Agreeing on a fair price for free and open works

If a group of buyers of a book can get together, how much would it cost to buy the rights to make it free for everyone else?

One of the really interesting things I’m finding in this ongoing research about commons is that it is really difficult to agree on a price to release a work to the public for anyone to download for free. Approaching publishers with an offer to buy the right to publish a work for a certain amount of money, with no provision for future royalties, is a really tough process. As Eric Hellman from unglue.it explains, for publishers:

there’s no upside to setting a price. Because if they get their price, then they worry that they’ve set it too low. And if they didn’t – well…

Because “nobody knows” how successful any creative work is likely to be, it is hard for a publisher seeking to maximise revenue to agree on an up-front price that might displace future royalties. Of course, we might expect risk-averse publishers to prefer the certainty of an up-front price, but the very fact that people are willing to pay that price might suggest that there is demand for the work, and more revenue might be available on the market. I have heard from a few authors how difficult it is to get conventional publishers to agree on a price to make a work available in an open access due to this fundamental uncertainty of demand.

The legendary game developer Ron Gilbert made this point in explaining how difficult it would be to get Disney to agree to a price to sell the Monkey Island IP (hat tip: Zvi Rosen):

Doing a Kickstarter to buy the rights back is filled with problems if you think about it.

Without a firm number from Disney, they could just watch the Kickstarter and no matter what is closed at, they could then ask for $1M more. I could start the Kickstarter without talking to them and they could get it shut down. I’m not even sure [if] buying IP is something Kickstarter allows.

Step one is to get Disney to agree to sell them to me and setting a price. That is a long long journey. I have dealt with Disney before. They are a good company filled with good people, but they are huge and nothing moves fast.

Coming to an agreement on a price that makes up for lost sales involves a complex counterfactual question: how many copies would have been sold if the material were not open access (and at what price)? Large firms — like Disney — have significant expertise in valuing IP; we might expect that these firms are more likely to be able to come to an agreement about the price for which they are prepared to sell their IP. SCOAP3 used a tender system to agree on the price to release 90% of particle physics journal articles published over the next three years under an open access licence – but the journal subscription market is large and stable enough that publishers can estimate their expected revenues for the next few years and calculate a price “on the principle that [they] should maintain our revenue“. For individual works, this type of averaging is not as simple. It seems like the prices we are seeing at the moment are hunches, guesses, or experiments (“It was kinda like mostly [an] iffy judgment call”). The calculus is further complicated in cases where copyright works are made available for free in addition to being licensed (usually, but not always, in a different form). The extent to which openly licensed material substitutes for sales is still relatively unknown.

This points to a difficulty in the way in which we value cultural goods that are nonrival: a tension and almost complete disconnect between the value — the price people are prepared to pay — and the costs of producing the work. I am looking for more data about how people are able to set prices for free and open publishing. Some producers are able to hold out for prices based on a comparable profit to that which they have receievd on the exclusive market. Making the production of cultural goods more efficient is likely to require driving down prices from monopoly rents closer to the costs of production. Markets may be able to do this, in some cases, where publishers have an incentive to work on a service-based model, rather than a property production model. In other cases, we can see the development of other norms that play a role in convincing publishers to forgo potential monopoly rents – a pre-commitment to releasing material on open terms. Unglue.it, for example, has found this when working with Open Book Publishers:

their mission is to make books open access. They set the price based on what their costs were. They wanted to be able to make enough money to cover their direct expenses and some indirect expenses. Their mission is to make books free, and that’s what it costs.

Whether and how norms that promote sharing at a price under the revenue-maximising set of monopoly prices develop is a fascinating question. For individual authors, I think that these norms are also influenced by changing and contested norms of fairness — copyright law embeds a vision of fairness that requires payment for each act of access (see my recent paper on this). The norms of fairness that develop in the absence of exclusivity need to compete with this dominant conception of fairness in the rewards of creativity. This dominant conception, however, is itself challenged by the lottery of rewards that traditional publishing models provide. I suspect that in many cases, authors who are not already well established might prefer the certainty of a price that covers their costs and a reasonable profit over the extremely risky gamble of receiving a large windfall payoff. On the other hand, larger publishers, who are able to offset the hits against the flops, may prefer to take their chances.