Kobo owner Rakuten has sold off its library distribution platform OverDrive to global investment firm KKR in a surprise deal concluded on Christmas Eve.
Rakuten bought OverDrive in 2015 for $410 million and aimed to use the company to expand its Kobo ebook business.
Japan-based Rakuten had bought ebook retailer Kobo in 2012 for over $300 million and reckoned that the OverDrive buy would help it to move into new areas of the market.
At the time, the company said, ‘Rakuten is committed to the long-term continued growth of OverDrive, and to explore synergies we can provide to Rakuten Kobo’s ebook business and their other offerings for digital content.’
It was thought that Rakuten might have been aiming at using OverDrive to make a move into the ebook subscription market after Amazon launched Kindle Unlimited in 2014 in response to Scribd and Oyster which were then both running ebook subscription businesses.
In the event, Kobo did make a limited move into ebook subscriptions with Kobo Plus which launched in 2017 but the joint venture with a bookselling chain has stayed in the Netherlands and Belgium markets.
No financial details of the deal with KKR have been revealed but Rakuten said ‘the Company currently expects to record around a ¥40 billion gain’ in the first quarter of the 2020 financial year. That ¥40 billion represents a profit equivalent to around $370 million which would be an excellent return of 90% on the OverDrive investment over four years.
Rakuten says, ‘A shift in strategy coupled with a strong offer from another company has led Rakuten to make the decision to divest itself of Rakuten OverDrive. The operations of OverDrive and Kobo won’t change, we will continue to collaborate on e-reading initiatives including OverDrive on devices and the distribution of Kobo Writing Life and Kobo Originals to libraries around the world.’
OverDrive was set up in 1986 and now has a network of 43,000 libraries and schools in more than 75 countries.
KKR Member Richard Sarnoff says, ‘OverDrive provides digital tools and services to libraries and schools so they can lend the widest variety of digital books, audiobooks, and other materials, while respecting and compensating authors and publishers through the widest range of access models. It is a privilege to work with an industry-leading team, including founder and CEO Steve Potash, on growing this special franchise in the decade to come.’
KKR Managing Director Ted Oberwager says, ‘At a time of accelerating digital adoption throughout libraries and schools, OverDrive offers its growing user base a best-in-class technology platform and reading experience. We look forward to working with the company to grow its portfolio and network, and continue to build on its status as a recognized leader in the digital content space.’
OverDrive founder and CEO Steve Potash says, ‘OverDrive is very excited to work with the world-class KKR team due to their track record of accelerating digital media and technology businesses in global markets. This provides access to an extraordinary network of capabilities to empower our institutional partners for the benefit of the communities and readers they serve.’
Steve Potash recently criticised a move by publishers to restrict library lending of their ebooks, saying that OverDrive believes publishers and authors are best served by offering multiple, flexible, and reasonable terms for libraries and schools to lend digital content.
The comments came after Macmillan Publishers restricted sales of its ebooks to US libraries to just one copy for the first eight weeks after an ebook goes on the market. Macmillan CEO John Sargent claims the first eight weeks after a launch are vital for sales of a book and that library lending was affecting ebook sales.
It does, however, seem somehow self-defeating to refuse ebook sales to libraries which might buy dozens or even hundreds of copies of a title in the hope that you might make up those sales on the open market. That could particularly be the case in terms of revenue as library copies typically cost three or four times the usual retail price.
The response from librarians has been overwhelming against the Macmillan move and library boycotts against buying Macmillan books are mounting.
KKR claims to have a track record of successfully investing in market-leading businesses in the digital media and content sectors and points to examples such as Epic Games, AppLovin, RBmedia, Pandora, WebMD, UFC, Leonine, BMG Rights Management, Next Issue Media, and Nielsen.