Digital libraries poses challenges in the fields of economics, public policy, and the law. Publishing and libraries exist in a social and economic context where the operating rules and conventions have evolved over many years. As electronic publication and digital libraries expand, the business practices and legal framework are changing quickly.
Because digital libraries are based on technology, some people hope to solve all challenges with technical solutions. Other people believe that everything can be achieved by passing new laws. Both approaches are flawed. Technology can contribute to the solutions, but it can not resolve economic or social issues. Changes in laws may be helpful, but bad laws are worse than no laws. Laws are effective only when they codify a framework that people understand and are willing to accept. In the same manner, business models for electronic information will fail unless they appeal to the interests of all interested parties. The underlying challenge is to establish social customs for using information that are widely understood and generally followed. If they allow reasonable people to carry out their work, then reasonable people will observe them. The economic and legal frameworks will follow.
Economic forces
Libraries and publishing are big businesses. Huge industries create information or entertainment for financial gain. They include feature films, newspapers, commercial photographs, novels and text books, computer software, and musical recordings. Some estimates suggest that these industries comprise five percent of the economy of the United States. In 1997, Harvard University Libraries had a budget well over fifty million dollars and employed a thousand people. The Library of Congress employs about 4,500 people. Companies, such as Time Warner are major forces on the world's stock markets. In 1996, the Thomson Corporation paid more than three billion dollars for West Publishing, the legal publisher. The stock market valuation of Yahoo, the Internet search firm, is even higher though its profits are tiny.
The publishers' concerns about the business and legal framework for online information derive from the two usual economic forces of greed and fear. The greed comes from a belief that publishers can make huge sums of money from electronic information, if only they knew how. The fear is that the changing economic picture will destroy traditional sources of revenue, organizations will wither away, and people will lose their jobs. To computing professionals, this fear is completely reasonable.
Most of the companies that succeeded in one generation of computing have failed in the next. Mainframe companies such as Univac, CDC, Burroughs, and Honeywell were supplanted by minicomputers. Minicomputer companies, such as Prime, Wang, and Data General did not survive the transition to personal computers. Early personal computer companies have died, as have most of the software pioneers. Even IBM has lost its dominance. Will the same pattern happen with electronic information? The publishers and information services who dominated traditional markets are not necessarily those who will lead in the new ones.
Whichever organizations thrive, large or small, commercial or not-for-profit, they have to cover their costs. Every stage in the creation, distribution, and use of digital libraries is expensive. Authors, photographers, composers, designers, and editors need incentives for their efforts in creating information. In many circumstances, but not all, the incentives are financial. Publishers, librarians, archivists, booksellers, subscription agents, and computing specialists - all these people require payment. As yet, there is no consensus on how best to pay for information on the Internet. Almost every conceivable method is being tried. For discussion of the economics of digital libraries, the various approaches can be divided into open access, in which the funds come from the creator or producer of the information, and models in which the user or the user's library pays for access to the collections.
Chapter 5 noted that the various people who are involved in digital libraries and electronic publishing have many motives. In particular, it noted that creators and publishers often have different financial objectives. When the creators are principally motivated by financial reward, their interests are quite well aligned with those of the publisher. The aim is to generate revenue. The only question is how much should go to the creator and how much to the publisher. If, however, the creator's objective is non-financial while the publisher is concentrating on covering costs or generating profits for shareholders, then they may have conflicting objectives.
Open access digital libraries collections
A remarkable aspect of the web is the huge amounts of excellent material that are openly available, with no requirement for payment by the user. First predictions were that open access would restrict the web to inferior quality material, but a remarkable amount of high-quality information is to be found on the networks, paid for and maintained by the producers. In retrospect this is not surprising. Many creators and suppliers of information are keen that their materials should be seen and are prepared to meet the costs from their own budgets. Creators who invest their own resources to make their materials openly available include researchers seeking for professional recognition, government agencies informing the public, all types of marketing, hobbyists, and other recreational groups.
Whenever creators are principally motivated by the wish to have their work widely used, they will prefer open access, but the money to maintain these collections must come from somewhere. Grants are one important source of funds. The Perseus project has relied heavily on grants from foundations. At the Library of Congress, a combination of grants and internal funds pay for American Memory and the National Digital Library Program. Grants are usually short-term, but they can be renewed. The Los Alamos E-Print Archives receive an annual grant from the National Science Foundation, and Netlib has received funding from DARPA since its inception. In essence, grant funding for these digital libraries has become institutionalized.
The web search firms, such as Yahoo, Infoseek, and Lycos, provide open access paid for by advertising. They have rediscovered the financial model that is used by broadcast television in the United States. The television networks pay to create television programs and broadcast them openly. The viewer, sitting at home in front of a television, does not pay directly. The revenues come from advertisers. A crucial point in the evolution of digital libraries occurred when these web search programs first became available. Some of the services attempted to charge a monthly fee, but the creator of Lycos was determined to offer open access to everybody. He set out to find alternative sources of revenue. Since Lycos was available with no charge,
competing services could not charge access fees for comparable products. The web search services remain open to everybody. After a rocky few years, the companies are now profitable, using advertising and revenue from licensing to support open access to their services.
Research teams have a particular interest in having their work widely read. CNRI is a typical research organization that uses its own resources to maintain a high-quality web site. Most of the research is first reported on the web. In addition, the corporation has a grant to publish D-Lib Magazine. The Internet Draft series is also maintained at CNRI; it is paid for by a different method. The conference fees for meetings of the Internet Engineering Task Force pay the salaries of the people who manage the publications. All this information is open access.
Government departments are another important source of open access collections.
They provide much information that is short-lived, such as the hurricane tracking service provided by the United States, but many of their collections are of long-term value. For example, the Trade Compliance Center of the U.S. Department of Commerce maintains a library collection of international treaties. The U.S.
Department of State provides a grant to librarians at the University of Illinois at Chicago, who operates the web site "www.state.gov" for the department.
Private individuals maintain many open access library collections. Some excellent examples include collections devoted to sports and hobbies, fan clubs, and privately published poetry, with an increasingly large number of online novels. Payment by the producer is not new. In book publishing it is given the disparaging name of "vanity press", but on the Internet it is often the source of fine collections.
Payment for access to digital library collections
When the publisher of a digital library collection wishes to collect revenue from the user, access to the collections is almost always restricted. Users have access to the materials only after payment has been received. The techniques used to manage such access are a theme of the next chapter. This section looks at the business practices.
Book and journal publishing have traditionally relied on payment by the user. When a copy of a book is sold to a library or to an individual, the proceeds are divided amongst the bookseller, the publisher, the author, and the other contributors. Feature films follow the same model. The costs of creating and distributing the film are recovered from users through sales at cinemas and video rentals. Extending this model to online information, leads to fees based on usage. Most users of the legal information services, Lexis and Westlaw, pay a rate that is based on the number of hours that they use the services. Alternative methods of charging for online information, which are sometimes tried, set a fee that is based on peak usage, such as the number of computers that could connect to the information, or the maximum number of simultaneous users. With the Internet and web protocols, these charging methods that are based on computer or network usage are all rather artificial.
An alternative is to charge for the content transmitted to the user. Several publishers provide access to the text of an article if the user pays a fee, perhaps $10. This could be charged to a credit card, but credit card transactions are awkward for the user and expensive to process. Therefore, there is research interest in automatic payment systems for information delivered over the networks. The aim of these systems is to build an Internet billing service with secure, low-cost transactions. The hope is that this would allow small organizations to set up network service, without the
complexity of developing private billing services. If such systems became established, they would support high volumes of very small transactions. Whereas physical items, such as books, come in fixed units, a market might be established for small units of electronic information.
At present, the concept of automatic payment systems is mainly conjecture. The dominant form of payment for digital library materials is by subscription, consisting of scheduled payments for access to a set of materials. Unlimited use is allowed so long as reasonable conditions are observed. The Wall Street Journal has developed a good business selling individual subscriptions to its online editions. Many large scientific publishers now offer electronic journal subscriptions to libraries; society publishers, such as the Association for Computing Machinery (ACM), sell subscriptions both to libraries and to individual members. Some of the digital libraries described in earlier chapters began with grants and have steadily moved towards self- sufficiency through subscriptions. JSTOR and the Inter-university Consortium for Political and Social Research (ICPSR) have followed this path.
Television again provides an interesting parallel. In the United States, two alternatives to advertising revenue have been tried by the television industry. The first, pay-by- view, requires viewers to make a separate payment for each program that they watch.
This has developed a niche market, but not become widespread. The second, which is used by the cable companies, is to ask viewers to pay a monthly subscription for a package of programs. This second business model has been extremely successful.
It appears that the users of digital libraries, like television viewers, welcome regular, predictable charges. Payment by subscription has advantages for both the publisher and the user. Libraries and other subscribers know the costs in advance and are able to budget accurately. Publishers know the revenue to expect. For the publisher, subscriptions overcome one of the problems of use-based pricing, that popular items make great profits while specialist items with limited demand lose money.
Libraries are also attracted by the subscription form of payment because it encourages wide-spread use. Libraries wish to see their collections used as heavily as possible, with the minimum of obstacles. Digital libraries have removed many of the barriers inherent in a traditional library. It would be sad to introduce new barriers, through use-based pricing.
Economic considerations
An economic factor that differentiates electronic information from traditional forms of publishing is that the costs are essentially the same whether or not anybody uses the materials. Many of the tasks in creating a publication - including soliciting, reviewing, editing, designing and formatting material - are much the same whether a print product is being created or an electronic one. With digital information, however, once the first copy has been mounted online, the distribution costs are tiny. In economic terms, the cost is almost entirely fixed cost. The marginal cost is near zero. As a result, once sales of a digital product reach the level that covers the costs of creation, all additional sales are pure profit. Unless this level is reached, the product is condemned to make a loss.
With physical materials, the standard method of payment is to charge for each physical copy of the item, which may be a book, a music CD, a photograph, or similar artifact. The production of each of these copies costs money and the customer feels that in some way this is reflected in the price. With digital information, the customer
receives no artifact, which is one reason why use-based pricing is unappealing.
Subscriptions match a fixed cost for using the materials against the fixed cost of creating them.
A further way in which the economics of electronic publications differ from traditional publishing is that the pricing needs to recognize the costs of change.
Electronic publishing and digital libraries will be cheaper than print in the long term, but today they are expensive. Organizations who wish to enter this field have a dilemma. They have to continue with their traditional operations, while investing in the new technology at a time when the new systems are expensive and in many cases the volume of use is still comparatively low.
Many electronic publications are versions of materials that is also published in print.
When publishers put a price on the electronic publication they want to know if sales of electronic information will decrease sales of corresponding print products. If a dictionary is online, will sales in book stores decline (or go up)? If a journal is online, will individual subscriptions change? After a decade of experience with materials online, firm evidence of such substitution is beginning to emerge, but is still hard to find for any specific publication. At the macroeconomic level, the impact is clear.
Electronic information is becoming a significant item in library acquisition budgets.
Electronic and print products often compete directly for a single pool of money. If one publisher generates extra revenue from electronic information, it is probably at the expense of another's print products. This overall transfer of money from print to electronic products is one of the driving force that is pressing every publisher towards electronic publication.
Some dramatic examples come from secondary information services. During the past decade, products such as Chemical Abstracts and Current Contents have changed their content little, but whereas they were predominantly printed products, now the various digital versions predominate. The companies have cleverly offered users and their libraries many choices: CD-ROMs, magnetic tape distributions, online services, and the original printed volumes. Any publisher that stays out of the electronic market must anticipate steadily declining revenues as the electronic market diverts funds from the purchase of paper products.
Fortunately, the librarian and the publisher do not have to pay for one of the most expensive part of digital libraries. Electronic libraries are being built around general purpose networks of personal computers that are being installed by organizations everywhere. Long distance communications use the international Internet. These investments, which are the foundation that make digital libraries possible, are being made from other budgets.
Alternative sources of revenue
Use-based pricing and subscriptions are not the only ways to recover revenue from users. Cable television redistributes programs created by the network television companies, initially against strenuous opposition from the broadcasters. Political lobbying, notably by Ted Turner, led to the present situation whereby the cable companies can redistribute any program but must pay a percentage of their revenues as royalty. When a radio program broadcasts recorded music, the process by which revenue accrues to the composers, performers, recording studios, and other contributors is based on a complex system of sampling. The British football league gains revenue from gambling by exercising copyright on its fixture list.
There is nothing inevitable about these various approaches. They are pragmatic resolutions of the complex question of how the people who create and distribute various kinds of information can be compensated by the people who benefit from them.
A case study: scientific journals in electronic format
Scientific journals in electronic format provide an interesting case study, since they are one of the pioneering areas where electronic publications are recovering revenue from libraries and users. They highlight the tension between commercial publishers, whose objective lies in maximizing profits, and authors whose interests are in widespread distribution of their work. Academic publishers and university libraries are natural partners, but the movement to electronic publication has aggravated some long standing friction. As described in Panel 6.1, the libraries can make a strong case that the publishers charge too much for their journals, though, in many ways, the universities have brought the problem on themselves. Many researchers and librarians hope that digital libraries will lead to new ways of scientific publication, which will provide wider access to research at lower costs to libraries. Meanwhile, the commercial publishers are under pressure from their shareholders to make higher profits ever year.