Originally published at: https://boingboing.net/2019/12/27/book-business.html
One of the world's largest private equity firms just bought one of the world's largest library ebook companies
Originally published at: https://boingboing.net/2019/12/27/book-business.html
But where’s the profit in buying something and then making it decline?
The nky way it might work is if they get a steal, or own the competitor so they want to kill the competition.
Thanks to Doug Ford, there’s no loose money available in the library system. (And physical inter-library lending has been cut.) That won’t end well.
Read the post again - he explains briefly how value is extracted from the company, killing it in the process. Its very easy, takes little in the way of business skills, just questionable morals.
It’s like corporate Hawking radiation escaping from a black hole.
Against the value of the acquired corporate shell, they use loans to create both money and debt. Then the money is removed from the company and used to pay off the people who put up the money to acquire the company in the first place, plus a cut to the equity company. That leaves the debt with the corporate shell.
That’s the short game, mission accomplished.
For the long game and bonus money, they fire a lot of employees, and loot the assets (including pensions if they’re not nailed down). In the long term, that dooms the company, but in the short term, it makes the company look more profitable. So they find a sucker to buy the company from them. Ka-Ching!
(Hm, the firing and looting probably happens first to maximize the loans.)
The people making the loans must see what’s going on (after the nth iteration of the scam), so they probably have a way to write off those bad debts. Which means that we all pay for those.
There you go with that crazy, old-fashioned notion that a business ought to provide some valuable service, or produce a desired product, sell that at a price that is determined by a properly functioning market, and justly compensate its employees with the profits earned thereby.
That’s approximately the exact opposite of the business model of a private equity firm. They are like parasites.
This is very, very bad news. I love checking out ebooks from my library; it’s a lovely way to read without having to worry about physically returning the book at the end of the loan, as the file locks itself after a set amount of time. I hate knowing that this option is now in serious danger.
What, if anything, can we readers do about this? If I can write letters or make phone calls, I’ll do it.
If anyone tried this scam with something like a house, (buy a house, take out a huge mortgage, gut the interior, then skip with the money), the mortgage company would chase them to the ends of the earth.
There shouldn’t be a loophole that lets private equity companies disconnect the money from the loan debt by paying it out as a “special dividend” to their backers.
You could no doubt dedicate an entire website to these questionable PEs & shell companies. Anyone?
And oh, what fun it would be to make a computable graph of shell companies – starting with the real-estate industry.
Privatize the profits, and socialize the losses. Yay capitalism!
Its a little tough to see how this particular acquisition is going to work for a private equity parasite; the library market isn’t very big or rich, and the product isn’t life or death for the customer. I do suppose that they are calculating that as public institutions, libraries are going to be good for long term payments, and don’t make purchase decisions by market logic.
It doesn’t matter what it looks like to me though, it matters how they can package it up and make it look to bankers and investors, who are the primary victims of private equity thieves-- the damage to workers and customers and the public is just a byproduct. Like RickMycraft points out, its always been a bit of a mystery to me how they manage to keep ripping off big boys in the lending business.
Well, nobody ever said bankers were particularly smart. Look at SoftBank getting taken to the cleaners by WeWork for example.
Follow the money?
I can’t believe the banks are on the victim side, it is a system designed by them for them. Tax write-offs? Subsidies? Transgressive sexual pleasure?
Overdrive is also the app Libby. As in Library, which is where I imagine the vast majority of their business is. In all the articles I’ve read, the idea of Overdrive trying to resolve the tension between libraries and producers keeps coming up. “Resolving tension” is an attractive role for PE; there are deals to be struck on both sides, and the deals revolve around DRM.
It seems hinky to me that Amazon is involved in this somehow as well. If you were a huge PE firm, after you stole all the money from your victim, who would you look to take over the damaged goods after you’re done? Is there a large flush business in the trade who has a history of playing the long game? Maybe one that that would pay well for the user data being collected?
Also, if you borrowed an e-version of Flat Broke with Two Goats in 2018, you were pretty much a proof of concept for the coalition of publishers and Overdrive.
Certainly where I work we are VERY limited in the E-Book publishers that we can purchase from, because most of them have contract conditions that we can’t agree to.
Investors - typically those who don’t even know what they are getting. Here is the grift:
- Package up loan as a investment and sell slices to mutual funds
- Mutual funds offer new index with a few good investments and some of these along with - people move money around trying to follow the ‘hotness’ and the mutual fund makes a fee from the transaction (401k fees).
- The company goes belly up (one of a dozen in a package) so the investment only makes 5% return for the worker instead of the 15% they were chasing - oh well they still made money
- The bank loan was covered by selling the investment to the ‘investors’ as a package - usually with a fee and profit baked into the deal (100 million loan sliced up into chunks with a 10 million ‘fee’ to do the work of slicing it).
At the end of this all - the bank made money, the mutual fund made money, the private equity firm made money - and the loss was ‘distributed’ through the thousands and thousands of 401k investments - but never as a huge hit - always as part of a package that made the actual loss ‘invisible’ to the average person who just wants to have enough money to not be homeless at 90.
Bob’s your uncle - and it’s all legal.
Easier it would be to make a democratic PE fund, entertain members at $5/mo, buy companies and FORGET to fuck them up. Anyone?
Whelp…there goes the neighborhood. This is why we can’t have nice things.
I love checking out digital books from my library then downloading them to my kindle. I just showed my aunt how to setup her own Overdrive account just last week. Now I feel bad for steering her into this pending mudhole.
What I don’t understand is the sheer stupidity of limiting digital books available for check out. (OK- I understand that’s it’s based on licensing agreements with publishers but it’s still stupid).
After thousands of years of painstakingly copying pages physically via ink and paper, we now have the technology to duplicate and transmit books electronically an infinite number of times at literally zero cost and still I am forced to wait 27 weeks for a copy of “Catch and Kill” to become available from my library.
Probably counts as the standard defense of Private Equity, for what’s that worth.
I read this as "Overdrive is just being too nice to its customers-- and the libraries deserve to be squeezed. Even if the “secret plan” is not to force Overdrive to take out huge loans, the prospect of a more profitable and more venal version of such a company fills me with dread.
When people ask me at work “Why can’t I just…” the answer is usually, “The problem isn’t technical.” Even without PE firms, publishers have been trying to ensure that all electronic copies are covered by contracts of adhesion, rather than only by copyright law. That is why there are EULAs on everything. Because copyright law does preserve certain rights to copyowners. But there is just about nothing that PE firms can’t manage to crapify even more in their quest to wring every dime out of their acquisitions.
What I don’t get is why someone hasn’t figured out how to make the digital lending model more elastic like network bandwidth. As the popularity for certain titles expands, automatically increase the number of copies available for checkout - and compensate the publishers accordingly. Crappy titles sink to the depths where they belong - much like movies and music models where they’ve already figured this kind of thing out. It’s been proven over and over that people will pay for good content.
The problem certainly isn’t technical.