Tuesday, October 9, 2012

Measuring the Social Benefit from Digitizing the World’s Out-of-Print Books

Rahul Telang, Professor of Information Systems and Management and Michael D. Smith, Professor of Information Technology and Marketing at the Heinz College, Carnegie Mellon University.

The ability to digitize out-of-print books has raised numerous contentious issues like copyright ownership, the market potential of digitized work, and who controls of the resulting revenues. These issues are even more troublesome when the original copyright holder cannot be readily identified.

Throughout this debate the focus has been squarely on the rights of the authors and publishing companies. However, digitization projects can generate tremendous social value (benefits to society at large: publishers, retailers, and consumers). We have been working on a project to estimate the economic value of digitizing out of print books. Our motivation is to provide economic estimates of the potential benefits of digitization to society.

Historically, due to the fixed costs of printing, books have been printed in large print runs, and reprinted as necessary based on expected demand. Once demand dropped below a threshold, the book would go "out of print." In a digital world, while there are fixed costs associated with digitizing the book, they are significantly lower than the print. And once digitized, the cost of producing an additional copy is essentially zero. This allows older books to remain available to the reading public, not to mention the advantages of digital books in terms of searchability, portability on digital devices, and the wide selection and immediate gratification.

To estimate the value of digitization, we matched a sample of out-of-print books to a sample of observationally similar books that were previously out-of-print books but were recently released as eBooks. Using standard techniques in economics and statistics, we matched the books in the two samples to infer potential sales and associated societal benefits of digitizing out of print books.

We find that the value associated with each individual book is, as expected, relatively small. A typical out of print book can expect about 1.5 sales ($12 revenue) per week. In a “print world,” such small profits would render them unviable. But since digitization changes the economics of “printing,” we find that aggregating this value across the estimated 2.7 million out of print books produces large potential gains. Even with conservative approach, we find that the total revenue gain is close to $740 million per year. Accounting for all costs still leaves approximately $460 million in profits to the publishers and authors. Moreover, we find that the expected value to consumers (a.k.a. the consumer surplus) is about $860 million per year. While these estimates are approximations, the key point is that such an exercise could result in enormous public benefits to society.

Unfortunately, current copyright laws that served us well in a physical world are straining at the seams to adapt to a digital world. Copyright laws that allow users to share, loan, rent, and browse physical books are not readily transferrable to a digital environment. How to balance these capabilities in the new digital world intelligently and fairly is vital to releasing the full potential of digital marketplaces, which as we show, are large.

1 comment:

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