One of the nation's largest subscription agents, divine Library Services, has apparently suffered financial failure. The Massachusetts-based subsidiary of divine, Inc. is also referred to by many as RoweCom or Faxon, its former names. As divine began shutting down access to incoming orders, an official notice appeared on one access point (http://www.kstore.com) that echoed e-mail announcements sent to selected customers.
|News Update — RoweCom Creditor Group Formed |
January 3, 2003 — An ad hoc group of creditor representatives has formed with representatives from both the library and publishing communities. In a telephone conference on Dec. 27 the group nominated and elected a steering committee of five publishers and five libraries. The group is currently engaged in fact finding and has retained both legal counsel and financial investigators. Library customers and publishers can go to a site on Yahoo,
http://groups.yahoo.com/group/rowecomcreditors/, and sign up as group members to receive updates from the committee.
The announcement stated that, "Due to business constraints beyond our control we will not be able to process your orders until further notice" and recommended that clients find "alternate sources for your materials at this time." The announcement also referred anyone seeking information on what had happened to orders and funds already placed to "Development Specialists Inc. (DSI) who are independent consulting specialists hired by divine Inc. to help us work through this situation."
Checking out the DSI Web site (http://www.developmentspecialists.com) revealed that this consulting firm "provides consulting, liquidating, and management services to bankrupt, insolvent, and reorganizing businesses. DSI operates, manages, and consults ‘troubled businesses' on behalf of lending institutions/other secured parties, bondholder, shareholder committees, and business owners." People who called the numbers suggested by the divine Library Services announcement got taped messages promising information in the near future.
Some executives at divine Library Services have left, notably, Jim Krzywicki, senior vice president and general manager of enterprise content, and former COO at RoweCom. Personnel throughout divine Library Services have been let go. The main office in Massachusetts is down to 100 or fewer employees; the Canadian and London offices have reportedly been closed.
On Friday, Dec. 20, 2002, a press release announced that EBSCO Industries had signed a letter of intent to acquire divine Library Services' European operation. (According to a contact within EBSCO, the company has long wanted a stronger presence in the French marketplace.)
At this point, it looks like prepayments made to divine Library Services could be caught in financial limbo for months or longer. Libraries may even have lost both the funds and the orders completely. Rumors about the total amounts involved run from a low of $33 million to as high as $80 million.
Apparently, divine Library Services may have stopped placing renewal orders with some publishers some months ago. Peter McDonald, associate university librarian for Syracuse University Library and a member of the divine Faxon Library Services Academic Client Advisory Board, told me that the first indications of trouble he had came from calls by major scientific-technical-medical (STM) publishers, within the last week to 10 days, warning that renewals had not gone through.
Though most academic libraries have a fiscal year that starts in July, the habit of paying in the summer has eroded severely over the last few years. A long-time expert in the subscription agent field told us that the "gentlemanly" agreements of the past, where most libraries paid in July or thereabouts and subscription agents renewed around September, have ceased. These days some libraries still pay in the summer, often to take advantage of discounts, but others pay later and later. If, as some librarians attest, the renewal orders from divine Library Services to publishers stopped in September, the 90-day grace period could explain the timing of the current crisis.
So what can librarians who have placed money with divine Library Services do? The best advice we could find is to NOT pay any invoices sent from the divine Library Services (Faxon, RoweCom). If you have bills-or checks-in hand, take them to a competitor service, such as EBSCO, Swets Blackwell, Basch Subscriptions, etc., and negotiate a transfer.
Librarians that have sent in prepayments already may never see their subscription money or the subscriptions. For now, they should probably approach publishers directly and ask for whatever forbearance the publisher can show them.
One favorable sign in an otherwise bleak scene, Sally Morris, secretary-general of the Association of Learned and Professional Society Publishers (ALPSP), an international trade association for non-profit publishers, published a notice in the association's monthly newsletter about the problems with divine. In it, she stated, "I am sure it would be helpful to those of your subscribers who pay via Divine if you were to give them an extended grace period, for both print and electronic access, until this mess is sorted out—after all, it's not their fault."
Some librarians have already begun pursuing legal action, opening discussions with their institutions' legal counsels and even considering class action suits. With many of divine Library Services' customers coming from the public sector, legal action may include prosecution by state or federal attorneys.
Publishers face a double crisis if monies for renewal disappear. Both librarians and subscription agency experts with whom we spoke thought that major STM publishers could ride out the trouble, but they worried about scholarly society or not-for-profit publishers. These publishers often work on much smaller survival margins and, in the case of societies, losses could affect membership. Many or most of these publishers, particularly in the humanities or arts, do not offer electronic products that could substitute for the print.
One experienced periodical expert with whom we spoke warned that some publishers might try to make up losses suffered this year by raising next year's subscription rates. This, in turn, could cut into future sales and negatively affect library budgets even further.
Started in 1999, divine, inc. rapidly acquired a large number of software houses and services to assemble technologies and build a customer base-Northern Light, Open Market, Eprise, Synchrony Communications, etc. Acquired in November 2001, RoweCom, Inc. has been a wholly owned subsidiary of divine's, operating under the name divine Library Services. RoweCom had acquired Faxon in 1999. The century-old Faxon had faced bankruptcy in 1998-99, but managed to work out relationships with librarians and publisher and recover by 2000.
Repeated calls to divine headquarters in Chicago for comment on the situation were not returned. As we went to press, divine finally issued a press release announcing that it was reorganizing and streamlining the company into three "solutions areas" and that it intended "to divest the content subscription business delivered through its RoweCom, Inc. subsidiary and focus on digital content delivery."
In addition to announcing the sale of the European business of RoweCom to EBSCO, the press release also stated that "divine also has received a term sheet from and is in active negotiations with Swets Blackwell, which has expressed unsolicited, definitive interest in acquiring some or all of the RoweCom operations worldwide."
Swets Blackwell claims to be the world's largest subscription agent (60,000 customers), with offices in 22 countries on 6 continents. Interestingly, rumors have it that Swets is very close to being purchased itself.
Stay tuned. We will be reporting on additional details and developments. Watch this site for a notice of updates.