Tuesday, August 16, 2022

Pearson says NFT handbooks will let it profit from pre-owned sales

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Textbook publisher Pearson suggests that blockchain technology could help cut secondary sales of textbooks, capturing a portion of the book market that has so far escaped it. As quoted by BloombergPearson CEO Andy Bird believes non-replaceable tokens, or NFTs, could help publishers monetize the resale of textbooks, though he stopped describing concrete plans.

“In the analog world, a Pearson textbook was resold up to seven times, and we would only participate in the first sale,” Bird said after the company released its latest quarterly results this week. “The move to digital is helping to shrink the secondary market, and technology like blockchain and NFTs allows us to participate in every sale of that particular item as it goes through its life.” Bloomberg suggests that this would mean buyers resell ebooks, something that has been a rarity in the publishing industry until now.

It is not clear how, when and if NFTs may appear in the Pearson catalog. But they could mark a new phase in a long-standing publishing war. Thanks to legal concepts such as the doctrine of the first sale, physical book buyers usually own the media they purchased directly, and are allowed to sell it without the original publishers making any money from it. But ebooks have complicated that calculus. Each digital transfer creates a new “copy” of the work, and the sale of second-hand ebooks by third parties (along with other used digital media sales) have been confronted serious legal challenges as result.

Historically, physical books have therefore had a built-in advantage for students, who can buy or sell them second-hand to cover their often extraordinary initial costs—without the publishers taking any of that money. Allowing resale of ebooks could make that benefit less dramatic.

As with many mainstream crypto applications, NFTs bring no obvious technical innovation to this question. Bird talks about how crypto ledgers track asset ownership from “owner A to owner B to owner C”, but this has always been possible using a digital database. A blockchain provides a decentralized version of that database, but the chances of Pearson using a fully decentralized, open system are about zero. It would almost certainly extend an existing copy protection system to prevent non-NFT owners from illegally copying their books. That would make the NFT a fig leaf on top of an old-fashioned digital rights management or DRM framework. NFTs can, in theory, be sold in third-party markets not approved by the maker, but large companies such as Ubisoft I certainly didn’t follow that principleand maybe Pearson doesn’t.

NFTs have had a major impact on the media world. But they’ve mostly functioned as a sort of digital carrying case — something fans buy to support a favorite creator and feel closer to them. (Fandom is a strange world, but I’m comfortable not really suggesting anyone Loves their textbook publisher.) Sometimes they grant access to social spaces like Discord channels or voting rights on a platform like Snapshot, but that’s especially useful for independent publishers and authors who do not yet have a huge digital platform. Most NFTs quite notoriously have no control over who can see a specific work – only who “owns” a token that corresponds to it, and even that is often confusing.

Nothing prevents Pearson or any other major publisher from letting people sell ebook licenses using non-crypto DRM. In fact, third-party vendors such as Tom Kabinet and ReDigi have been trying to create digital second-hand markets for years. But publishers are generally hesitant to open the door to digital resale, especially as they try methods that allow book buyers to fewer control, including subscription services like Pearson Plus — which Bird described glowingly during the earnings call.

So what has changed? Possibly nothing. Pearson has not committed to NFT textbooks, and Bird loses nothing by spitting on the future value of a vibrant (if recently shut down) new technology. Part of a resold textbook is probably still less lucrative for Pearson than the subscription model it currently prefers. But NFTs seem to have a psychological effect – they make people to feel as if they own something, even if the ownership is quite abstract. Textbook makers may see this as an opportunity to push digital markets in a new direction.

This can be a mixed bag for students. On the one hand, a certain resale opportunity is better than none — and that’s what people often get with ebooks. On the other hand, a publisher-controlled resale market will almost certainly be tilted in the publisher’s favor. Library having ebooks self-destruct conditions for example, having to buy new copies after a certain number of checkouts, and an NFT ebook may have a similarly limited number of resales. On a more abstract level, a real legal debate is short-circuited about whether people should have the right to control their digital purchases. And it adds an extra incentive for publishers to make buying physical textbooks as unpleasant and difficult as possible because, from their perspective, they just lose money on it.

Anyway, Bird says Pearson has “a whole team working on the implications of the metaverse and what that could mean for us” – and if they have to make a living somehow, I think NFT- books make more sense than Fortnite skins.

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