Are Libraries Eroding Author Income?

Obtaining definitive or long-term data on authors’ ebook earnings—much less on how libraries affect retail sales—is not easy

When announcing the new two-month ebook embargo for libraries, Macmillan CEO John Sargent wrote in a memo to authors, illustrators, and agents, “For Macmillan, 45 percent of the ebook reads in the US are now being borrowed for free from libraries. And that number is still growing rapidly. The average revenue we get from those library reads (after the wholesaler share) is well under two dollars and dropping, a small fraction of the revenue we share with you on a retail read.”

Sargent’s language needs to be carefully parsed here. He’s dividing overall patron “reads” of a title (which is incredibly variable) by the net amount received by the publisher for a library ebook licensing purchase—then comparing that to the net amount received from a regular ebook retail sale through an outlet such as Amazon. A retail ebook sale through Amazon would net a Big Five publisher around $10 on a $15 ebook. An ebook sale to a library could net a publisher triple that amount (or more) depending on how it’s priced and sold (more on that in a moment). The most common licensing terms for library books allow patrons to borrow a book up to 52 times in a two-year period. If you divide $30 by 52, you see what Sargent is talking about in terms of “under two dollars.”

Ebook distributor OverDrive CEO Steve Potash takes issue with Sargent’s method and figures. He says that Sargent wrongly assumes every Macmillan ebook title is checked out the maximum number of times (52) by the two-year expiration of the license. According to OverDrive’s own public library data, 79 percent of ebooks acquired by libraries from Macmillan expired and were removed from catalogs because the two-year term limit occurred first—not because they were checked out 52 times. Potash writes, “The average number of times a library loaned a Macmillan ebook during the two-year term for each title was 11.5 times,” (emphasis his) which includes very popular titles, such as Fire and Fury. But for the vast majority (75 percent) of Macmillan’s catalog, ebooks were checked out an average of 8.3 times. When using the 11.5 number, the average cost for the library is $6.07 for every lend.

All of this raises a larger question: how much are authors earning off a library ebook sale? Most traditionally published authors or literary agents can tell you the expected royalty for an ebook sale: 25 percent, paid on net proceeds received by the publisher. But is a library purchase treated like a sale or a license in the author’s contract? If it’s treated as a license (technically, library sales are licenses), then an author may be receiving 50 percent of the publisher’s proceeds on ebooks “sold” or licensed to libraries. Possibly such a scenario might occur with older contracts or with academic/scholarly works, although we couldn’t find an agent to verify the likelihood of this.

We asked multiple industry insiders, including agents, if they could offer insight on how to calculate publishers’ net proceeds and author royalties from library ebook lending, and we turned up few straight answers. However, we did find that OverDrive lists basic terms as a 50 percent cut to them as the distributor to the library. (Self-publishing authors also receive 50 percent if selling their titles to libraries through OverDrive.) However, someone familiar with such agreements told us that the library model is typically closer to what’s known as the agency model, where distributors keep 30 percent and publishers receive 70. 

So, here’s the math with the two most likely scenarios:

• $60 ebook sale to a library (agency model): The publisher receives ~70 percent of retail, or $45. In such a case, the author receives $11.25 if they get paid 25 percent net royalty. We believe 25 percent is the most likely royalty for commercially published authors who have signed contracts in the last decade.
• $60 ebook sale to a library (wholesale model): The publisher receives ~50 percent of retail, or $30. The author receives $7.50 if they get paid a 25 percent net royalty.

Author royalty statements we’ve seen don’t break out library activity. While the publisher is sure to know the percentage of library sales, that information may not be formally reported to the authors, keeping library earnings obscured. It seems problematic that library ebook pricing and sales amounts are something of a black box (unless they fall into a licensing bucket and are thus paid under a different royalty rate). Authors and agents almost always know what their books retail for in the consumer market, but they may have little or no knowledge of what library pricing looks like, how it has changed over time, or what licensing models are available—unless they explicitly ask the publisher for the information. Our suggestion: if you don’t want to ask your publisher or can’t get an answer, ask your librarian. If library ebook revenue has increased 800 percent over the last five years for a major publisher like Macmillan, and publishers believe it’s eating into author incomes, then perhaps the industry is long overdue for author royalty statements that separate out library licensing or sales and even apply a different royalty rate for those sales.

To witness the diverse ebook pricing and licensing models available to libraries on specific titles, you can browse the DPLA Exchange, an effort by the Digital Public Library of America to offer flexible licensing terms on new and backlist ebooks to libraries. (Note this is not a consumer site and you cannot buy ebooks from it; it’s a librarian shopping site.)

Bottom line: Whether authors are losing out on sales due to library lending is a divisive issue in the publishing community. Unfortunately, there is little public data available to support conclusions on either side, and it doesn’t help that authors’ royalty statements offer no information on the matter. Those fighting for the libraries claim what Macmillan is doing—arguing that library lending leads to lower author income—is gaslighting, and that libraries ultimately do more to support and generate book sales over the long term. However, in other parts of the world—notably Canada and the UK—authors receive additional income for library lends through something known as the Public Lending Right, funded by the government. (So there has been consensus in other communities that authors ought to receive greater remuneration for library lending.) The Authors Guild has been trying to lobby for such a program in the US, although critics say such an initiative is doomed to failure, at least during the current political climate. Regardless of where you come down on the issue, we’d like to think many authors would accept a modest reduction in income (if that indeed is a result of lending) to support the greater good done by libraries.