The financial collapse of a major periodical subscription service earlier this year could cost university and college libraries in Canada and the United States millions of dollars in prepaid subscription orders.
RoweCom Inc., one of the world's largest journal distributors, has closed its Toronto office and has stopped taking customer orders for 2003 subscriptions after filing for bankruptcy protection in late January.
"Due to financial constraints, RoweCom has not been able to place or make payments for the substantial majority of its customers orders for 2003 subscriptions," the company said in a statement.
Libraries in Canada and the U.S. have paid RoweCom an estimated $65 million in advance subscription fees, and many are now coming to grips with the realization that their orders may never be filled.
Some, but not all, publishers have agreed to continue providing journals to RoweCom customers through 2003. Others are still weighing their options.
"We have to figure out if our budget can take the financial hit of publishing the same number of journals for this year even if we don't get reimbursed, and if this will affect libraries' decisions to continue ordering our journals," Eavon Lee Mobley of Ohio State University Press told the Chronicle of Higher Education.
The Canadian Association of Research Libraries said that it is worried that publishers will increase their subscription prices this year in order to recover the losses they will incur as a result of RoweCom's financial problems.
"As customers, we'll be paying even more for periodicals, and many are almost unaffordable as it is," said CARL president Bill Maes.
The U.S. attorney's office and a federal grand jury are investigating what happened to the $65 million in customer payments that are now missing. When RoweCom sought bankruptcy protection, it also filed a lawsuit against its parent company, Divine Inc., alleging that its parent had made "fraudulent" transfers from its operations.
The bankruptcy proceedings and associated litigation will likely last for months, leaving libraries and publishers in financial limbo.
Because of its size and the volume discounts it could offer, RoweCom was often used as the sole subscription agent by many libraries.
Meanwhile, EBSCO Industries Inc., a large competitor, is bidding to acquire RoweCom's European and American operations. As part of the deal, EBSCO is asking publishers to provide uninterrupted delivery of their journals and is requesting that libraries waive their rights to claims in bankruptcy court.
Many libraries have reluctantly agreed to EBSCO's request, angry that nonprofit organizations will have to absorb the fallout from RoweCom's meltdown.
"Libraries and publishers have always, for the most part, operated in a very cooperative environment," said Nicholas Burckel, dean of libraries at Marquette University. "And there's been this assumption that what happened with Enron and WorldCom can't happen to libraries. But clearly it does, and this points to our vulnerability."