AMS Bankruptcy Clouds Future of Many Small Publishers

January 11, 2007

As the fallout from Advanced Marketing Service's (AMS) decision to file for Chapter 11 bankruptcy protection at the end of December continues to rain down on the book industry, much uncertainty surrounds the prospects of many of the small, independent publishing clients of Publishers Group West, AMS's distribution subsidiary.

Though the folks at Avalon Publishing Group, a former client of PGW, can breathe a sigh of relief following the announcement of plans for Avalon's acquisition by the Perseus Book Group, for many of PGW's publisher clients the future holds much uncertainty. The AMS bankruptcy filing has tied up the revenues of its clients for the 2006 fourth quarter and has left what is a main source of revenue for many publishers in jeopardy.

"It's a mess," Richard Nash, Soft Skull Press publisher and PGW client, stated flatly.

Eli Horowitz, managing editor and publisher of McSweeney's, believes the AMS filing will affect the independent publishing world "terribly.... It's a tough business and a labor of love for all of them. This is a big chunk of money that has been vaporized."

In late December, AMS, a San Diego-based wholesaler of general interest books that provides a variety of other services, including promotional and advertising services to publishers, announced it had filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware. According to the San Diego Union-Tribune, the move was designed to protect AMS from its creditors as it looks to sell or refinance the business.

On January 5, PGW filed a motion with the bankruptcy court seeking approval to give its publishers "Critical Vendor" status and asked the court to allow the company to make payments totaling the amounts due to PGW publishers in January 2007, according to an e-mail sent from Richard Freese, PGW President, to PGW clients. It is expected that the motion will come before the court during a hearing on January 24.

At present, the court has granted PGW the authority to conduct normal business operations and to satisfy its obligations to its clients going forward. According to a number of its publisher clients, PGW is currently paying them on a weekly basis.

Since the Chapter 11 filing, the book industry has been abuzz with rumors and conjecture over the imminent sale of PGW. And while Perseus has left open the possibility that it will seek to bring other PGW clients on board, at present these independent publishers are focusing on doing what they can to ensure that their companies weather the storm and remain fiscally healthy.

Soft Skull's Nash reported that the money owed to his company for the fall season represents anywhere from 30 to 35 percent of the company's annual revenue. "Given the typical publishing world, where a good year is 10 percent, we're talking a lifetime of profit," he said. Discussing how this lost revenue will affect cash flow, he said the company would live "month to month -- each month's check pays that month's books."

For McSweeney's, the timing of AMS's filing could not have been worse: A large portion of the revenues from the publisher's new Dave Eggers novel, What Is the What -- a percentage of which were to be donated to the Valentino Achak Deng Foundation to aid the Sudanese in America and the Sudan -- is now tied up in the bankruptcy. "We shipped 60,000 copies during that period and the proceeds are not here yet," said Horowitz.

"When your distributor to the whole book trade declares bankruptcy, it's a huge distraction from the business of creating books and taking them to market," said Sasquatch Publisher Gary Luke, who noted that the "bulk of the company's fall season" is tied up in the bankruptcy. "And, of course, a loss like that would be a serious problem for any publisher."

In attempt to counter the effects of the bankruptcy on its business, Soft Skull's short-term strategy is fairly basic. "Try to sell as many books as possible," said Nash. "Shake every apple from the tree -- if a P.O. expired, try to contact the account. We have e-mail and blog postings going out left, right, and center."

Sasquatch is banking on its strong lineup in 2007 to help the company remain fiscally sound. "We have some great books coming in 2007," Luke said. "Bringing those books to market -- in the trade and beyond -- is where we are focusing our attention. The weekly payments from PGW are a great help."

"So far, it's a process of getting information," said Horowitz. "There's a lot up in the air, though PGW has been good at keeping us informed.... We get paid for books and pay our bills."

In the meantime, an "Ad Hoc Committee of PGW Publishers" was created to "promote the common interests of PGW publishers in the bankruptcy proceedings," according to an e-mail to PGW's client list from Rhonda Abrams of The Planning Shop and Steven Piersanti of Berrett-Koehler Publishers. The ad hoc committee has retained the services of law firm Schnader Harrison Segal & Lewis LLP. As explained in the e-mail, the committee was created because "we have been advised that the interests of PGW publishers are likely to be far more persuasive, visible, clear, and convincing if a large number of PGW publishers collectively petition the court."

"Our relationship is very different than AMS' creditors," Abrams told BTW. "We've been dealing with a solvent company." In 2006, PGW unit sales increased 3 percent to 11.2 million; gross sales rose 2.2 percent to $187.3 million; net sales went up 5.5 percent to $138.6 million; and returns decreased 6.1 percent to just under 26 percent, as reported by Shelf Awareness. Overall, said Abrams, the court's decision on January 24 is "very important" and will "decide if some of the money will be paid."

Despite the current turmoil, independent publishers were quick to point out that they harbored no ill will to PGW and appreciated how the company was handling the situation. Nash noted, "PGW recognizes the impact it's having" and was pleased that the company had acted to assist its clients, such as with weekly payments. Horowitz echoed these sentiments and stressed, "We all want it to work out."

Sasquatch's Luke reported, "PGW has done an admirable job ... in keeping up the pace of selling and shipping our books. Winter is a prime season for both gardening and regional travel. We've seen terrific sales for Ask Ciscoe: Your Gardening Questions Answered by Ciscoe Morris and the new edition of Best Places Northwest -- all from PGW's customers. So right now, it's a version of business as usual. In the long term, it would be in our best interests if PGW could get out from under the bankruptcy and move forward as the great sales and distribution organization we know it to be."

The Planning Shop's Abrams, who noted that her company should be fine since it has other distribution channels aside from PGW, nonetheless wondered how the bankruptcy might affect the independent publishing industry as a whole. "It's worthwhile in remembering the history of PGW," she told BTW. "They are a main instrument in putting independent voices in bookstores.... Where is that independent voice that shoppers want if not from publishers [carried by] PGW? These are important books to have in a bookstore." --David Grogan

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