November 17, 2017

Kobo Parent Acquires OverDrive

Rakuten logoLeading library ebook distributor OverDrive was sold to Rakuten on March 19 for $410 million cash, more than 16 times OverDrive’s annual earnings of $25 million. The purchase from private equity firm Insight Venture Partners, OverDrive’s majority owner since 2010, is scheduled to close in April. OverDrive will become a subsidiary of Rakuten USA, the U.S. arm of Japanese e-commerce company Rakuten (valued at $22.8 billion as of March 17). CEO Steve Potash will continue to lead OverDrive, and its headquarters will remain in Cleveland, OH.

Rakuten’s other businesses include, among many others, the Kobo e-reading device and service, which it acquired in 2011. With the addition of OverDrive, Rakuten expects the EBITDA of its global ebook business to be close to breakeven in 2015. In addition to Kobo and now OverDrive, Rakuten’s other digital content businesses include a Japanese ebook store, a video streaming service, and a global TV and video site powered by volunteer translators.

Jerry L. Johnson, managing director of RLJ Equity Partners, attributed the high acquisition price to three factors. The first, he said, is that “it is a cross-border transaction, and generally speaking the U.S. is considered a very stable place” to do business. The second is that “it speaks to the stability of the library market in general,” and the third is “the revenue synergies” that Rakuten has with OverDrive, given that the company can both use OverDrive’s platform as a distribution channel for other content it already owns, and use OverDrive’s extensive library customer base to cross-sell its other products.

According to the OverDrive announcement, OverDrive and Kobo “will work together to enhance their abilities to deliver world-class digital content and reading technology services.” A letter from Potash added that OverDrive is preparing to do so by adding ebooks “from [Kobo’s] vast supply network of international publishers and content providers,” and to open OverDrive Canada offices in Toronto, where Kobo is headquartered.

Takahito Aiki, head of Rakuten’s global ebook business, said in a statement, “OverDrive is a widely-respected pioneer in digital content and the sharing economy. Long before even Kobo emerged onto the global stage, OverDrive had already seen the future and was working with publishers to digitize their content to share with the world, building one of the most comprehensive online digital marketplaces in the process. OverDrive’s deep content library and relationships with publishers, libraries, schools, and retailers will allow Rakuten to extend our mission of empowerment to new market segments and accelerate the growth of our digital contents businesses.”

Kobo logoWhile no explicit mention was made of OverDrive’s exclusive deal with Amazon to distribute Kobo competitor Kindle’s ebooks to libraries, Potash wrote, “This change in ownership will not affect our commitment to connect your readers with books and libraries by supporting all popular devices and apps.” At press time, Amazon had not yet responded to LJ’s request for comment.

Micah May, director of business development at New York Public Library and a member of ReadersFirst, a coalition of librarians working with e-content distributors, felt that this development has the potential to open the field. “OverDrive has had a real comparative advantage in being the only distributor able to offer Kindle-format books, and that has, I think, kept many libraries with OverDrive. We’re very curious to see if this will continue, given the degree to which Rakuten seems to be a direct competitor to Amazon. If there is a change and there was not a difference in terms of ability to serve Kindle users it could potentially allow new entrants in the library distribution market to get a footing faster.”

Given Rakuten’s presence as an online retailer, he added, he imagined that ebook offerings facing library patrons would likely face pressure “to be more commercially viable, meaning they will likely want to see synergies between their direct consumer ebook sales and library discovery,” potentially increasing the focus on “selling ebooks to library patrons who may really be seeking to borrow them.”

Perhaps in a reference to ReadersFirst, Potash also assured his library customers that “we remain committed to continued advancement of open industry standards, deep library integration, and other industry best practices. We will remain strongly aligned with your mission to uphold reader privacy, library branding and control of lending policies, and local curation of your digital collections. OverDrive will continue to be a strong advocate for library and school access to the best collections of digital materials with library-friendly terms and new and more flexible access models from publishers,” and, he said, “we are in close communication with ALA leadership and the technology and information policy and advocacy units.”

Carolyn Anthony, director of the Skokie Public Library, IL, and co-chair of the American Library Association (ALA) Digital Content Working Group, viewed the company’s global focus as a positive development, noting that OverDrive already has a strong international presence, distributing content in Europe as well as the United States and Canada. “E-content is poised for a growth spurt,” she told LJ, “and the involvement of a major international corporation such as Rakuten may just fuel that expansion.” She added that “the Rakuten purchase of OverDrive could advance movement toward international standards for the lease/sale of e-content and handling of patron privacy in regard to check-out of titles…. Some of the publishers are international concerns as well (e.g. Bertelsmann) so this acquisition is one more sign that the world is a smaller place and we are all truly interconnected.”

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