An American Editor

November 19, 2012

Why is the Book Market Different from the Art Market?

The United States Supreme Court recently heard oral argument in Wiley vs. Kirtsaeng, a copyright case that deals with first resale principles. The gist of the case is this: Kirtsaeng bought textbooks in developing countries where the books sell for less than in the United States and brought them to the United States for resale. (Sounds like the pharmaceutical scene here in the United States: The same drug sells for multiple times more in the United States than in any other country in the world so U.S. citizens get the privilege of subsidizing pharmaceutical sales to other countries. The same is often true in the textbook industry.)

Wiley sued Kirtsaeng for copyright infringement and won; Kirtsaeng has appealed. Kirtsaeng’s defense was primarily the first-sale doctrine, which allows owners to resell, lend out, or give away copyrighted goods without interference. This doctrine is a prime reason why every ebook comes with terms of sale that state that what you are “buying” is a limited license, unlike with a pbook.

Here’s the problem as I see it: If Wiley wins in the Supreme Court, it will be the death knell of all markets for all goods except the primary market, which is the original transfer from manufacturer/copyright owner to licensee. In other words, we won’t own anything, we will simply be licensees subject to the whims of copyright owners. If we don’t own it, how will we dispose of it?

It has always been assumed that the secondary market for artwork is legitimate. No one has tried to put an end to Sotheby’s auctioning artwork that is still under copyright, which, thanks to Mickey Mouse, seems to be never-ending. It is this secondary market that is the value market. It is the market that lifts art prices (value) across the entire spectrum, in both the primary and secondary markets.

Yet this case could spell the end of such secondary markets except for goods that are outside copyright, which means not in our lifetime for currently produced artwork.

More importantly for artists, publishers, and authors alike, all art — regardless of form — that is still under copyright will plummet in value if capitalism works correctly. Why would anyone pay a handsome price for art that they cannot resell 10 years from now. Copyrighted works will have limited market value because there will be real market.

Isn’t this the fight we are experiencing with ebooks? Publishers cry about how piracy and discounting devalues ebooks, but it is really neither that devalues ebooks; instead it is the licensing scheme that intentionally prevents a secondary market that causes the devaluation.

Of course, the counter to that argument is that ebooks are the fastest growing segment of the book market; yet, it remains a small percentage of overall book sales. It may be the fastest growing but it is not yet the majority of sales.

And there is something deceptive about the “fastest growing” statement. What is not disclosed and what I would like to know is how do sales stack up once you eliminate all ebooks whose sales price is less than, say, $5.99, which is the price below which you rarely see the big publishers price their ebooks, and once you eliminate the ultra bestsellers that are trading on the current value of the author’s brand. In other words, I want to know how ebook sales of midlevel books being sold at $7.99 to $14.99 or higher compare to the sales of their pbook versions. I know I’ll never be given that information, but that is really the information we need to determine how “valuable” consumers consider licensed ebooks.

(It probably would also be worthwhile to eliminate from the equation DRM-free ebooks and ebooks that do not have a pbook version except via print on demand. Both skew the numbers. DRM-free ebooks, although technically licensed, are really viewed by consumers [and probably by many authors] as owned in the pbook sense of owned. eBooks that do not have a trade-style pbook version should be excluded because there is not a comparable option against which to test value.)

I suspect that the book industry’s rejoinder to the art market comparison is that unlike a Monet or Edlund painting, which is a unique creation not massed produced, books are not unique and so the secondary market plays no role in setting value. But that, I think, misconstrues what is the secondary market. The secondary market for books includes the paperback version, the remainder, and the used book markets. Each works, in conjunction with the number printed, to limit the primary market for books, which is the hardcover market. It is hard to charge $100 for the new Stephen King novel when a consumer knows that eventually the book will be available as a mass market paperback for a lot less, as a remainder for less than the paperback price, and in a used bookshop for the remainder price or less.

But if you eliminate some of the secondary market in an attempt to shore up value, I think you will fail with books because they lack uniqueness, the one thing that truly sets the art market apart from the book market. It is hard to claim a high value for a book that is available in the millions (it is similar to lithographs of a Renoir in the art market: the lithograph is significantly less valuable than the original painting because it is a replica, not an original, and because there are multiple copies). In the absence of a secondary market for books, consumers will see even less value in the books.

In the case before the Supreme Court, the market in question is the student market, which is a captive market for publishers. It is a market that traditionally has sustained high pricing but has done so because of a confluence of multiple unique factors, such as a requirement to use a particular book in a course. It isn’t a free market. But any decision the Supreme Court makes is likely to affect the whole book market, not just the student book market. Even though Wiley and its cohorts pooh-pooh the effects of a favorable decision on markets outside the student textbook market, I think it is being done with naiveté.

The end of the secondary market in all goods would mean a devaluing of all goods. Either the first sale doctrine is upheld or invalidated; it would be difficult, if not impossible, to fashion a rule just for the student textbook market. As one Justice wondered, how would we dispose of an automobile we wanted to replace because automobiles have numerous items that are copyrighted. We couldn’t sell that auto in the absence of permission from all copyright holders, a difficult task in the absence of the first sale doctrine.

Wiley and friends may regret this action should the first sale doctrine be abrogated.

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