OverDrive and the Digitization of Public Libraries
The success of e-books has fundamentally changed the relationships between publishers and lending libraries. As the middleman, what can OverDrive do to resolve this tension?
OverDrive is a provider of technology for managing and distributing digital content to public libraries, schools and retail stores. Founded in 1986, OverDrive’s initial business model involved converting analog media to digital forms, such as interactive diskettes and CD-ROMs. In 2003, with the rise of e-books, OverDrive launched a digital download service for libraries [1]. Today, OverDrive distributes digital content from more than 5,000 publishers through its online platform to more than 34,000 libraries and schools [2].
OverDrive’s Business Model
OverDrive serves as a digital content aggregator and provides the infrastructure for distributing e-books, audiobooks, streaming videos, and periodicals to public and school libraries. OverDrive first negotiates distribution agreements with publishers to obtain the licensing rights to the publisher’s digital titles. The company currently offers over 3.3 million titles on its platform [3]. On the customer side, OverDrive negotiates contracts with libraries to build a customized online library which provides access to a specific collection of digital content, depending on the library’s needs. Libraries pay a subscription fee to access OverDrive’s platform, and then have the option to browse OverDrive’s entire collection and purchase titles based on their collection development goals.
Depending on its distribution agreement with the publishers, OverDrive can offer different lending options to the libraries [4]:
- Simultaneous Use – Titles can be borrowed simultaneously by an unlimited number of users. Titles will typically never expire.
- One Copy / One User – A digital library can only have one copy of a title, and only one user can borrow it at a specific time. Titles will never expire.
- Metered Access – Similar to one One Copy / One User, but titles will expire after a determined period of time (typically 12 months).
- Cost Per Circ (CPC) – Add a publisher’s entire catalog to library’s collection and pay when users borrow titles from that catalog.
E-Books: a Blessing and a Curse
There is no doubt that the success of e-books has been instrumental to OverDrive’s growth. Digital books now account for 20% of the market [5], and public libraries must provide e-books to stay relevant to patrons. However, there is an inherent tension between publishers and libraries over the right to circulate e-books. Libraries argue that e-books are the same as physical books: they are checked out for a standard loan period and cannot be checked out by more than one user at a time [6]. Publishers, on the other hand, argue that e-books are different because a user doesn’t need to go to the library to pick up a book, and this lack of friction removes a differentiating factor between buying and borrowing books [7]. In addition, print books deteriorate over time, and users value the difference between borrowing a used book from the library and buying a brand new print book [8]. With e-books this differentiation also doesn’t exist.
Figure 1: North America e-book revenue from 2009 to 2016*, (in million U.S. dollars) [10]
The tension between publishers and libraries has been both a blessing and a curse for OverDrive. Because each of the “Big Five” publishers has different lending terms and pricing policies for libraries, both libraries and publishers are dependent on OverDrive’s digital platform to aggregate content and set pricing and circulation restrictions. On the other hand though, OverDrive runs the risk that the tension between publishers and libraries could become so significant that either party could withdraw from the platform. For example, in 2012, Penguin, one of the “Big Five” publishers, severed ties with OverDrive and decided to stop offering any of its e-books to libraries [11]. While Penguin returned to OverDrive in 2013, there is still the constant threat that publishers and libraries will stop using OverDrive’s platform.
Figure 2: Big Five Publishers and Library Lending [12]
OverDrive’s Long Term Value Proposition?
To be successful in the long run, I think that OverDrive needs to resolve the fundamental tension between libraries and publishers. At the moment, OverDrive is playing referee between two very unhappy parties. At an ALA meeting in Boston in January 2016, the overall sentiment was “as it is currently set up, the library e-book market is too burdensome to manage, complex for users to navigate, and library e-book prices are too expensive to sustain [13].” One thing that OverDrive should do is run tests for publishers on select titles to gather data on whether libraries really affect retail sales. At the core of the issue is that libraries and publishers don’t know if libraries increase book sales or cannibalize them, and as a result, cannot price e-books to libraries efficiently. If OverDrive can use their digital platform to obtain library-specific data to show the true impact library e-books have on retail sales, then they may be one step closer to bridging the divide between publishers and libraries.
Word Count: 797
Sources:
[1] OverDrive, “History,” http://company.overdrive.com/company/who-we-are/history/, accessed November 17, 2016.
[2] Ibid.
[3] Ibid.
[4] OverDrive, “OverDrive Marketplace User Guide,” http://company.overdrive.com/files/CR-User-Reference-Guide.pdf, accessed November 17, 2016.
[5] Alan S. Inouye, “What’s in Store for Ebooks?” American Libraries, January 4, 2016, https://americanlibrariesmagazine.org/2016/01/04/whats-store-ebooks/, accessed November 2016.
[6] Jeannette A. Woodward, The Transformed Library: E-books, Expertise, and Evolution (Chicago: ALA Editions, 2013), PDF e-book, 14, https://books.google.com/books?id=PpU8itcHIOoC&pg=PA13&lpg=PA13&dq=overdrive+negotiates+with+penguin&source=bl&ots=jkG9xen6eQ&sig=_tddELh4WD-_gXAfAwe09Ss2fwo&hl=en&sa=X&ved=0ahUKEwjDtOeQ6LDQAhVJ6oMKHQAZCH44FBDoAQggMAE#v=onepage&q=overdrive%20negotiates%20with%20penguin&f=false, accessed November 2016.
[7] Adam Vaccaro, “Why It’s Difficult For Your Library to Lend Ebooks,” Boston.com, June 27, 2014, https://www.boston.com/news/technology/2014/06/27/why-its-difficult-for-your-library-to-lend-ebooks, accessed November 2016.
[8] Jeannette A. Woodward, The Transformed Library: E-books, Expertise, and Evolution (Chicago: ALA Editions, 2013), PDF e-book, 20, https://books.google.com/books?id=PpU8itcHIOoC&pg=PA13&lpg=PA13&dq=overdrive+negotiates+with+penguin&source=bl&ots=jkG9xen6eQ&sig=_tddELh4WD-_gXAfAwe09Ss2fwo&hl=en&sa=X&ved=0ahUKEwjDtOeQ6LDQAhVJ6oMKHQAZCH44FBDoAQggMAE#v=onepage&q=overdrive%20negotiates%20with%20penguin&f=false, accessed November 2016.
[9] “Copyright Infringement – First Sale Doctrine,” CRM 1500-1999, Criminal Resource Manual 1801-1899, Section 1854, https://www.justice.gov/usam/criminal-resource-manual-1854-copyright-infringement-first-sale-doctrine, accessed November 2016.
[10] “Global e-book revenue from 2009 to 2016*, by region (in million U.S. dollars),” Statista, https://www.statista.com/statistics/280249/global-e-book-revenue-by-region/, accessed November 2016.
[11] Calvin Reid, “Penguin Severs Ties with OverDrive,” Publishers Weekly, February 9, 2012, http://www.publishersweekly.com/pw/by-topic/digital/content-and-e-books/article/50579-penguin-severs-ties-with-overdrive.html, accessed November 2016.
[12] American Library Association, “Big Five Publishers and Library Lending,” http://www.ala.org/transforminglibraries/sites/ala.org.transforminglibraries/files/content/BigFiveEbookTerms091314.pdf, accessed November 2016.
[13] Andrew Richard Albanese, “The Next Big Step for E-Books in Libraries,” Publishers Weekly, January 15, 2016, http://www.publishersweekly.com/pw/by-topic/industry-news/libraries/article/69153-the-next-big-step-for-e-books-in-libraries.html, accessed November 2016.
As someone who until recently used OverDrive rather extensively through a county library system, it had not occurred to me that book publishers would view this as a fundamentally different type of product from regular library offerings. I find it particularly interesting that book publishers view the effort of going to the library as a differentiating factor that ultimately will get them more sales because people will want to avoid the extra effort of that trip. It makes me wonder how publishers’ margins on physical books sold to libraries (better, presumably, than digital, but still perhaps costing them retail sales) compares to digital books rented through the library, or if that data actually exists. Similarly I wonder why they have not tried to crack down slightly harder on the used physical book market.
I think more generally as the book industry becomes more digitized and tablet/phone devices become increasingly thin and convenient for reading, it seems almost inevitable that the publishers (and libraries) will continue to be under enormous pressure from these developments. A few years ago we saw the very public debate between Amazon and Hatchette over e-book pricing [1] and I suspect services like OverDrive exacerbate the problem for the publishers. I wonder if OverDrive could leverage and perhaps even sell back the data it gets on the identities of users reading the books- for example, could it provide demographic information that certain books are being read by given age groups, in certain chunks of pages at a time, etc.? Perhaps this information would be valuable to the publishers and could serve as an additional source of revenue to OverDrive. I wonder also as traditional bookstores like Barnes and Noble continue to struggle [2] if they will be caught in the middle as they cannot count on either the public funding and subsidization of libraries, nor on competition from Amazon ever lessening in the future.
[1] Trachtenberg, Jeffrey, and Greg Bensinger. “Amazon, Hatchette End Publishing Dispute”. The Wall Street Journal. 13 November 2014. Retrieved 19 November 2016.
[2] Alter, Alexandra. “At Barnes & Noble, Chief is New, But Earnings Woes are Old”. The New York Times. 9 September 2015. Retrieved 19 November 2016.
This article was a really cool, and incredibly relevant, articulation of the challenges that publishers face in navigating the tension between libraries’ physical books and publishers’ e-books.
It appears that OverDrive’s largest advantage is the data it stores (namely, their “digital platform [that] aggregate[s] content and set[s] pricing and circulation restrictions.” I am curious about the proposed solution – showing the “true impact” of library e-books on retail sales – and how the data OverDrive holds can be used to that end: measuring the causal relationship between e-books and overall sales could be challenging. Moreover, one of the largest appeals of a library is that it provides a physical space for communities to gather. I wonder how OverDrive can demonstrate that it plays a role in supplementing and encouraging that behavior, or if e-book publishing will inevitably destroy physical books and the need for a physical space will be drastically reduced.
Interesting article. OverDrive is making a business by providing an e-book platform but might have to evolve fast as books are becoming increasingly less relevant in the field of education. Schools are migrating towards more interactive, multimedia driven pedagogy (a la Khan Academy). Millennials are also transitioning towards ‘audio books’ as they find listening to an audio is easier than reading. As attention spans decrease and more modern forms of communicating content are developed – it will be interesting to see how books and ebooks survive this test of time.
Fascinating and informative read, Yujie! I did not realize OneDrive was instrumental in introducing e-books, audiobooks, etc. to the public and school library space. One of my concerns for the company’s business model is the existence of major competitors such as Audible. Despite Audible being in the direct-to-consumer space for now, the company could expand to the library market if lucrative. Given Audible’s name recognition and 180,000 titles [1], Audible is likely negotiating with the same publishers as OneDrive. Especially given that Audible is Amazon-owned, Audible has financial resources at its disposable and could become a competitive threat to OneDrive.
In addition to competition, my second concern for the digital library industry as a whole involves equity. In my opinion, the concept of audio and e-books necessitates a secondary device in order to consume the content, whether it be a tablet, laptop, or kindle. All of these devices are luxury tech goods and are reasonably expensive. As a result, is there a socio-economic divide that e-books introduce that did not exist in traditional libraries? For underprivileged neighborhoods, could the shift from hard to e-books potentially reduce access to content?
[1] Audible Website, http://www.audible.com/, accessed November 2016.
Super interesting article! I love OverDrive and use it all the time! I agree that OverDrive is uniquely positioned to have an impact on the rapidly changing publishing industry and they could have a huge say on what the authoring process looks like a decade from now. I personally believe that data is the key for a successful business in the future and OverDrive has a really interesting collection of points expressing users’ interests and tastes. If they can understand how to leverage that and make key partnerships, then I think they can continue to stay ahead of this Internet of Things revolution.
Loved the article Yujie! It was extremely interesting to learn about OneDrive and its business model. One question I have is regarding ebook pricing for libraries. It seems that they are priced at a considerable markup to hardcovers. However if a consumer were to purchase an ebook it would actually come at a significant discount to the hardcover version of a book. This fundamentally changes the economics of the trade-off between buying and borrowing and I wonder if this pricing policy for e-books (for libraries) is sustainable in the long term?
This is a really interesting article! I had no idea that publishers charged libraries so much and in various models.
Another risk for the digitization of public libraries is the potential gaming of multiple libraries. For instance, one can keep a library card when they move and still access e-books from the library unlike hard copies since they don’t have to physically be there anymore. If their current library is out of the title they are looking for, people can search other libraries for those books and be taking away the access from those who actually live in that area and racking up the cost in some cases for the library.
Thank you for writing about Overdrive. This was the only reason I went out and got a library card to the NYPL. The ability of technology to reduce the frictions of getting a book that may be at a different library is very strong. I wonder what percentage of library volume is now coming from e-books vs. traditional media.
I think that the publishers might not be seeing the full opportunity of the data they are getting from Overdrive. They have a potential to use data to drive publishing decisions and then market directly to customers. It is likely that most of the heavy library consumers are heavy media consumers and will likely also chose to buy some books from retailers. They can likely get a higher price for new books from these customers and utilize the long tail of their libraries to develop a loyalty towards their publishing house.
I wonder what you potential changes you think publishers can make to take advantage of the new tools they now have.