Bankruptcy Hits Publishers, Libraries

When Sandy Spurlock of the Lovelace Respiratory Research Institute in Albuquerque, New Mexico, tried to confirm details of the institute’s 2003 library subscriptions with RoweCom, a Massachusetts-based subscription agent that provides magazines and journals to thousands of libraries worldwide, none of her telephone calls or e-mails was returned. A few days later, RoweCom went into bankruptcy. “I first learned in late December that RoweCom had cashed our check for $79 000 but had no intention of paying [publishers] for our subscriptions,” she says, “and we do not have the budget to pay for our [2003] subscriptions again. The implications for our research scientists are very serious.”

Between April and December 2002, RoweCom collected more than $65 million from libraries and institutions, including the National Institutes of Health Library ($2.4 million), Virginia Tech ($1.6 million), 3M ($1.3 million), and Lawrence Livermore National Laboratory ($1.2 million). The company also collected significant sums from a number of state universities, Brookhaven National Laboratory, the US Library of Congress, and the National Academy of Sciences. In some cases, RoweCom offered substantial discounts to clients who paid early. The money was supposed to be transferred to more than 26 000 publishers, minus a commission fee. Instead, it was transferred to RoweCom’s parent company, the Chicago-based divine Inc (which is now also in Chapter 11 bankruptcy). The transfer has resulted in lawsuits and a federal grand jury investigation. The only notice RoweCom gave its clients about the bankruptcy was a recommendation in late December that they find “alternate sources for their materials at this time.”

News of RoweCom’s bankruptcy filing did not surprise all librarians. “Given their low fees, there were serious questions about the possibility and quality of [client] support,” says David Stern, director of science libraries at Yale University. He adds that he had been concerned for some time over RoweCom’s balance sheet, especially after divine’s purchase of the company in 2001. “The major beneficiaries from RoweCom were those investors that bailed out very quickly and saw a nice profit on their initial investments. The losers will be the remaining libraries and publishers that will now have to subsidize the collapse through higher hidden costs,” he says.

Among the journal publishers caught off-guard by the bankruptcy were Elsevier Science, Oxford University Press, the American Institute of Physics, the American Physical Society, the American Association of Physics Teachers, the Optical Society of America, and the American Geophysical Union. Those publishers have had to quickly develop procedures to limit their more than six-figure losses and help their subscription bases. The publishers helped form a creditors’ committee with the libraries and, in some cases, they have offered to provide the libraries with 2003 subscriptions on the understanding that the libraries let the publishers take over financial claims against RoweCom. “I have been surprised and even touched by the generosity of many publishers during this difficult time,” says Spurlock.

On 5 March, EBSCO Industries Inc, one of two remaining large international journal subscription agents, announced that it had reached an agreement to purchase RoweCom and its customer base for up to $6 million. The final price depends on a number of conditions, including having the 25 publishers that are owed more than half the subscription money sign on to EBSCO’s takeover. All the library creditors will have their 2003 subscriptions fulfilled as long as they agree to sign up with EBSCO for 2004, but publishers will not be paid in full. Instead, EBSCO is proposing putting the financial burden on the publishers. They will receive payment from RoweCom’s remaining assets—the equivalent of 10 to 20 cents on the dollar—for fulfilling this year’s subscriptions.

The RoweCom bankruptcy may lead to a reluctance by libraries in the future to use subscription agents, says Spur-lock, as online site licenses become more attractive. “These are actually easier to handle without an agent as a middle person in the communication cycle,” she says.