Introduction

Have you ever noticed that you can’t really “buy” an ebook? Sure, when you click that “Buy Now” button on your ereader, tablet, or phone, it feels like a complete, seamless transaction. But the minute you try to treat your ebook like a physical book – say by sharing it with a friend, selling it to someone else, donating it to a school library, or sometimes even reading it offline, reality sets in. You can’t do any of those things.

With most ebooks, even if you think you “own” them, the publisher or platform you bought them from will say otherwise. Publishers and platforms insist that you only buy a license to access the books, not the rights to do anything else with them. And because platforms like Amazon and Apple control most of the technology we use to read ebooks, their opinion often dictates the reality of the ebook ecosystem. Beyond controlling books, these platforms can also do several things no physical bookseller has ever had the power to do. They can track your reading habits, stop you from reselling or lending a book, change the book’s content, and delete it from your digital library altogether – even after you’ve bought it. This doesn’t happen in the print book market, where you can still feel confident that when you buy a book, it’s yours to share, sell, or simply read without it being tracked or censored.

Something happened when we shifted to digital formats that created a loss of rights for readers. Pulling back the curtain on the evolution of ebooks offers some clarity to how the shift to digital left ownership behind in the analog world.

While most publishers still sell physical books, when it comes to ebooks, the vast majority appear to have made a collective decision to shift to offering only limited licenses. Some of the reasons for this shift are economic, some legal, some technological, and others psychological – a belief that limiting or eliminating digital ownership of books will raise publisher revenues, forstall free copies leaking onto unauthorized websites, and allow publishers and platforms unprecedented control and tracking of the behaviors of readers, as well as universities and libraries that provide ebooks. Whether these beliefs map to reality, however, is hotly contested.

Just as platforms control our tweets, our updates, and the images that we upload, platforms can also control the books we buy, keeping tabs on how, when, and where we use them, and at times, modifying or even deleting their content at will.

Economically, platforms and publishers also believe licensing gives them more control over how ebooks generate revenues. For example, they currently use licensing to charge libraries for the right to lend the book to patrons, or tying ebooks to platforms that monitor user behavior, creating a new revenue stream based on selling user data.

Legally, the shift from selling to licensing attempts to circumvent centuries of law that have limited publisher control over post-sale uses of books. This law is a copyright doctrine called “exhaustion” or “first sale.” The idea behind first sale is that publishers were always entitled to make money from the first time they sold a book, but after that, the sold copy is beyond their control. The new owner can decide to resell, lend, or use the book in any manner they see fit. Licensing attempts to keep that control with the copyright owner, forever.

Technologically, publishers have turned to companies like Amazon, Apple, and OverDrive to distribute and control their ebooks. These publisher-platform partnerships presented new opportunities for publishers to remain involved in the post-sale life of a book. Just as platforms control our tweets, our updates, and the images that we upload, platforms can also control the books we buy, keeping tabs on how, when, and where we use them, and at times, modifying or even deleting their content at will. That same control also allows platforms to monitor when and how you read, which is key to new revenue streams based on selling user data.

Finally, psychologically, publisher-platform partnerships have reinforced a belief long held by publishers that with greater legal and technological control, they will reap greater financial rewards. Publishers believe these rewards flow from forcing purchasers to pay for additional uses (such as when libraries want to lend out ebooks to patrons), and by limiting how books are shared and distributed outside of their control. While it is unclear that any of these beliefs have manifested into reality, the psychology has taken hold, in part because ebook platforms have now locked publishers into this partnership in ways that make it extremely difficult to disentangle.

This report explains that, while there is nothing new about publishers’ desire to seek novel ways to increase revenues, along with control and surveillance of readers, the new publisher-platform partnership creates a mechanism to align the ebook market with those goals. That new market alignment raises questions about whether these shifts are the best option for readers and institutional book buyers, particularly libraries. It also raises questions about how the newest players in the market – ebook distribution platforms – shape things to align with their own interests.

In order to fully understand the dynamics at play, we interviewed over 30 stakeholders that fill various essential roles in the ebook marketplace, from publishers to platform CEOs to literary agents, librarians, and lawyers. We discussed the priorities, concerns, and constraints that help shape their participation in the ebook marketplace. Our goal was to understand and document how this world looks through their eyes, and synthesize those views into broader conclusions. In the following sections, we will deconstruct the shifts that have made it difficult to actually own an ebook collection, as well as the challenge that lies ahead if we wish to resurrect ownership as a consumer choice for ebooks.

Our study leads us to several key conclusions:

• By turning to platforms as the primary technical means for conveying ebooks, publishers have introduced a third major player into the ebook supply chain: ebook platform companies. Together with publishers, platforms have restricted the ebook market to one composed primarily of licensing instead of sales.

• The platform companies have motives and goals that are independent of those of publishers or purchasers (including institutional buyers such as libraries and schools). Rather than looking to profit from individual sales, like a bookstore does, platforms compete to collect and control the most aggregate content and consumer data. This enables what are now widely known as “surveillance capitalism” revenue models, from data brokering to personalized ad targeting to the use of content lock-in subscription models. These platforms’ goals are sometimes at odds with the interests of libraries and readers.

• The introduction of platforms, and especially publisher-platform partnerships, has created new forms of legal and technological lock-in on the publisher side, with dependencies on platform infrastructure posing serious barriers to publishers independently selling ebooks directly to consumers. Platforms have few incentives to support direct sales models that do not require licensing, as those models do not easily support tracking user behavior.

• The structure of the ebook marketplace has introduced new stressors into both the publishing and library professions. Publishers and libraries feel they are facing existential crises/collapse, and their fears are pushing them into diametrically opposed viewpoints. Publishers feel pressured to protect and paywall their content, while libraries feel pressure to maintain relevant collections that are easily accessible via digital networks. Both libraries and publishers feel dependent on the ebook platform companies to provide the ebooks that readers demand, allowing the platform economy (which is already dominated by only a few large companies) to have even more power over the ebook marketplace.

• Because of the predominance of the publisher-platform licensing model for the ebook marketplace, important questions exist as to the impact, if any, that digital library lending of books has on that market. For example, while some evidence exists that the availability of second-hand physical books via libraries and used bookstores might compete with direct publisher book sales, it is less clear that the digital loan of a single title by a library competes with platform ebook subscriptions and locked-in book purchases. Moreover, given that publisher-platform partnerships profit from surveillance of book buyers, consumers who choose more privacy-friendly library loans may represent an entirely distinct market that places significant value on data protection.

• While access to user data generated by platform surveillance of readers is a potential benefit to publishers, in practice publishers do not fully exploit (and may not have full access to) that information.

The Emergence of the Publisher-Platform Partnership

Before getting into the details of how the ebook marketplace has evolved, it is worth considering the major market players and how they relate to one another. This is key to understanding why the publisher-platform partnership has been so effective in structuring the ebook market in a way that is different from the physical book market.

The Physical Book Market

One simplified way to imagine the physical book market is as having two poles. One pole is publishers. The other is purchasers.

The publishers work with authors to bring individual titles to market. It is the role of the publishers to manage the economic life of the book. Most authors hand over control of the economic life of the book – marketing, design, manufacturing, distribution – to the publishers.

The purchasers take a book out of the publisher’s control and into the world. The purchaser may be an institutional purchaser, like a library, or an individual reader who wants to own the book themselves. The purchaser may also provide others access to the books, such as public school students or library patrons. Whatever form they take, once the purchaser has purchased the book, the book leaves the control of the publisher and becomes the property of the purchaser.

Of course, bookstores (and equivalent intermediaries in the institutional context) are also an important part of this equation. They serve as a bridge between publishers and purchasers. Bookstores order books from publishers, market them to purchasers, and ultimately deliver them into the hands of purchasers.

However, bookstores have only a transitory moment of control over the books. When they order books, they either sell them to purchasers or return them to publishers. The bookstores have no direct control over how publishers decide to create individual titles, nor do they have the ability to control how purchasers use the books, once they are purchased. In fact, all of the flows in the physical book market are essentially one way – from publishers, to bookstores, to purchasers.

The Ebook Market and the Publisher-Platform Partnership

The ebook market is different in some key ways. One important difference is that the flows in the ebook market do not move in just one direction. Swapping ebook platforms for bookstores creates a long-term connection among everyone involved in the transaction. Unlike distributors and bookstores, ebook platforms have an ongoing relationship with ebooks that extends well beyond the point of purchase. Not only do ebook platforms market and sell the books – they are where purchasers go to manage and read them. This ongoing relationship with the ebook is fundamentally different from the temporary transactional nature bookstores play in the physical book market. Instead of the bipolar publisher-purchaser physical book market, the ebooks market involves publishers, purchasers, and platforms. These nodes are in constant dialogue with each other, well past the point of purchase.

By maintaining contact with the ebook and the purchaser in perpetuity, platforms have the opportunity to generate new types of data about purchasers and their habits. Publishers and platforms team up to exercise levels of control over purchasers and copies of ebooks in ways that are impossible in the physical book market.

Like all partnerships, the publisher-platform partnership encompasses distinct incentives that are often – but not always – aligned. When publishers and platforms coordinate, they can shape the market in their favor by limiting traditional rights of purchasers.

Publishers and platforms share incentives to increase control over how ebooks are used, especially at the expense of the purchasers. Both can also benefit from accessing reader data, although, as discussed in more detail below, the nature of the benefits differs somewhat. Publishers and platforms also have an interest in preventing purchaser behavior that they disapprove of. Sometimes, that behavior is illegal behavior, such as large-scale pirating of ebooks. Other times, that behavior is simply behavior that the publishers and platforms see as contrary to their own interests, such as lending an ebook to a friend.

There are also times when the publishers’ and platforms’ interests do not align. Platforms have clear incentives to lock purchasers into their platform, and monetizing user data is core to their business models. Publishers have incentives to sell more books, which could potentially benefit from a diversity of platforms competing with each other for different types of purchasers. Publishers may also be less effective than platforms at fully exploiting user data, and less interested in doing so.

While these differences are important, the aligned interests of the publisher-platform partnership have been powerful enough to create an ebook market that is very different from the physical book market. This paper focuses on a number of dynamics that flow from the partnership, and changes that those dynamics create.

From Physical Book Sales to Ebook Licensing – An Opportunity for Publishers to Achieve Long-Held Goals

The markets for ebooks and physical books are very different. Some of those differences are obvious – physical books are easy to measure and identify as individual objects, while ebooks are more fluid and ephemeral as data that can be stored, transmitted, and accessed in myriad ways. Other differences emerge only when readers attempt to treat ebooks like physical books, and in doing so run into legal and technological restrictions.

As we will explain below, physical books are governed by rules of property and ownership that can be traced back centuries. These rules give people who own physical books clear rights over how they can use those books. However, the rules that govern ebooks are much less clear.

From Owning to ‘Purchasing’ (With Licenses and Tracking)

For centuries, the law has always balanced the right of an author or publisher to control their intellectual property with the right of a book purchaser to control the copy they buy. Every sale of a physical book involves an exchange. Purchasers pay money to the publisher. In return, publishers give up their ownership over that copy of the book being sold. The purchaser owns their copy of the book and can treat it as their private property, not worrying what the publisher might want.

Over the years, publishers have made many attempts to avoid this exchange, controlling both the purchase price and what purchasers do with the books after they are sold. For example, in the early 1900s, publishers tried to control resale prices on the books people bought from retailers by stamping mandatory resale prices on a book’s front page. (That attempt was rejected by the US Supreme Court). Publishers also tried to limit where people could resell books they bought, in one case claiming that a book sold in Thailand couldn’t be resold in the US. (That attempt was also rejected by the US Supreme Court, in 2013). These attempts failed because the publisher’s copyright does not give them absolute control of a book in perpetuity; the copyright system is a balance between publishers and purchasers. If publishers want the benefits of the copyright system, they also have to accept the limits it imposes on their power.

Publishers do not get to tell purchasers what they can do with physical books, because of a longstanding principle in copyright law called “exhaustion,” also known as “the First Sale Doctrine.” This rule says that as soon as a copyright holder parts with a copy of their work – whether through a sale, a donation, or even by throwing copies in a trash bin – they no longer have any claim of control over that copy. Instead, whomever comes into lawful possession of that copy now has all of the “incidents of ownership” that come with any other form of personal property. This rule is not limited to physical objects that are protected by copyright. It protects anyone who purchases any sort of physical object. In the same way that a car company cannot shut down independent used car lots and toaster companies cannot police the prices of used toasters at thrift stores, publishers cannot claim control over the copies of books we lawfully own.

Copyright law provides incentives for publishers to help produce books, periodicals, and magazines. It also supports institutions such as libraries and archives that work to preserve those works after they are sold and ensure long-lasting access.

This rule exists for many reasons – respect for personal property, market efficiency, privacy, and preservation chief among them. Copyright law provides incentives for publishers to help produce books, periodicals, and magazines. It also supports institutions such as libraries and archives that work to preserve those works after they are sold and ensure long-lasting access. For physical books, all of this happens seamlessly every day because of the First Sale Doctrine.

The advent of digital books has reinvigorated this long-running battle over post-exchange uses, with publishers claiming that they have the right to charge money for an ebook and decide what happens to that digital copy after money has changed hands.

Publishers’ Belief That Secondary Markets and Library Lending Undermine Profits

For decades, publishers have expressed displeasure over the ways the First Sale Doctrine has prevented them from exercising control over books once they were sold to customers. These critiques often target the secondary market, where used books are sold at prices, times, and places beyond publishers’ control by sellers with no obligations to report those sales back to the original publishers. After several failed attempts to challenge the First Sale Doctrine in the context of the physical book market, many of the publishers’ concerns seem now to be manifesting within the rules of ebook distribution platforms and licenses.

Economic studies paint a complex picture of the interplay among used book markets, new book sales, publisher profits, and overall consumer welfare for physical books. In some cases, the used book market may increase publisher profits because people are willing to pay a higher price for a new book they know they can sell later. In other cases, a lower-priced used copy of a book could steer a purchaser away from paying full price for a new copy. However, even in the case of consumer preferences for cheaper used copies, or borrowing books from libraries instead of purchasing them, it is unclear how often used book purchases or library loans are actual substitutes for new-book buying. Participants who work with libraries at Big Five publishing houses did recognize that libraries are sites of discovery that lead to book sales. There are also other social benefits of secondary markets, such as privacy and preservation, that can impact the analysis.

Regardless of the actual impact that a robust secondary market may have on an individual publisher’s sales and profits, for well over a century publishers have demonstrated that they believe the secondary market acts to undercut prices, sales, and profits in the primary book market.

Regardless of the actual impact that a robust secondary market may have on an individual publisher’s sales and profits, for well over a century publishers have demonstrated that they believe the secondary market acts to undercut prices, sales, and profits in the primary book market. This belief that the secondary market is harming their business has driven publishers’ behavior since at least the start of the 20th century. That publisher wariness of the uncontrolled use of books is key to understanding publisher motivations as the ebook market has evolved.

Bobbs-Merrill Company v. Straus, the 1908 Supreme Court case that established the First Sale Doctrine in United States common law, flowed directly from a publisher’s attempt to control the minimum price that the novel The Castaway could be sold for on the secondary market. In that case, The Castaway’s publisher, the Bobbs-Merrill Company, added a notice to each copy of the book that no dealer was “authorized” to sell the book for less than $1. When the Straus brothers purchased a number of copies and decided to sell them for less than $1, Bobbs-Merrill sued to enforce its $1 price floor. Ultimately, the US Supreme Court ruled that Straus did not need “authorization” from Bobbs-Merrill (or anyone else) to sell the books at whatever price they chose. Once Bobbs-Merrill sold the books, their preferences for how the books were used did not matter.

This hostility toward the secondary market continued even after the Bobb-Merrill decision tamped down publishers’ legal power to limit it. In 1931, a group of book publishers hired PR pioneer Edward Bernays – the “father of spin” – to fight against used “dollar books” and the general practice of book lending. Bernays decided to run a contest to “look for a pejorative word for the book borrower, the wretch who raised hell with book sales and deprived authors of earned royalties.” The contest generated an impressive list of verbal assaults on those who would dare to lend or receive a book without paying for the privilege to do so. Suggested names included “book weevil,” “bookbum,” “culture vulture,” “book-bummer,” and “book buzzard.”

In the introduction to C. E. Ferguson’s 1969 revised-edition economics textbook, he genially declared that “[s]ince everyone knows the basic reason for a revised edition is to kill off the existing used book market, it would be idle to suggest otherwise.” Similarly, in 1974, it was reported that “[p]ublisher’s representatives have no doubt” second-hand copies of textbooks acted as “a drain on publishers’ and authors’ profits.”

Publishers demonstrated their antipathy toward the secondary market again when Amazon launched its secondary book market. In 2002, Association of American Publishers (AAP) President Patricia Schroeder told The New York Times: “I wring my hands, pound my desk and say, ‘Aargh,’” because publishers could not legally prevent Amazon from immediately offering used books for sale (at a price outside of the publishers’ control), once those books entered the market. Schroeder pleads for more control over the secondary market: “‘We asked could we at least talk about when something could become available as a used book? Could we maybe wait three months after the book was published?”

Amazon founder Jeff Bezos responded to the complaints by reminding publishers about the First Sale Doctrine: “When someone buys a book, they are also buying the right to resell that book, to loan it out, or to even give it away if they want. Everyone understands this.” In short, Bezos said tough luck – ownership confers certain rights, including the right to resell.

Having no luck in judicial courts or the courts of public opinion when it came to controlling the secondary market for physical books, publishers saw a new opportunity as they began to offer ebooks to the public. They saw ebook licenses – not sales – as a way to retain control over digital books by preventing secondary markets from developing. Platforms like Amazon, and other secondhand booksellers, cannot resell ebooks they or their users do not own. Borrowing from the software industry’s playbook, publishers adopted the practice of licensing content from ebooks instead of selling ebooks outright. By licensing ebooks, publishers could claim they avoid transferring digital ownership, which would create first sale rights for purchasers. A research study participant formerly at a Big Five publishing house explained the practical effect of this approach: “With a license, you can’t give it away. You can’t sell it. You can use it. And you can see why you have to do that. Right? Because if we sold you the digital file, you could resell it to whoever you want at whatever price you wanted. And there’s no limit.”

Although concerns about the secondary market usually are discussed in the context of used book sales, participants in the publishing industry also expressed wariness about book owners lending their books to friends. As a former executive at a major publishing house noted, one benefit of a license was that once you pay for an ebook, “you can’t give it away.”

Decades of publisher hostility does not prove that the secondary market actively harms the interests of publishers or authors. While there are publishing employees who do not seem to believe the resale of books is an ongoing concern to publishers, because they are resold through bookstores and similar venues, there is still evidence of a pervasive belief within the publishing industry that the ability of book purchasers to resell their books outside of publisher control is a problem that needs to be addressed. This belief may help explain the publishing industry’s enthusiasm for digital distribution models that eliminate first sale and the independent secondary market entirely.

Fear, Loathing, and Imitation of the Music Industry’s Digital Marketplace

The vendors and publishing workers interviewed for this study consistently cited the history of the music industry’s trials, tribulations, and ultimate transition to digital as a cautionary tale that helps explain why publishers adamantly prefer to structure all ebook purchases as licenses instead of sales. Publishers and booksellers saw music industry empires crumble in the early 2000s as open digital music formats such as MP3 became popular. Companies like Sam Goody and Tower Records shuttered their physical storefronts as people started downloading music from unauthorized sources like Napster, Kazaa, Aimster, Grokster, and LimeWire instead of buying physical copies.

For most study participants, the music industry acted as a powerful negative example of what could happen during a digital transition. It was cited by the publishers as a foundation of the current ebook market in proceedings against the Internet Archive’s Controlled Digital Lending service. “Mindful of the havoc wrought on the music industry by piracy and the uncontrolled appropriation of digital content, the Publishers developed a sustainable market for affordable ebooks with critical controls, including limiting commercial ebooks to one user account.”

Later, a senior vice president of a Hachette imprint reiterated these concerns in the same proceeding. “Many authors (and some publishers) were initially wary of entering the ebook market, in large part because it emerged in the wake of the destruction that websites like Napster caused to the music industry.”

Chantal Restivo-Alessi, the chief digital officer of HarperCollins, serves as a personal bridge between the two industries. “The ebook was developed in the shadow of rampant piracy in the music industry in the late 1990s and early 2000s. Concerns about the widespread unauthorized distribution of digital copies were front of mind when the company first began to evaluate the ebook format decades ago and have remained in the forefront of my thoughts once I joined the company in 2012. I know this history first-hand because I worked in the record industry from 1996 to 2007.”

While it is not entirely clear how this history has influenced individual decision-making, its pervasiveness in discussions around ebooks is noteworthy in and of itself. “Books are a thin-margin business,” a former executive at a Big Five publisher said. “So if you have a drop of say, 15% of people who go into bookstores, they will not be able to make it through. And so you would have what happened to music stores happen to bookstores, and nobody in publishing wants to see that.”

One study participant, who is an executive with a book trade association, believes publishers misinterpreted how the music industry was ravaged by these changes.

“There’s some aspects of what happened with music that applies to journal publishing and there are some types of books that might emulate what’s happening to journal publishing, but I think overall, what happened with music was that people didn’t want the bundle. They didn’t want the album. Most people, they wanted a song, or they wanted a couple of songs. And there was no market to create those songs until Napster came along. And Napster did it in a way that violated copyright and got it shut down but it opened the barn door to oh, we can sell songs and Apple stepped in, particularly among other [technology companies], and said, ‘Alright, we can help you, the label, sell more songs.’”

In the early 2000s, Amazon experimented with the idea of selling a few pages of a book digitally. As