QuoteBankruptcy Jolts Indie Publishers
Book Distributor Goes on the Block

By Anita Huslin
Washington Post Staff Writer
Wednesday, February 14, 2007; Page D01

Within the world of independent books, publishers are normally preoccupied this time of year with getting their new titles to distributors so distributors can include them in the annual catalogue they market to booksellers.

This year, however, has been different for more than 150 U.S. publishers whose lifeline to the bookstores, libraries, universities and specialty stores that buy their books is a distribution company that is caught up in a massive bankruptcy case.

Publishers Group West, which was founded in Berkeley, Calif., 30 years ago and carved out a niche publishing works by Beat Generation writers and books on rock music, was put on the block by its parent company, Advanced Marketing Services. Advanced Marketing, which filed for Chapter 11 bankruptcy protection in December, distributes mass-market books to large outlets such as Costco, Wal-Mart, Target and Barnes & Noble.

Embroiled in its parent company's woes, PGW, which has become the nation's largest distributor of independent publishers' books, stopped payments owed to clients from the last four months of 2006. PGW President Richard Freese said bankruptcy code required the company to do so.

Among the publishers caught up in the situation is McSweeney's, which published Dave Eggers's latest novel, "What is the What," just as Advanced Marketing's bankruptcy protection took effect.

"Those books went out, but [McSweeney's isn't] getting paid for them," said Richard Nash, publisher of the independent Soft Skull Press and a client of PGW. "They're owed $600,000."

"We're trying to craft a solution whereby they can move to a new distribution operation and continue on," Freese said.

The publishers pooled their money, chipping in $500 each to hire lawyers, and filed a $25 million claim against PGW in bankruptcy court.

A federal bankruptcy judge in Delaware said he would decide tomorrow which of two PGW competitors will take over the company. The first to put in a bid, New York-based Perseus Books Group, is the nation's second-largest independent book publisher. The other, which jumped in only last week, is the distributor owned by Lanham-based Rowman & Littlefield Publishing Group. Its marketing and delivery subsidiary, National Book Network, is the third-largest independent book distributor in the country.

Publishers who have contracts with PGW have been scrambling to ensure that they have the capital to cover their short-term expenses. It's a business where margins can be slim, said Albert Greco, professor of marketing at Fordham University and a consultant to the Institute for Publishing Research. There's little money for advances, and books are often printed in batches, he said, so sales receipts can cover the price of printing more.

"It affects authors, agents, printers, trucking companies," Greco said. "It's a big business, but it is very fragile. Margins are tight; the per-person hours of reading are on the decline. And it's really a price-sensitive product that struggles against all the other [media] formats. It hasn't been easy."

National Book Network historically has focused on nonfiction and academic and business titles. Until recently, one of its biggest clients was Washington-based Regnery Publishing, which published "Unfit for Command," a critical look at Sen. John F. Kerry, during the 2004 presidential campaign. Regnery, however, recently left NBN and signed with Perseus.

Perseus's distribution unit brokered and sold a book on the Sept. 11 investigation and tends to lean toward serious books on public policy, political science and history and biographies. It also has as a client Civitas Books, an African American publisher.

Both Perseus and NBN have offered to pay a percentage of the money owed to PGW's clients. Both are working to convince publishers to support their bids as a way of persuading the bankruptcy court which company should get the firm. Going with the bigger firm would mean more influential representation for publishers, said David Steinberger, president of Perseus. Going smaller would allow for more personal service, said Jed Lyons, NBN's chief executive.

NBN hopes the deal boils down to money. It is offering 85 cents on the dollar to creditors, compared with Perseus's 70 cents.

To show its willingness to let publishers look for other options if they don't like NBN's services, the company has offered three-year contracts with publishers, compared with Perseus's four.

NBN's Lyons noted that Perseus has requested a $500,000 payment if the court doesn't choose its offer. This is not uncommon, according to industry analysts, who say bidding parties often ask for compensation because their interest boosts the value of the company on the block. NBN wouldn't request such a payment, Lyons said.

"The judge did say our offer is higher and better," Lyons said after a hearing earlier this week.

Steinberger said that Perseus, which would become the nation's largest independent book distributor if it wins the deal, has the relationships that enable its representatives to call at will on the biggest book buyers in the industry.

"You're entering a relationship with a partner who is going to help you get your books sold into bookstores," Steinberger said.

"They need to be knowledgeable and passionate about your books. And if you're entering into a long-term relationship, that's more important than if you get an extra 5, 10, 15 percent on the dollar."

A federal bankruptcy court has told the approximately 150 publishers that have filed claims on PGW assets that they are free to sign with either or both companies to show their support for the bidders' proposals.

The publishers have also asked the judge to let them break their contracts with the distributor if they don't like whichever acquires PGW.

Quote from: jcfialaI'd heard of this bankrupcy from some of the SF blogs I read - I don't think it's going to hit any game producers this time around.