Why a Used Ebook Ecosystem Makes Sense

In an earlier post I mentioned my plans to speak with ReDigi, the company making waves by helping consumers resell their digital music. One day consumers will also be able to resell their ebooks via ReDigi and that has some publishers concerned. What's a "used ebook" anyway and should consumers be allowed to resell them? I felt the answer to the last part of that question was "yes" before I spoke with ReDigi founder John Ossenmacher but our conversation convinced me even more that reselling ebooks will be a good thing for everyone.

I should first mention that at O'Reilly we already allow you to resell the ebooks you buy directly from us. Here's a link to the terms on our website.

If you're not a fan of consumers reselling their ebooks I ask you to consider two key points John made in our conversation: authentication and revenue. One of the first steps you take after joining ReDigi is to let the service scan your music collection so they can determine what's legit and what's not. That's right, ReDigi is able to analyze your music collection to determine which songs you bought from services like iTunes vs. the songs you illegally downloaded from a torrent site. RedDigi only lets you resell songs they've identified as legitimate purchases. John tells me their ebook service will have the same forensic capabilities. That means pirated books cannot be resold through ReDigi. Better yet, the ReDigi service also puts a little "make me legal" reminder next to every illegal file it finds in a customer's collection. Click on that reminder and you'll be able to pay for each of those pirated files to make them legit. How cool is that?

Still not convinced it's a viable service? What if I told you the IP owner also gets a cut of the resale transaction? It's true. When ReDigi launches their ebook reselling platform publishers (and therefore authors) will get part of the resulting revenue stream. Good luck making that happen at a used print book shop!

Seeing what ReDigi is up to makes me even more excited about the future of reselling digital content. I also wonder if consumers will tolerate higher ebook prices if they know they can resell them just like they can resell a print book.

What do you think? Is ReDigi on to something here? Could a service like this help the industry avoid the race to zero pricing?

Comments

[Mike]

100% agree. A used market for eBooks (and all digital media) is the future. It only makes sense from both a publisher and consumer perspective. I am very much looking forward to this implementation in the industry.

[Joe Wikert]

On a related note, I figure this is another example of how a solution like ReDigi could be applied (see link below). You can't take all that digital content with you, so why not resell it (or let your estate do so)?

http://www.marketwatch.com/story/who-inherits-your-itunes-library-2012-08-23

[Brad]

I think ReDigi is totally on to something. I am an avid reader and will only purchase booked used. Since there is currently no way to buy used ebooks I have refused to buy an ebook reader due to price and the inability to get something back once I've finished the book. Once a service like ReDigi offers a way to buy used ebooks and sell ebooks I have finished reading I will head straight to the store to pick up a reader!

[Jim Fallone]

I think this is one of those ideas that is great when discussed as theory in general terms but in practice much more complicated. Content in digital form does not want to act like physical product. How do you own sound from speakers or light from a screen? It's a Pandora's Box that once opened can't be closed.

If the First Sale Doctrine applies to digital files of books and music then logic dictates it should apply to movies as well. There is no difference anymore in downloading the movie Hunger Games to my TV for 8.99 or buying it as a DVD from Amazon for the same price. If I download an on demand movie from my cable company I should be able to resell it. The argument carries over into the rental market as well. I used to share videos I rented from blockbuster with my neighbor before I returned them. If I can resell a digital file I should be able to reloan a rented movie from Comcast as long as it is within the 24 period I have access to it.

The second aspect that is concerning is how this impacts publisher revenue. A majority of ebook sales currently are in popular and genre fiction. The Hunger Games digital sales have help Scholastic offset Harry Potter drop off immensely. 50 Shades of Gray's sales can only be described as massively viral. The internet is instant. The minute a book is sold a used book can now be competing on the market at Amazon right along side it. I don't think either publisher would be happy - let alone encourage - a sizable transfer of those continuing sales of new releases to a resale market robbing them of sales and driving prices down. Publishers are still trying to navigate shifting revenue models and adding a new competitors to siphon sales away would be less than stabilizing. Authors getting a share of the used sale doesn't really help trade publishers nor really trade authors either. Most of author revenue for trade books are derived from advances rather than transaction royalties. And even then any royalties paid also come at a lower rate due to the lower used price. I would be surprised if an original owner would get the equivalent of a wholesale price for their used book(I'm sure Ingram would too). The reality is probably somewhere in the .75 to 1.25 for a $8.99 list priced new release when the transaction is all said and done, less for older backlist.

The last concern is the image of a secondary market based on a fraternal community not unlike a co-op of readers. Unfortunately the internet rarely works like this in commerce. Allowing for a resale market just makes it easier to sell your book back to Amazon and gives Amazon further control of the book distribution pipeline. What would be easier than finishing your Kindle book and pushing a button on the last page that says return and a credit automatically appears in your account? The reality though is that just like with print books there will be a massive amount of books that will flood back into the resale market that won't have any demand whatsoever. Only certain kinds of books will have market value. Unlike print books the internet makes it much easier to "farm" used books. A smart retailer would make it very easy for you to see if your ebook has resale value targeting key categories like Harlequin Romances for example. A Volume Digital Used Book Aggregator could create a market based on massive bundles of used Harlequin Romances such as 10 Harlequins for $3.00. These bundles would then get rebought back again based on the $3.00 price and resold again and again flooding the market and undercutting Harlequin's romance sales.

ReDigi's idea is not bad but only works if they are the only reseller but once you create the market other models you don't expect crop up. Of course with retailers instead of publishers in control of DRM for books you would have to convince Barnes & Noble, Amazon, and Apple to let ReDigi resell Nook, Kindle, or iBook ebooks. Instead each retailer more than likely would want to lock in resale themselves and lock out 3rd party competitors encouraging more rigorous DRM rather than more open and device agnostic DRM.

[John Ossenmacher]

I really appreciate the dialogue that is happening about ReDigi. It is great to see the outpouring of support for the resale market and I welcome the opportunity to respond to concerns and issues that people have.

WHY A RESALE MARKET IS FAIR AND LEGAL

Music has gone from albums to 8 tracks to cassettes to CD’s and now MP3’s. Books are now traveling on the same journey; hardcover to paperback and now eBooks. It is the same product; same author, same story – just a different format! More importantly, the consumers are paying the same price for the book as if it were at the local bookstore. Just because the book is in a different format does not mean consumer’s rights to resell should be suspended. Why are all of the other formats allowed to be resold but people want to challenge the resale of digital formats and take away consumer rights? Downloading a movie as a rental to watch on Comcast would not qualify as a re-sellable digital good. It is a rental not a purchase – and they paid a smaller fee for the rental period rather than the full fee to own the product and have it permanently. Very different circumstances that all consumers understand!

REDIGI TECHNOLOGY

ReDigi allows for the resale of music, books, games and yes we could decide to resell movies, all of which have been legally purchased. Our company has invested a significant amount of resources and money in building a technical system and portfolio of intellectual property that will protect several of the key aspects that facilitate these transactions in a lawful manner. Our technology verifies that the product was legally purchased before it is allowed to be resold on our site. The ReDigi process verifies the user’s file as “eligible” for resale, we also verify the content and many other aspects of the file to be sure it is original and intact. Technology is paramount to this marketplace and we believe it will be near impossible for other retailers to open a marketplace like ours without infringing on ours. We will enforce our rights in this area, which we believe to be significant, thereby keeping structure in the secondary marketplace. So publishers have the opportunity to take advantage of all of the significant benefits that the secondary market has to offer, revenue, data, loyalty, etc. by helping developing an environment that works for the consumer, the author and themselves.

WHY REDIGI HELPS THE INDUSTRY

In the ReDigi system the proceeds from the Seller/Consumer are kept in the system! This is a key point for publishers! It means the money that is generated from the resale of an eBook can only be used to buy other items in the digital marketplace.
It encourages readers to look for their next “read”. It encourages readers to try that new author, to not worry so much about the high prices of new eBooks because their product has trade in value, they can recycle and keep their money working for them by purchasing more books. Credits in an account are hard for most consumers to sit on. They burn a hole in your pocket – so to speak. It is like free money – the gift card effect! Would you be more or less likely to buy a new release ebook at $12.99 if you had the $100.00 credit in your account? What about if you had to charge it to your charge card? How about 2 ebooks? 3 ebooks? I think you can see where this is going, a viable used ebook market, properly structured, adds ongoing wealth and value to the new ebook market. In all of our studies 100% of those involved would spend at least three times more on books if they knew the books they were buying had a residual or resale value, THREE TIMES MORE, that is significant, that is expansion, that is good for EVERYONE in the ecosystem.

PUBLISHERS REVENUE

Which leads right into your concern about impacting a publisher’s revenue. Do you know how small a percent of book readers are ebook readers compared to the total? Very small. Avid readers are stuggling to convert to Readers/eBooks due to the high prices of the device and the cost of the eBooks. The beautiful thing about consumers is they find a way to get what they want and they are getting the books they want to read now – they just get them used book stores, ebay, libraries, amazon used marketplace, from friends, swap meets and flea markets, etc. What about the publishers profits in these circumstances? They get NOTHING and this is happening all day long!!! What a massive loss of revenue to publishers and authors! WOW, think of the opportunity!

As more and more people convert to Readers/eBooks, ReDigi will help tremendously in this area, the publishers finally have an opportunity to capture all consumers and a piece of every transaction! Finally. Why wouldn’t they want to embrace this new fantastic technology?

AUTHORS AND ADVANCES

Your point about Authors and advances, they finally get a cut, a chance to participate in the used marketplace that is thriving today, but they currently receive NOTHING. Wouldn’t it be great to stimulate the industry and creativity with on going payments to Authors and Publishers similar to how Actors and Actresses get ongoing syndication payments, we think so!

I could go on about the data and other benefits to publishers but maybe another time. Again, thank you for your positive comments and allowing me a chance to clarify some key areas. - John Ossenmacher, Founder & CEO, ReDigi Inc.

[Jim Fallone]

From a publisher's perspective I would be concerned about fundamental things about a secondary market like price devaluation. Since there is no degradation of a digital file and no difference between a previously owned ebook and new one why should a used ebook be cheaper than a new one? And if they are identical why should a publisher let a third party hijack their content into a walled ecosystem that sells product identical to theirs but at a fraction of the price, after all publishers were willing to run afoul of the Dept of Justice to avoid further lowering of retails. Hell, they are still not sure about libraries.

Unlike music where radio and private use recording were already part of the ecosystem, publishing has not had time to incorporate this type of content devaluation into its business model. Saying it’s just like Half Price Books or a flea market is not really true. There are inhibitors to a used book market that keep it from impacting the revenue engines like Harry Potter, Hunger Games, or 50 Shades of Grey. And yes Amazon sells used books already in its marketplace but again there is a understood physical difference between a used book and a new one it even takes longer to get delivered. These things justify the value difference. The question of condition still make a new book more desirable. A digital file has none of that to differentiate new or used.

In this regard it's just hard not to see a secondary "used" ebook market as bypassing the publisher and wholesaler and selling the exact same code that allows an ereader to display light and dark pixels but at a fraction of the legitimate retail price. There just is no difference between a new or used ebook. The fact that it is "used" is a fiction. I don't deny that this is a great opportunity for consumers but just not so much for publishers.

And in terms of author’s royalties, they are already syndication payments. With ebooks like regular books once the advance is earned out they get paid for each book sold. With ebooks right now they are paid based on the full price.

I think the ReDigi verification tools are great as a service provided to the original content owners and producers for a fee but don't think a retail ebook environment that completely bypasses the publisher/wholesaler supply chain and directly competes with their retailers is good for the book trade. For it to work for publishers I think they would want to exclude books from the program until they give the O.K. to allow for consumer sales to be accepted much like remaindering a print book.