Are Bookstores and Libraries Doomed by Digitization? Posner

The great economist Joseph Schumpeter coined the term “creative destruction” to describe the process by which innovation (which might be technological or organizational—the latter illustrated by the invention of the supermarket) promotes economic growth and welfare but at the cost of wiping out existing economic practices or institutions. He thought the process of creative destruction a more important factor in promoting economic welfare than reducing the costs of existing production or improving existing products. 

We are seeing creative destruction at work in the information sector because of the digital revolution, which among its other effects has had destructive effects on bookstores and libraries, particularly college and university libraries, now largely unused by students. Amazon is basically a warehousing, order-fulfilling, and delivery agency for books and other consumer products, but the secret of its extraordinary success is that it saves the consumer the bother of going to a bookstore, where he might be quite likely not to find what he’s looking for. The bookstore retains only one advantage: browsing is easier in a bookstore than online, although that advantage will diminish as artificial intelligence, which enables Amazon to recommend books to a shopper that the particular shopper might be interested in buying, improves, as it is bound to do. 

Although Amazon has been devastating for the bookstore industry as a whole, as illustrated by the bankruptcy of Borders, it actually benefits bookstores that specialize in selling out of print books, by marketing the books sold by those bookstores to its customers. But such bookstores account for only a small volume of total book sales. 

The Amazon business model, though revolutionary, is visibly in the line of descent from mail-order businesses such as Sears Roebuck. It is a system for the efficient distribution of existiing products. The e-book is a new product in one sense, though in another sense it is merely a new channel for distributing the content of books. It is not yet apparent what advantages e-books have over print books except for travelers, other than easier ordering and faster delivery even of printed books from Amazon. 

Another new product that is also a new channel of distribution is a digitized version of a book that can be read online. This is what has emptied the college and university libraries of their students. Even though copyrighted books are not available in their entirety online, enough such books, along with books that are out of copyright and virtually all academic articles and much other research material as well, are accessible to students online to make a trip to the library unnecessary, except for socializing. 

We should consider the effect of these revolutionary developments on publishers and especially authors, since the latter are the ultimate creators of the consumption value of books. An improvement in distribution reduces the quality-adjusted cost of the product being distributed, and so should benefit the producer, in this case a combination of the author and the publisher. Amazon, however, appears to have monopsonistic power in the book market, enabling it to capture much of the cost saving from improved distribution. The output of books has not increased during the digital revolution, though this may be due largely to the rise of competing media, fostered by the digital revolution—the enormous variety of information and entertainment, unrelated to books, now available online. 

The principal threat that the digital revolution poses to publishers and authors is that or widespread piracy, in violation of copyright law. With the cost of copying and of distributing copied materials having plummeted as a result of the digital revolution, the cost of preventing unauthorized copying and distribution of copied materials has soared. Not that piracy is entirely a bad thing from an author’s or publisher’s perspective, as it is a kind of advertising—like giving away free samples of a new candy or perfume to excite consumer interest. But if extensive, piracy can substantially diminish an author’s earnings. 

The importance of copyright, and hence the negative consequences of piracy for the creation of new works, are, however, often exaggerated. Most of the world’s great literature was written before the first copyright statute, the Statute of Ann, enacted in 1710. Patronage is an age-old method of remunerating authors, alternative to royalties, and continues to be important: creative writers are hired by colleges, paid by foundations, lecture for money, and sometimes license their work for performance in another medium, such as film or television. Academic publication is largely a patronage system; academics are paid to publish (“public or perish”). And much creative writing is done not for money but out of a compulsion to write and to be read. 

Copyright law needs to be adapted to the online revolution in distribution. All the books ever published in the world could be digitized—Google has gone far in that direction—and downloaded at no cost. Instead of copyright fees negotiated between author and publisher and therefore dependent on restricting access to the work (and so Google cannot allow access to entire copyrighted works in its vast digital library except to the limited extent permitted by the doctrine of “fair use” or by negotiation with the owners of the copyrights on those works for a copyright license), there could be a modest uniform fee imposed whenever someone, whether a consumer or an e-book publisher, downloaded a book from the Internet. A modest fee would discourage piracy, since piracy requires some technical sophistication and thus is not costless. Printed books would still be bought because most people do not want to read books just online or in an e-book. 

The standard analysis of the optimal scope of copyright protection holds that it requires a balancing between access (to copyright works) and the incentive to create the works in the first place. But the analysis is incomplete. Access, in a broad sense that allows for copying and not just reading, promotes creativity, because most creative works build on previous works, often improving them by modifications that may be insufficient to avoid liability for copyright infringement. (Think of how Milton’s Paradise Lost builds on the Adam and Eve story in Genesis.) Obtaining permission to incorporate copyrighted material in a new work can be time consuming, and in the end frustrated by bilateral monopoly problems. And, because copyright terms are now so long (normally 75 years from the death of the author, which may be a century or more after the work was created), it is sometimes impossible to obtain permission to reprint a copyrighted work, simply because the current owner of the copyright cannot be identified. 

So, were Google permitted to provide complete online access to all the world’s books, in their entirety, the gain in access might more than offset the loss in authors’ royalties.

Comments

[Mitchell K.]

Amazon certainly has a lot to offer and it contributed to Borders bookstores going out of business, but government policy and inaction has needlessly accelerated the decline of brick-and-mortar bookstores and other businesses like Best Buy (which is scrambling to adapt) and the now-bankrupt Circuit City.

Borders' customers paid sales tax on their purchases while Amazon customers generally do not. The federal government erred during the Bush administration when it declined to create a system for charging sales taxes (and distributing the revenue to the states) on Amazon and other online purchases. The disparity in post-tax pricing acts as a subsidy to Amazon, Newegg, and other companies.

Posner makes the point that Amazon's success is largely based on how "it saves the consumer the bother of going to a bookstore, where he might be quite likely not to find what he’s looking for." True, but it is not much more troublesome for customers to contact a bookstore so that they can order the items they want. Bookstores typically do not charge extra for shipping ordered items although customers must make the trip to the store to complete their transaction.

It is not economically efficient to disadvantage brick-and-mortar stores for taking advantage of bulk delivery and economies of scale. Yet some argue that not having a sales tax on Amazon purchases is fine because Amazon usually charges for shipping. However, the convenience of having items delivered to one's home is an additional service for which consumers are willing to pay an additional fee without a tax-preferred status. After all, we do not exempt the delivery of pizza or Valentine grams from sales taxes nor should we (especially if the Valentine gram is particularly obnoxious).

[NEH]

Is electronic digitization the end of old style "storage and data retrival"? I think not. Within the recording industry we have seen the movement from "live" performances to recordings such as "Edison cylinders", to LP's, to Magnetic tape, to Eight Tracks, to Cassettes, to CD's, etc. and this technological change has spawned new developemnts in "playback" equipment, but has not fundamentally changed "storage and retrieval". This applies to all sorts of media across the board. Business and Industry has adapted to the changes in the past. Why can't it do so now?

At the University I attended, where there are over five million books in storage, both onsite and offsite, in the various Libraries around campus, the statitics indicate currently, only eight percent of the books are in circulation at any given time. Why such a low number? Well, the rise of electronic media and the familiarity of current students with its use. A survey was conducted of the student population about what would make the various Libraries more conveint and user friendly? The overwhelming response? "More electrical outlets" and workstations! So one sees that basic "storage and retrival" hasn't changed, but the technology has.

As for Copyright Law, Piracy, and the commecial aspects of the various "Media" that's a whole 'nother Ballgame... ;)

[Doug]

As a law student about 16 or 17 years ago, I had a law review article published wherein I argued that digitization made the current copyright regime unworkable. The problem is that the fixation requirement uses the fixed copy as a proxy for the work itself. That works when there is an appreciable barrier to making new copies. Digitization almost completely removed that barrier.

Fixation on Fixation, Why Imposing Old Copyright on New Technology Will Not Work. http://law.indiana.edu/ilj/volumes/v71/no4/masson.html

[TANSTAAFL]

Posner is thought provoking as always. But academic publishing is a poor example for replacing copyright protection with patronage, for most academic publishing nowadays has any commercial value in the sense that anyone would pay to read it. And, at least for the reasons given, Posner's contention that "copyright law needs to be adapted to the online revolution in distribution" is unpersuasive, as it amounts to a claim that theft and distribution of an author's work somehow grows more defensible as such unsanctioned distribution expands in scope and frequency.

[Terry Bennett]

We uncritically hold an accountant's outlook on IP consumption, because that's how it's been for a long time. Publishers have always paid authors based on copies sold. Imagine how burdensome it was back in the 1920's for ASCAP to visit every jukebox in the country regularly and check the counters to see how many times each song had been played, so they could cut accurate royalty checks to composers and performers. Talk about counting paperclips. Nobody had the creativity to envision a new way to do it. Neither did the phone company - remember paying per call and per minute?

The critical fact underlying Judge Posner's analysis is that copyright is not something that exists in nature. We invented it. We chose it. The Founders made a strategic decision to empower Congress to legislate patent and copyright regimes. They didn't have to do that. They could have left our inventors to self-defend their advances as trade secrets, and they could have said to authors, if you don't want to be quoted, shut up. Instead, the Constitution not only authorizes intellectual property protections, but goes so far as to explcitly state why: "To promote the Progress of Science and useful Arts".

Suppose the integrated circuit had been held as a trade secret. Computers would today be quite expensive, and quite rare. Our choice, to provide knowledgeable individuals an incentive to disclose that knowledge by giving them the temporary right to exclude others, has largely paid off. However, both patent and copyright are in desperate need of reworking. (The current slated changes in patent law are not going to help much at all.) Plenty of inventors today opt to rely on trade secret rather than subject themselves to the unholy patent process.

We may not even have a choice, in the case of copyright. It may simply be impossible, or a Pyrrhic victory, to prevent copying. On the other hand, it is quite easy to count web page hits, and a tiny uniform tax could fund royalties for content authors.

[Jack]

Mitchell the "no sales tax" thing is becoming a problem for states and localities and Amazon and others having to pay shipping does not replace local and state sales taxes.

[Marc Davis]

You might try actually doing some research. University libraries are heavily used these days. It would have been accurate to say "university book collections" are getting less use . . . but when you write "We are seeing creative destruction at work in the information sector because of the digital revolution, which among its other effects has had destructive effects on bookstores and libraries, particularly college and university libraries, now largely unused by students," you totally miss the mark.

[Anne Stuart]

I appreciate the fact that Amazon offers a lesser price for the academic books that I need. If I buy them in hardbound, I'll have to work more hours for it. But I also acknowledge the fact that its making a way for "creative destruction." But I think this sudden change is inevitable.

[Jill Minor]

As a soon-to-be public librarian, I take exception to the undemocratic notion that libraries will inevitably be rendered passé by any per-person, for-fee consumer product, no matter how "convenient." The idea behind the public library is that there ought to be a public information commons where information is held by the general public for the general public, including those who cannot afford ebooks or any other kind of books. Viewed through this lens, the library is no more at risk from being phased out by ebookstores as it was by the growth of superbookstores--unless, of course, the citizenry and their elected officials decide that the citizenry has no business sharing information in common, and everybody can and should buy their own information, or go without.

[Matt Ainslie]

I'm in something of the same boat as Jill, being about to graduate from library school. What I'd like to contribute to this discussion is the fact that this has been a significant topic among librarians for many years. They're smarter and better-informed than the general public, I believe, and they saw the handwriting on the wall some time ago.

What's not clear is what the handwriting says, which is the implication of the rise of digital media. You and Mr. Becker are right that libraries as they have existed are "doomed," but that's not at all to say that they'll cease to exist. I believe that the new cheapness of information will have a typical economic effect: more information will be demanded in response, not less. Certainly the library field is changing rapidly, but I think real live human beings will always be able to add value.

[Jack]

Jill: One bias here seems to be that of our Profs having little enthusiasm for "the commons".

It's interesting to see that aside from the publicly financed commons that folks gather in bookstores like B&N and more enthusiastically in our town a Safeway store sized used bookstore that runs on the BN model with visiting authors and evening entertainment, and of course the millions of coffee bars.

Our library, as many, have "story hour" for kids and other social and socializing events. I hope, and expect we'll preserve something of that cultural tradition. Good luck in your profession!

[Jack]

ie..... the very digital "connected" like to be so in the "quad" or community of others.

[NEH]

Jack, As for tax losses on "digital sales", some States are now rewriting their tax code requiring "digital marketing and sales" from outside of the State, County or Country to collect the required taxes and remit them to the State and County where the sales were made. This is driving the "digital marketer" crazy and they are trying to push back. Amazon is one of the big ones screaming bloody murder about this "unwarranted interference" in their business model. This "free ride" may explain part of their lower costs... ;)

[NEH]

!NEWS FLASH! The Justice Department has just issued a warning to Apple, Simon & Schuster, Hachette Books, Penguin, Macmillan and Harper Collins that it will bring suit against them for collusion, price fixing and restraint of trade for their scheme to control e-books. Not only their pricing, but distribution as well. Perhaps there's more to Amazon's "Low Price Guarantee" than meets the eye.

Things are certainly getting "Curiouser and Curiouser"...

[Jack]

NEH this goofy software stole my reply!

Anyway as a one time computer guy, assuming the taxing takes place at the buyer's home it's quite simple to design a tax table program.

The seller could choose between competing outfits and enter the "site" with buyer's zip code and his own data. That point could easily assess the taxes owed and charge them back to the seller. The $$ split could take place immediately on payment.

But perhaps you're suggest a state like CA might want to tax at the door of the seller? Well....... we've been doing mail-order for about a century and can surely (Hahah maybe?) agree on a single protocol.

Next? Mega-sellers like Amazon venue shopping for low sales tax states if it's to be pay at the seller's door.

[NEH]

Jack, Shopping for "Tax Incentives and other Perks"? This has been going on in the Corp. world for years. See the Rustbelt and the new Mills and Factories all over the South and Southwest or overseas. The old Union Tank Car Co. shut down its operation in Indiana recently and headed south to Alabama or is it Mississippi. As for Amazon, they are currently in a fight with the state of Texas over collecting sales taxes at their main distribution warehouse in the state. Amazon's response? We're going to shutdown the Distrbution Center and take all the jobs to a more "Business Friendly" State.

Dare we call it, "Blackmail"... ;)

[Jack]

NEH. Blackmail. but in this case is Texas or Amazon the culprit?

My thoughts run to retail sales taxes being a local tax. Even if I go in an special order a case of wine or pair of shoes I'll pay whatever local tax is due. If tech takes the bricks away isn't the store them my doorstep or mailbox?

And Texas? Is there reason for them to scoop up retail sales taxes from all over the nation? the world? Surely they benefit from property taxes on Amazon's huge facility and likely a business property tax, and though TX is a bit too silly to have a personal income tax, they likely have a gross biz tax. Or? are they expecting a sales tax in addition to that of the buyer's locality?

Should internet companies continue to get a sales tax holiday because the 'net is new and "special?" or that they have to pay or pass on shipping costs? I'd think not, the local retailer too pays freight in addition to store costs and assistance from clerks.

Lastly, Amazon and Walmart are already very efficient at pumping profits away from the locale and leaving behind either nothing or a lot of underpaid clerks who require a host of subsidies to make up the difference.

BTW.......... let's compare the "poor" internet to that of radio and TV before. Until cable each was entirely paid for by advertising and gaining access to the consumer. Cable has turned into a double dipper with both fees and advertising.

So comes now the internet with Google, Facebook and others gleaning billions while we pay more for crummier broadband than does many other nations. Ha! Google "gives" us a search engine, of which there are dozens, while noting our every move and makes a bundle from both selling to advertisers and advertising. Looks like our grandparents were a lot smarter!

[Zaney l. Cook]

I am a book geek, pages and all, that I will miss. Is it creative destruction or progression and someones melancholy over losing an era or bygone past time of turning paper pages. The history, suspense, thrills, understanding, joys and tears, that still can come about but now in an electronic age of ebook readers. Running a finger over dusty books in libraries of life and loves, laws made. Personally, if people weren't trying so hard to stymie other religions , their peoples and works, that are outside of the Judeo-Christiandom of America, publishing companies, print people, artists and illustrators would not have been slung or sling shot into the 21st century, life would have eased such people into progression and or the future. Creative destruction is not the electronic age but the peoples of America who want to bar opinions of other peoples who should have an opinion to keep this nation with the times if not better as a representation of all peoples, beliefs, and politics.
This is not a time to be crestfallen but a time to plan for the future and trouble shoot problems like copy right laws and infringement rights or making sure company sights and products are by the people that are from those companies. Think about it,Christians and Catholics and your Agnostics what all these other people could contribute to the history of literature in America for the 21st Century. I am soo looking forward to it.

[Zaney l. Cook]

To add, a different line of thought, no slight to the old Guard, and those who have first additions and libraries to match. Perhaps , it will be difficult for men for this century, now your library can be in the palm of your hand. This will lend room for amazing decorative ideas to take the old room up where usually books go for the contemporary set. Men will just have to come up with better ideas and excuses for large men's rooms. Libraries and dens may be different in the new era. Consider it a challenge. Though I can see why, at the moment locking myself in a library or large den and getting lost in books and ideas sounds so enticing. Tis a new hope in ideas for the new century.

[michael riikola]

The problem with the so-called "modest fee" approach is that those most in need of the information (students) are least able to pay even the most "modest" fee. Thus Posner's suggested system will have the maximum negative effect on those most deserving of access to the information (motivated students).