DRM doesn't have much to do with the library issue.
It is unlikely that book publishers will be completely wiped out and replaced by self-publishing houses or free services. The reality is that quality self-publishing requires more work and resources than most writers are willing to handle, especially for those who want to "swing for the fences" and write best-sellers. And without an intermediary service that standardizes loans, libraries would tear their hair out trying to negotiate with tens (if not hundreds) of thousands of individual authors.
As such, libraries will need to deal with publishers. They'll need specialized services like Overdrive. Both they and publishers need to accept that libraries do sacrifice some book sales in the name of a public good, and need to hash out who will pay for it. Even if there was no DRM, if a publisher makes "26 loans and then you need to re-up" a condition of library ebook loans, the libraries need to abide by that. They can renegotiate, but cannot violate, their contracts.
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Originally Posted by CazMar
Why not have a paid subscription service like many people use for music and videos?
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Because it wouldn't work.
Casual music listeners or video watchers can go through a high volume of content, which can be provided easily in a mass medium. It takes less time, less effort, less engagement to enjoy these works. Music in particular can be used in the background.
Reading takes more time, more involvement, more attention. Most people only read 1 or 2 books a year, so subscription services won't appeal to them. The readers who would benefit the most are the frequent readers, who normally read/buy 15 or more books a year, who are a relatively small slice of the public (15%) and make up an outsized percentage of sales (50% iirc). Limit their spending on books with an all-you-can-eat buffet, and everyone -- publishers, retailers and authors -- will suffer.