Fall of the House of RoweCom: Libraries and Publishers Hit Hard
Robert B. Townsend, May 2003
From the News in the May 2003 Perspectives
In a painful reminder of the precariousness of the academic publishing system, RoweCom, one of the leading subscription agents for journals like the American Historical Review collapsed early this spring, taking millions of dollars from institutional subscribers with them into a Chapter 11 bankruptcy filing.
Large institutional subscribers such as libraries at colleges and universities, which are overwhelmed by the number of subscriptions they deal with, have come to rely on the efficiencies of large subscription agencies like RoweCom. They also like the convenience of paying one check to the agencies for all their subscriptions. In the normal course, the agencies pass the funds on to different magazine and journal publishers to maintain the flow of periodicals to the libraries' shelves. Publishers are rarely happy about this arrangement partly because the transmission of funds is occasionally delayed, and partly because agencies have to be paid a service charge. Nevertheless the agencies provide a n essential service that publishers cannot do without.
RoweCom, a global subscription agency serving hundreds of libraries here and abroad suddenly found itself in a deep financial crisis that prevented it from transmitting to publishers the funds it had already received from institutional subscribers. In papers filed in a Massachusetts court, RoweCom accused its parent company, divine inc., of siphoning off nearly $74 million from RoweCom's cash balances to cover its own cash-flow needs. Within days of this charge being filed, divine, inc., a Chicago-based software firm that had rapidly rocketed to fame and fortune in the heady days of high-tech riches, and had bought up RoweCom in a frenzy
of acquisitions, also declared bankruptcy, and denied a role in RoweCom's debacle.
The intricacies of the financial deals that led to these collapses are quite murky. But while the accusations and counteraccusations play out in bankruptcy courts, the immediate result is that subscriptions for hundreds of libraries are being cut off. The list of affected subscribers includes research universities, liberal arts colleges, public libraries, and federal agencies. For many history faculty the first sign that they are in an affected department will come when they are denied access to the electronic versions of journals in their field.
While the plight of libraries and readers is lamentable, the publishers are in a difficult bind too. No subscription money received, no journal sent, may seem a good commercial decision, but one that academic publishers cannot make easily; they have a tacit commitment to ensure that libraries will continue to have a complete run of the journals they publish. At the same time, because they are not normally accorded the status of a creditor in bankruptcy proceedings, publishers cannot hope to recover any part of the money that may become available.
For the American Historical Association, the fall of RoweCom involves potentially at least 283 institutional subscribers, whose payments for the 2003 runs of the AHR and Perspectives were paid to RoweCom but never transmitted to the AHA. The AHA has decided to continue to fulfill the subscriptions for the affected institutions for the balance of the year, despite the possibility of incurring a loss as a result (see the essay by Executive Director Arnita A. Jones on page 7).
The recent purchase of RoweCom by a much larger subscription agency, EBSCO Subscription Services, not only made the AHA's decision a little easier, but because of an agreement that the AHA signed with EBSCO on March 17, 2003, also held out the prospect of the AHA recovering some of funds it was owed. It is also expected that EBSCO, as a large company with a long tradition in the subscription business, will be able to restore the affected subscription services in 2004 and manage them efficiently.
—Robert B. Townsend is AHA assistant director for research and publications.