March 4, 2012
Bookstores and Libraries
Traditional Bookstores and Libraries are Doomed by the Internet, and so too are Many Other Ways to Distribute Content to Consumers-Becker
It has been recognized for at least a decade that traditional bookstores and newspapers are essentially doomed by the growth of the Internet and digitization. Doomed also are postal systems, record albums, movie theatres, and most other traditional ways of providing information, entertainment, and other content to consumers. To take the US postal system as an example, after growing for many decades, the number of pieces of first class mail declined by 25% in past few years alone.
Even hard copies of books, newspapers, and films are beginning to go the way of bookstores and theatres. Millions of books and thousands of films are available online or in other digital forms, where they can be read or watched by almost unlimited numbers of consumers. Reading a book in digital form has a few disadvantages, such as it is more difficult to make notations in margins, although developments in software are making digital notations much easier. Moreover, with digitization one can have access to many books in a very light Kindle, or in an IPad that weighs only a few pounds, and also has many other uses.
One may lament the closing of many local bookstores, post offices, and movie theatres, and the sharp decline of giants in the newspaper business like the Washington Post, but the reasons for these changes are both clear and irreversible. Anyone with access to the Internet, and this access is rapidly growing worldwide, can much more readily order a book online than by going to buy it in a bookstore. Similarly, constant updates on the weather, sports, and news are more readily available online than from newspapers, or even from television.
Revealed preference clearly indicates that increasing majorities of men and women prefer gaining access to books, news, music, films, and other information and entertainment online through the Internet and in other digital forms. This is why they are shifting away from traditional hardcover books, movie theatres, and even DVDs, itself a new form of providing movies. Older persons who grew up reading books and newspapers often continue to do so, although even they are shifting to digital forms. However, the real trends are seen in the behavior of young persons, such as teenagers and the college students mentioned by Posner. They almost never read hardcopy books and newspapers, or listen to music through CDs because they increasingly read fiction and non-fiction, and listen to music, on the Internet and through other digital forms.
The effect of Schumpeter's "creative destruction" mentioned by Posner is not to preserve traditional products or services, but to add to consumer welfare. Online services and other digitization have certainly helped consumers a lot, even if the passing of bookstores is lamented by those of us old enough to have the pleasure of discovering great books on some dingy bookstore shelves (One of the first books I discovered this way while a teenager was Henry George's classic statement of the case for a single tax on land, "Progress and Poverty").
But hardly anyone would lament the decline of the US postal system, which traditionally has provided surly service by overpaid employees, introduced few innovations in mail delivery, and frequently failed to deliver mail on time. Email is much more efficient than the appropriately called snail mail, which explains why email communication has grown so rapidly, even among older persons.
Piracy and copying of the digital content paid for by someone else is the most significant problem posed by digital provision of entertainment and other content. Piracy and copying generally reduces demand for the works of writers, filmmakers, singers, and other groups who depend for their livelihood on sales of their materials. The song and movie industries, for example, are in the doldrums partly because they are unable to collect much of the revenues on their works that are quickly pirated and copied. The IPod is an innovative technology that uses itunes to sell single songs cheaply, and thereby reduces copying and raises the revenue received by singers and writers of songs. Perhaps other innovations will help producers of movies, books, and newspapers, although so far newspapers have mainly tried unsuccessfully to collect considerable advertising and other revenue from their online editions and articles.
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.