalanced, only reporting on the phenomenon from
the perspectives of publishers and author reps who think (quite
possibly in error in error) that the practice is costing them
profits.

A more economically literate discussion of the interaction
between the used and new book markets was in the NY Times last
July, with Berkeley professor Hal Varian reporting on a recent
study of online book sales. See:

   Reading Between the Lines of Used Book Sales

   By HAL R. VARIAN

   Published: July 28, 2005

  
http://www.nytimes.com/2005/07/28/technology/28scene.html?ex=1280203200&en=33765024cbf62d4c&ei=5090&partner=rssuserland&emc=rss

   http://elfurl.com/visit.php?id=42k

   [Full article quoted below.]

Specifically:

  - the existence of a strong used book market also
    makes people more willing to buy new books, at full
    price, because of confidence in their resale value

  - offering affordable used books can attract more
    customers to a bookseller, and result in more
    books, new and old, being purchased overall

  - a recent academic study suggests used book sales
    only slightly substitute for new book sales

  - the same study calculates the net social impact
    of used book sales as strongly positive, after
    weighing the benefits to consumers and sellers
    like Amazon against the potential losses to
    publishers and authors

- Gordon

http://www.nytimes.com/2005/07/28/technology/28scene.html?ex=1280203200&en=33765024cbf62d4c&ei=5090&partner=rssuserland&emc=rss
# Economic Scene
# 
#   Reading Between the Lines of Used Book Sales
# 
# By HAL R. VARIAN Published: July 28, 2005
# 
# THE Internet is a bargain hunter's paradise. Ebay is an easy 
# example, but there are many places for deals on used goods, 
# including Amazon.com <http://Amazon.com>.
# 
# While Amazon 
#
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.
# com/custom/nyt-com/html-companyprofile.asp&symb=AMZN> is best 
# known for selling new products, an estimated 23 percent of its 
# sales are from used goods, many of them secondhand books. Used 
# bookstores have been around for centuries, but the Internet has 
# allowed such markets to become larger and more efficient. And 
# that has upset a number of publishers and authors.
# 
# In 2002, the Authors Guild and the Association of American 
# Publishers sent an open letter to Jeff Bezos, the chief
# executive of Amazon.com, which has a market for used books in
# addition to selling new copies. "If your aggressive promotion
# of used book sales becomes popular among Amazon's customers,"
# the letter said, "this service will cut significantly into
# sales of new titles, directly harming authors and publishers."
# 
# But does it? True, consumers probably save a few dollars while 
# authors and publishers may lose some sales from a used book 
# market. Yet the evidence suggests that the costs to publishers 
# are not large, and also suggests that the overall gains from
# such secondhand markets outweigh any losses.
# 
# Consider a recent paper, "Internet Exchanges for Used Books,"
# by Anindya Ghose of New York University and Michael D. Smith
# and Rahul Telang of Carnegie-Mellon. (The text of the paper is 
# available at ssrn.com/abstract=584401 
# <http://ssrn.com/abstract=584401>.)
# 
# The starting point for their analysis is the double-edged
# impact of a used book market on the market for new books. When
# used books are substituted for new ones, the seller faces
# competition from the secondhand market, reducing the price it
# can set for new books. But there's another effect: the
# presence of a market for used books makes consumers more
# willing to buy new books, because they can easily dispose of
# them later.
# 
# A car salesman will often highlight the resale value of a new 
# car, yet booksellers rarely mention the resale value of a new 
# book. Nevertheless, the value can be quite significant.
# 
# This is particularly true in textbook markets, where many books 
# cost well over $100. Judith Chevalier of the Yale School of 
# Management and Austan Goolsbee at the Chicago Business School 
# recently examined this market and found that college bookstores 
# typically buy used books at 50 percent of cover price and
# resell them at 75 percent of cover price. Hence the price to
# "rent" a book for a semester is about $50 for a $100 book.
# 
# Ms. Chevalier and Mr. Goolsbee found that students were well 
# aware of industry practices and took resale value into account 
# when they bought books. (The study, "Are Durable Goods
# Consumers Forward Looking? Evidence from College Textbooks,"
# is available at Mr. Goolsbee's Web site, 
# gsbwww.uchicago.edu/fac/austan.goolsbee/website 
# <http://gsbwww.uchicago.edu/fac/austan.goolsbee/website>/.)
# 
# Back to Amazon. Professors Ghose, Smith and Telang chose a
# random sample of books in print and studied how often used
# copies were available on Amazon. In their sample, they found,
# on average, more than 22 competitive offers to sell used
# books, with a striking 241 competitive offers for used best
# sellers. The prices of the secondhand books were
# substantially cheaper than the new, but of course the quality
# of the used books (in terms of wear and tear) varied
# considerably.
# 
# According to the researchers' calculations, Amazon earns, on 
# average, $5.29 for a new book and about $2.94 on a used book.
# If each used sale displaced one new sale, this would be a
# less profitable proposition for Amazon.
# 
# But Mr. Bezos is not foolish. Used books, the economists found, 
# are not strong substitutes for new books. An increase of 10 
# percent in new book prices would raise used sales by less than
# 1 percent. In economics jargon, the cross-price elasticity of 
# demand is small.
# 
# One plausible explanation of this finding is that there are two 
# distinct types of buyers: some purchase only new books, while 
# others are quite happy to buy used books. As a result, the used 
# market does not have a big impact in terms of lost sales in the 
# new market.
# 
# Moreover, the presence of lower-priced books on the Amazon Web 
# site, Mr. Bezos has noted, may lead customers to "visit our
# site more frequently, which in turn leads to higher sales of
# new books." The data appear to support Mr. Bezos on this point.
# 
# Applying the authors' estimate of the displaced sales effect to 
# Amazon's sales, it appears that only about 16 percent of the
# used book sales directly cannibalized new book sales,
# suggesting that Amazon's used-book market added $63.2 million
# to its profits.
# 
# Furthermore, consumers greatly benefit from this market: the 
# study's authors estimate that consumers gain about $67.6
# million. Adding in Amazon's profits and subtracting out the
# $45.3 million of losses to authors and publishers leaves a net
# gain of $85.5 million.
# 
# All in all, it looks like the used book market creates a lot
# more value than it destroys.
# 
# Hal R. Varian is a professor of business, economics and 
# information management at the University of California,
# Berkeley.


Seth Johnson wrote:
> -------- Original Message --------
> Subject: Publishers want to invalidate first-sale doctrine
> Date: Sat, 01 Oct 2005 12:26:44 -0500
> From: Stephen Compall <s11 at member.fsf.org>
> To: Seth Johnson <seth.johnson at realmeasures.dyndns.org>
> 
> Background: First-sale doctrine essentially says that when you
> sell a book, you lose control over *that copy*.  The owner of the
> copy is free to lend to others, sell to others, read to his or
> her children, etc. First-sale doctrine is not merely a court
> precedent; it is codified in U.S. law (17 USC 109).  Having
> failed to circumvent the first-sale doctrine through DRM on
> ebooks, publishers want to take a more direct approach, by
> imposing on used-book marketplaces such as Amazon.com
> Marketplace.
> 
> "The online transaction providers should pay a fee," says Richard
> Pine, a partner in New York literary agency InkWell Management
> LLC. "The commission should be paid directly to the publisher,
> who should pass through 100% of that income to the author."
> 
> Full article follows:
> 
> The Growing Market For Slightly Used Books
> 
> In Latest Threat to Publishers, Readers Flock to Web to Buy
> Best-Sellers at Big Discounts
> 
> By JEFFREY A. TRACHTENBERG
> 
> Staff Reporter of THE WALL STREET JOURNAL
> 
> September 29, 2005; Page D1
> 
> 
> Readers seeking E.L. Doctorow's new novel "The March," one of the
> best-reviewed books of the fall season, can buy the new novel at
> their neighborhood bookstore for $25.95 or on the Web for a few
> dollars less.
> 
> Or they can seek out an even better bargain, like the $13.99
> (plus shipping) deal offered earlier this week for a "read once
> gently" copy on Amazon.com Inc.'s Web site.
> 
> The Internet is creating a new and fast-growing category in the
> book-selling market -- the barely-used book. An increasing number
> of consumers are snapping up used volumes online at invitingly
> cheap prices. These aren't yellowing copies of out-of-print
> titles but often unblemished copies of newly published books --
> sometimes available just a few days after a book's official
> publication date.
> 
> Today, any consumer armed with a title or an ISBN number can
> search the Internet for the lowest price and get one within
> minutes. At the same time, the Web sites that offer such books,
> such as Amazon, Abebooks Inc. and Alibris Inc., have made it
> painless for readers to resell them. A reader who owns "The
> March," for example, can sell it via Amazon just by clicking on
> the "Sell Yours Here" button to the right of the new-book
> listing. The process is so simple that even the most
> technologically befuddled person can follow it. Once the book
> sells, Amazon collects a commission of $0.99 plus 15% of the sale
> price from the seller. It then deposits the remainder in the
> seller's account and provides the address of the customer. The
> seller ships the book directly to the customer. Amazon's payment
> to the seller includes a pre-calculated credit toward shipping
> costs.
> 
> In effect, Amazon and other online used-book sites, including
> eBay Inc., are creating a nation of amateur booksellers at a time
> when consumer book unit sales are flat or declining.
> 
> "This is the new Internet reality, which is the cheaper the
> better," says Laurence Kirshbaum, chief executive of Time Warner
> Inc.'s book group. With Web sites displaying new and used titles
> together, he says, "you can see two prices side by side, and the
> discrepancy is enormous."
> 
> Mr. Kirshbaum has reason to be concerned. There are currently 70
> "new and used" copies of "The Widow of the South" -- one of Time
> Warner's biggest books of the fall -- for sale on Amazon.
> Although the novel carries a retail price of $24.95, there are
> several copies on Amazon described as "new" being offered for $16
> or less.
> 
> The issue is so contentious that several literary agents are
> calling for authors and publishers to find some way to share in
> the revenue created by the used-book market. "The online
> transaction providers should pay a fee," says Richard Pine, a
> partner in New York literary agency InkWell Management LLC. "The
> commission should be paid directly to the publisher, who should
> pass through 100% of that income to the author."
> 
> Adds Ann Rittenberg, president of Ann Rittenberg Literary Agency
> Inc.: "I'd like to see the author getting 10% of a used book
> sale. I wouldn't have asked for this years ago, but it's so
> organized now that there should be a payment." A spokeswoman for
> Amazon says the company doesn't offer a commission and won't
> comment on what it may or may not do in the future.
> 
> Until recently, publishers barely noticed used-book sales. Nobody
> knew how large the market was for used volumes, or whether it was
> growing or not.
> 
> Certainly, there has always been a significant demand for used
> textbooks. But a new study conducted by InfoTrends Research Group
> Inc., a market-research firm in Weymouth, Mass., on behalf of the
> Book Industry Study Group, a trade association, has gone a long
> way towards quantifying demand for used titles.
> 
> While the market's size is still modest -- about $600 million, or
> 2.8% of the $21 billion that readers spent on consumer books in
> 2004 -- it is growing at 25% annually. Jeff Hayes, group director
> for InfoTrends Research Group, suggests that it could reach $2.25
> billion in U.S. sales by 2010, or 9.4% of a projected $23.9
> billion in consumer book sales.
> 
> Many in publishing worry that every sale of a used book in "new"
> condition will act as a substitute for an actual sale of a new
> book. Others are concerned that writers are losing out. "We want
> to make sure that authors receive the royalties they deserve,"
> says Jane Friedman, CEO of News Corp.'s HarperCollins Publishers
> Inc., one of the country's largest publishers. "We'd also like
> Amazon to give some breathing room between the on-sale date of a
> new book and the sale of used copies."
> 
> All these barely used books come from a variety of sources. Some
> are offered up by everyday readers. Some are undoubtedly review
> copies that publishers provide to critics. Professional
> booksellers also offer copies. "Booksellers acquire used books
> from consumers and pay as much as 30% to 40% off the retail price
> and then resell it for as much as 60% of the retail price,
> depending on condition," says Mr. Hayes.
> 
> The new report doesn't make it clear how many newly published
> books are being sold as used books. Nor does anyone know how many
> dollars spent on used books would instead have been spent
> purchasing new books.
> 
> One reason the used-book market is growing is that the experience
> of buying and selling such books has improved, according to Mr.
> Hayes. "In the past, you didn't hesitate to buy a new book," he
> says. "But if you only have to wait a week or two, you may decide
> to hold off and buy a used copy."
> 
> Last week, Bethanne Patrick, who writes the Book Maven blog for
> Time Warner's America Online unit, says she bought a used copy of
> Zadie Smith's new novel "On Beauty" (dust-jacket price: $25.95)
> in very good condition for $14.50 on Amazon. "Why pay full price
> if I can get a hardly opened hardback copy online?" she says.


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