We as a free market society shouldn't have publicly owned, or even publicly accessible, libraries. They distort the market for books and other materials, and therefore are illegitimate government interference.
Is there any evidence suggesting that libraries are killing bookstores? If so, is this something we should be concerned about, or do the public benefits of libraries outweigh the reduced opportunities for booksellers?
Considering this was apparently the closing keynote at an academic library conference (CALM), is there any reason to believe that school libraries are a bad idea?
Many years ago I carpooled with a libertarian who believed that we shouldn't have police. Rather, if you want protection you should either protect yourself or subscribe to a security service. He was also opposed to the county public health department assigning grades (A, B, etc.) to restaurants; if you want to subscribe to a service to monitor restaurants, that's your choice. I can't say I agree with my old carpool buddy or with you. But I am a big fan of freedom of speech, so I'm giving you an up vote.
One substantial problem with any "let individuals choose an X service and subscribe to it" as your libertarian friend advocated is economy of scale. Only a loon would say that there isn't economy of scale in almost every situation. In combination with some almost-as-well-established cognitive biases, this means that very few voluntary public health departments would ever exist.