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Bankrupt Company Hurts Libraries, Publishers
Academic libraries and publishers lost thousands and in some cases millions of dollars after a library subscription management company went bankrupt in January. The company, Rowecom, collected a total of $65 million from academic and nonacademic libraries for 2003 subscriptions to scholarly journals and other periodicals, but did not purchase the subscriptions from publishers.
After Rowecom filed for bankruptcy, a group of creditors filed suit against its parent company, Divine. The suit alleged that although Divine determined in spring 2002 that Rowecom was not a viable business, it encouraged Rowecom to collect from thousands of libraries, instituted programs to solicit early payments from libraries and to delay payments to publishers, and then transferred $74 million to its own bank accounts.
Rowecom also filed suit against Divine, alleging that it was unable to meet its payments to publishers because Divine illegally diverted money from its operations. Divine subsequently filed for bankruptcy itself, and is being investigated by the U.S. Securities and Exchange Commission and a federal grand jury.
Some journal publishers said that they will continue to send periodicals to the affected libraries through the subscription period although they were not paid. Others said that they cannot afford to do so. In April Rowecom was purchased by EBSCO, another subscription-management company; as a part of the deal, publishers who agree to do business with EBSCO will have to fulfill subscriptions and forgo a portion of what they are owed. Proceeds from the sale of Rowecom and its assets will be divided among creditors, but publishers and libraries will probably be paid only a fraction of what they are owed.
Peter McDonald, a librarian at Syracuse University, says the episode has underscored the academy's vulnerability to marketplace vagaries, "not least corporate shenanigans and mismanagement." Syracuse had 60 percent of its print subscriptions with Rowecom. McDonald, like many other librarians, supports the EBSCO deal, which will reduce Syracuse's losses, although the institution will end up paying twice for many subscriptions.
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