The Surprisingly Big Business of Library E-books

Steve Potash, the bearded and bespectacled president and C.E.O. of OverDrive, spent the second week of March, 2020, on a business trip to New York City. OverDrive distributes e-books and audiobooks—i.e., “digital content.” In New York, Potash met with two clients: the New York Public Library and Houghton Mifflin Harcourt. By then, Potash had already heard what he described to me recently as “heart-wrenching stories” from colleagues in China, about neighborhoods that were shut down owing to the coronavirus. He had an inkling that his business might be in for big changes when, toward the end of the week, on March 13th, the N.Y.P.L. closed down and issued a statement: “The responsible thing to do—and the best way to serve our patrons right now—is to help minimize the spread of COVID-19.” The library added, “We will continue to offer access to e-books.”

The sudden shift to e-books had enormous practical and financial implications, not only for OverDrive but for public libraries across the country. Libraries can buy print books in bulk from any seller that they choose, and, thanks to a legal principle called the first-sale doctrine, they have the right to lend those books to any number of readers free of charge. But the first-sale doctrine does not apply to digital content. For the most part, publishers do not sell their e-books or audiobooks to libraries—they sell digital distribution rights to third-party venders, such as OverDrive, and people like Steve Potash sell lending rights to libraries. These rights often have an expiration date, and they make library e-books “a lot more expensive, in general, than print books,” Michelle Jeske, who oversees Denver’s public-library system, told me. Digital content gives publishers more power over prices, because it allows them to treat libraries differently than they treat other kinds of buyers. Last year, the Denver Public Library increased its digital checkouts by more than sixty per cent, to 2.3 million, and spent about a third of its collections budget on digital content, up from twenty per cent the year before.

There are a handful of popular e-book venders, including Bibliotheca, Hoopla, Axis 360, and the nonprofit Digital Public Library of America. But OverDrive is the largest. It is the company behind the popular app Libby, which, as the Apple App Store puts it, “lets you log in to your local library to access ebooks, audiobooks, and magazines, all for the reasonable price of free.” The vast majority of OverDrive’s earnings come from markups on the digital content that it licenses to libraries and schools, which is to say that these earnings come largely from American taxes. As libraries and schools have transitioned to e-books, the company has skyrocketed in value. Rakuten, the maker of the Kobo e-reader, bought OverDrive for more than four hundred million dollars, in 2015. Last year, it sold the company to K.K.R., the private-equity firm made famous by the 1989 book “Barbarians at the Gate.” The details of the sale were not made public, but Rakuten reported a profit of “about $365.6 million.”

In the first days of the lockdown, the N.Y.P.L. experienced a spike in downloads, which lengthened the wait times for popular books. In response, it limited readers to three checkouts and three waitlist requests at a time, and it shifted almost all of its multimillion-dollar acquisitions budget to digital content. By the end of March, seventy-four per cent of U.S. libraries were reporting that they had expanded their digital offerings in response to coronavirus-related library closures. During a recent interview over Zoom (another digital service that proliferated during the pandemic), Potash recalled that OverDrive quickly redirected about a hundred employees, who would normally have been at trade shows, “to help support and fortify the increase in demand in digital.” He recalled a fellow-executive telling him, “E-books aren’t just ‘a thing’ now—they’re our only thing.”

Before the pandemic, I had never read an e-book, and didn’t particularly want to. But, during the lockdown, I spent nearly every day wandering my neighborhood in a mask and headphones, listening to audiobooks. I wanted to hear a human voice and feel the passing of time; Libby became a lifeline. As a dual citizen of the Brooklyn Public Library and the N.Y.P.L., I toggled between library cards, in search of the shortest waiting list. I did what previously had been unthinkable and spent a hundred and eighty dollars on a Kobo. I read more books in 2020 than I had in years. I was not the only one; last year, more than a hundred library systems checked out a million or more books each from OverDrive’s catalogue, and the company reported a staggering four hundred and thirty million checkouts, up a third from the year before. (Barnes & Noble, which has more retail locations than any other bookseller in the U.S., has said that it sells about a hundred and fifty-five million print books a year.) The burst in digital borrowing has helped many readers, but it has also accelerated an unsettling trend. Books, like music and movies and TV shows, are increasingly something that libraries and readers do not own but, rather, access temporarily, from corporations that do.

The company that became OverDrive began, in the mid-eighties, as a document-digitizing firm, in a suburb of Cleveland. Potash and his wife, Loree, an academic librarian, had both gone to law school at night, and their early clients were law firms that needed help digitizing large volumes of paperwork. Eventually, Harcourt Brace Jovanovich (a precursor to Houghton Mifflin Harcourt) hired the young company to digitize reference books, and other publishers followed. “It was probably about a ten-year struggle to get the e-book concept to grab hold,” Jon Nigbor, an early colleague and investor who left OverDrive around 1990 and sold his stake in 2010, told me. “It was the twenty-five-year overnight-success story.” (Nigbor describes himself as a co-founder of the company; Potash denies this.)

In the two-thousands, OverDrive helped publishers set up online stores and sold e-books directly to consumers through its own marketplace. The company also persuaded a few presses to license their e-books to libraries. At the time, the six largest publishers tended to sell their goods through online retailers, such as Amazon, which released its e-reader, the Kindle, in 2007. But, gradually, the Big Six began to sell digital rights to libraries under a “one copy, one user” model. As soon as one reader returned an e-book, a second reader could check it out, and so on, with no expiration date. “At the beginning, we were really trying to replicate what happens on the print-book side,” a publishing executive told me. Digital books, which could in theory be duplicated for free by any librarian with a computer, would still have waiting lists.

“We then saw the first wrinkle in one copy, one user,” Potash said. In 2011, HarperCollins introduced a new lending model that was capped at twenty-six checkouts, after which a library would need to purchase the book again. Publishers soon introduced other variations, from two-year licenses to copies that multiple readers could use at one time, which boosted their revenue and allowed libraries to buy different kinds of books in different ways. For a classic work, which readers were likely to check out steadily for years to come, a library might purchase a handful of expensive perpetual licenses. With a flashy best-seller, which could be expected to lose steam over time, the library might buy a large number of cheaper licenses that would expire relatively quickly. During nationwide racial-justice protests in the summer of 2020, the N.Y.P.L. licensed books about Black liberation under a pay-per-use model, which gave all library users access to the books without any waiting list; such licenses are too expensive to be used for an entire collection, but they can accommodate surges in demand. “At the time of its launch, the twenty-six-circulation model was a lightning rod,” Josh Marwell, the president of sales at HarperCollins, told me. “But, over time, the feedback we have gotten from librarians is that our model is fair and works well with their mission to provide library patrons with the books they want to read.”

During the past decade, publishers and booksellers have consolidated at a rapid pace, leaving a smaller number of companies with a greater degree of influence over what and how we read. In the early days of the Kindle, Amazon undercut many of its competitors, including brick-and-mortar bookstores, by selling consumer e-books for just $9.99. In 2012, the U.S. Department of Justice accused Apple of conspiring with publishers to increase the prices of consumer e-books, and Apple later agreed to pay four hundred and fifty million dollars in settlement. In 2013, the six largest publishers became five when Penguin merged with Random House. (Now, the Big Five is poised to become the Big Four, if Penguin Random House’s purchase of Simon & Schuster is approved.) Earlier this year, a consumer class-action lawsuit accused Amazon of signing anti-competitive contracts with the five largest publishers in a “conspiracy to fix the retail price of trade eBooks.” (An Amazon spokesperson declined to comment for this story.)

Libraries now pay OverDrive and its peers for a wide range of digital services, from negotiating prices with publishers to managing an increasingly complex system of digital rights. During our video call, Potash showed me OverDrive’s e-book marketplace for librarians, which can sort titles by price, popularity, release date, language, topic, license type, and more. About fifty librarians work for OverDrive, Potash said, and “each week they curate the best ways each community can maximize their taxpayers’ dollar.” The company offers rotating discounts and generates statistics that public libraries can use to project their future budgets. When I noted that OverDrive’s portal looked a bit like Amazon.com, Potash didn’t respond. Later, he said, with a touch of pride, “This is like coming into the front door of Costco.”

Alan Inouye, the senior public-policy director at the American Library Association, told me that consolidation could reduce competition and potentially drive the cost of library e-books even higher. “OverDrive is already a very large presence in the market,” he said. The company’s private-equity owner, K.K.R., also owns a major audiobook producer, RBMedia, which sold its digital library assets to OverDrive last year. But, Inouye added, OverDrive’s influence is an important counterweight to the largest publishers and to Amazon, which dominates the consumer e-book market and operates as a publisher in its own right. (Amazon did not make its own e-books available to libraries until May, when it announced a deal with the Digital Public Library of America.) When I asked Potash about the concern that consolidation could also give OverDrive too much influence over the market, he called that “a far-fetched conspiracy theory.” He cited the company’s track record of advocating for libraries, adding, “I’m a big fan of free-market capitalism.”

To illustrate the economics of e-book lending, the N.Y.P.L. sent me its January, 2021, figures for “A Promised Land,” the memoir by Barack Obama that had been published a few months earlier by Penguin Random House. At that point, the library system had purchased three hundred and ten perpetual audiobook licenses at ninety-five dollars each, for a total of $29,450, and had bought six hundred and thirty-nine one- and two-year licenses for the e-book, for a total of $22,512. Taken together, these digital rights cost about as much as three thousand copies of the consumer e-book, which sells for about eighteen dollars per copy. As of August, 2021, the library has spent less than ten thousand dollars on two hundred and twenty-six copies of the hardcover edition, which has a list price of forty-five dollars but sells for $23.23 on Amazon. A few thousand people had checked out digital copies in the book’s first three months, and thousands more were on the waiting list. (Several librarians told me that they monitor hold requests, including for books that have not yet been released, to decide how many licenses to acquire.)

The high prices of e-book rights could become untenable for libraries in the long run, according to several librarians and advocates I spoke to—libraries, venders, and publishers will probably need to negotiate a new way forward. “It’s not a good system,” Inouye said. “There needs to be some kind of change in the law, to reinstate public rights that we have for analog materials.” Maria Bustillos, a founding editor of the publishing coöperative Brick House, argued recently in The Nation that libraries should pay just once for each copy of an e-book. “The point of a library is to preserve, and in order to preserve, a library must own,” Bustillos wrote. When I asked Potash about libraries and their growing digital budgets, he argued that “digital will always be better value,” but he acknowledged that, if current trends continue, “Yes, there is a challenge.”

Readers of the future are likely to want even more digital content, but it may not look the same as it does now. Audible, which is owned by Amazon, has already made listening to books more like streaming, with subscribers gaining access to a shifting catalogue of audiobooks that they do not need to buy separately. “We have moved away from owning, to accessing,” Mirela Roncevic, a longtime publishing and library consultant, told me. Maybe readers will expect books to feel more like Web sites, and an infinite scroll will replace the turn of the page, as it has in the digital magazine you are reading now. Perhaps readers will want images and videos to be woven seamlessly into the text, requiring a new format. The e-book as we know it “will not last,” Roncevic insisted. Lending libraries were once an innovation that helped spread literacy and popularize books. Roncevic wants libraries to continue innovating—for example, by experimenting with new formats and license models in partnership with independent or international publishers. “Libraries have more power than they sometimes realize,” she told me.

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