Divine Debacle Rocks Industry
By Paula Hane
the Massachusetts-based library subscription agency that is a subsidiary
of divine, Inc., has suffered financial collapse. The
subscriptions and payments that libraries placed with RoweCom throughout
the fall were simply not passed along to the publishers,
both libraries and publishers in financial limbo and considerable
Many observers are blaming divine for "stiffing" the
creditors (just where did the money go?), and some
are calling the company the "Enron" of our industry.
Initial estimates of the lost subscription funds range
from $33 million to $80 million, though some speculate
the actual amount could be even higher.
In late December 2002, divine announced that it intended
to divest RoweCom, which it had purchased in November
2001 for $14 million in stock. According to divine,
EBSCO agreed to buy the European RoweCom business,
and Swets Blackwell had expressed interest in "acquiring
some or all of the RoweCom operations worldwide." Rumors
about bankruptcy or an acquisition were still swirling
in mid-January as we went to press with this issue.
Following its acquisition of RoweCom, divine had
integrated the unit into the parent company under the
name divine Information Services and pushed to de-emphasize
the RoweCom/Faxon identity. When the financial crisis
hit, divine seemedvery deliberate in trying to separate
itself from the RoweCom unit's troubles. In one company
press release, divine stated that "RoweCom had substantial
cash flow issues prior to our acquiring it and while
we have been able to resolve many of them, others remain."
Creditors, Buyers Negotiate
Leading creditors have formed an ad hoc committee
to investigate the situation and negotiate with RoweCom/divine
on behalf of libraries and publishers. This body met
by telephone on Dec. 27, 2002, and appointed a steering
committee that includes five librarians and five publishers.
The steering committee retained the firm of Jones Day
for legal counsel and Price-waterhouseCoopers as a
financial advisor to assist it in evaluating the situation.
On Jan. 14 and 15, a meeting was held in New York
that involved representatives for RoweCom, the "two
possible potential purchasers," the creditors' steering
committee, and divine. As this issue went to press,
we had not learned the details of this meeting. RoweCom/divine
had told customers that it wouldhave some news for
them by Jan. 18.
A group of STM publishers also met in New York on
Jan. 14 and 15. According to a newsletter issued by
Swets Blackwell on Jan. 10, the company had delayed
submitting a final purchase bid until this meeting.
On Jan. 15, following the meetings, another Swets Blackwell
newsletter stated: "While a final agreement has not
yet been reached between Swets Blackwell and divine
for acquisition of the Faxon/RoweCom business unit,
the lead negotiators are continuing their good-faith
discussions to reach a definitive outcome shortly."
Informed sources indicate that the decision to acquire
RoweCom from divine may hinge on the European operation,
with Swets attempting to block the announced acquisition
by EBSCO with an offer to buy the whole concern.
Swets Blackwell further urged library customers to
obtain holding lists from divine and submit them to
Swets for a quotation "should the customer contemplate
the transfer of the journal management to Swets Blackwell.
When transferred, this will save valuable time getting
orders submitted to publishers and minimize service
In December 2002, Swets Blackwell announced the Feb.
1, 2003, opening of its Ottawa-based Canadian sales
and customer support office. In the Jan. 10 newsletter,
the company announced the employment of four additional
customer-support staff members and one Canadian sales
manager, Stuart Silcox. "The new staff members are
all former RoweCom Canada employees displaced by the
recent downsizing. This brings the total number of
Swets Blackwell Canada staff to 10."
divine has been forced into a partial resolution
with at least one creditor that decided not to wait
for the return of its subscription money. The New York
state attorney general's office filed suit against
divine and RoweCom (and its various aliases) for breach
of contract on behalf of the State University of New
YorkBuffalo's libraries. According to a representative
of the attorney general's office, the value of the
subscription contract that Buffalo paid was $1.3 million.
The suit asked for an additional $50 million in damages.
The "understanding" reached in early January provided
an initial bridge payment of $500,000 by divine to
SUNYBuffalo, while buying time until Jan. 29
for divine/RoweCom to straighten out its finances.
The lawsuit was still pending as this issue went to
A spokesperson for divine confirmed that the company
has received a legal complaint from one other entity
in New York state but declined to identify the plaintiff.
It's possible that other creditor libraries will consider
this type of action, since waiting for a settlement
to the mess could bring little recompense.
Impact on Libraries
The staff in libraries of all sizes has been reeling
since RoweCom's announcement in December. Librarians
have struggled just to discover which orders RoweCom
actually placed and whether it paid any publishers.
Of course, library staff are caught between a rock
and a hard place here. Most can't even think about
paying twice for their subscriptions. However, if the
money isn't recovered and publishers won't provide
subscriptions gratis, collections will be severely
crippled. Patrons could lose access at a time when
many are questioning why they need a library, since "everything
is available on the Internet." The timing couldn't
David Gansz, director of Wilmington (Ohio) College's
Watson Library, describes the initial impact of the
RoweCom debacle on the school's library as catastrophic,
especially given the timing. Here's the story, in his
words (on Jan. 6):
Normally between semesters, we accomplish "internal" library
projects that aren't feasible during the busy teaching
term. Every single staff member in my library has been
consumed with generating lists of subscriptions, double-checking
them against Faxon's spreadsheet, triple-checking them
against Faxon's Web-based subscription lists, [and]
quadruple-checking to see if Faxon actually provides
a check number for those subs they claim they paid,
On top of that, we've had to scramble to get accurate
information to rival vendor EBSCO so that they can
take over our subscriptions.
Meanwhile, we've had to compilelists of every print
subscription that is covered full-text in electronic
databases to which we have access. Then we've had to
generate a list of which subscriptions expire when
and prioritize a list of which journals are so essential
to the classroom curriculum that we must pay for them
twice, so to speak, to ensure their availability to
My time has personally been spent making multitudinous
phone calls to professional colleagues all over the
U.S., to our reps at Faxon, to DSI, and others, just
trying to get simple information regarding the status
of our subs. The e-mails back and forth already number
in the hundreds.
I can safely say as of this morning that Faxon has "taken
us" for $28,905.73 of the $41,988.65 we prepaid them.
For a small, private liberal arts college like ours,
that financial loss is devastating. The time (and,
consequently, money) spent by staff on this has already
crippled our ability to provide quality service in
Some libraries have been examining the possibility
of placing subscriptions directly with publishers,
rather than using a subscription agency as an intermediary.
Librarians launched into vigorous discussions about
the pros and cons of this option on library listservs.
ALA had planned sessions to discuss the RoweCom situation
during its Midwinter Meeting in late January. SLA posted
news and links about the situation on its Web site (http://www.sla.org/content/interactive/infolinks/tellme/divine.cfm).
Impact on Publishers
Publishers are obviously very threatened by the situation.
RoweCom/divine has said that its three largest, Reed
Elsevier, Wiley, and Blackwell, will continue to send
titles through January. Some publishers have promised
to continue through March, but what happens then?
A few publishers have even offered to cover the 2003
subscriptions if libraries agree to renew for 2004.
Some can afford to provide free electronic copies when
that's an available option. What about the scholarly
society and association publishers? Some of them barely
break even. Sources have said that a few small publishers
will have trouble just paying the printing costs for
the next issues unless they are paid.
For scholarly journals, an attrition rate of 3 percent
is generally considered "dangerously high." But, according
to some estimates, the fallout from the current situation
could in fact force an attrition rate of more like
10 to 20 percent. RoweCom's failure has the potential
to change the face of publishing as we know it.
Impact on Subscription Agents
The situation has clearly eroded the trust factor
among the parties involved--libraries, publishers,
and intermediary agents. Those libraries that continue
using subscription agents will most likely ask vendors
for detailed contract language to protect their interests,
instead of the less formal, more trusting procedures
of the past. One observer commented that from now on
many state fiscal agencies could insist on bonding
arrangements with agents. This would then affect overall
Rollo Turner, secretary general of the U.K.-based
Association of SubscriptionAgents and Intermediaries
(ASA), said that the disaster at RoweCom is not typical
of the industry. He hopes that "libraries will not
be put off using the overwhelming majority of agents
who are both financially sound and provide good service
at reasonable cost." He also noted that agents provide
services to libraries that are difficult and costly
to replicate. ASA is in discussion with members and
others in the industry to ensure that business is conducted
with little or no risk to libraries and publishers
in the future.
Impact on divine
The question now is, how badly has divine sullied
its reputation through this mess? If the RoweCom situation
is not settled soon, the negative press about breaches
of contract could erode any remaining trust with its
customers (current and potential) and vendors. Will
the perception that it failed to honor business agreements
affect its ability to sell other products and services?
The divine investor message board on Yahoo! has also
been buzzing with comments from disenchanted investors.
divine's stock has taken a nose dive over the last
year, losing more than 90 percent of its value. The
company did a 1-for-25 reverse split in 2002 as it
struggled to prevent NASDAQ delisting.
divine's other services also show signs of erosion.
The divine Northern Light Special Collection of 7,100
full-text sources (http://www.nlsearch.com) now
carries the notice: "Effective January 1st 2003, divine
has discontinued the sale of its special collection
articles on a pay per view basis. Thank you for your
patronage over the years and we are sorry for any inconvenience."
Librarians who have purchased divine's Virtual Reference
Desk software--which is based on the NetAgent customer
relations management software--worry that the move
of divine's computer-development work to India may
leave their operations vulnerable.
Things could get pretty ugly for the once high-flying
Paula J. Hane is Information Today, Inc.'s news bureau chief
and editor of NewsBreaks. Her e-mail address is email@example.com.