What the AMS Bankruptcy Means for the Publishing Industry

As Sarah has reported this morning, about 150 independent publishers are in financial trouble.

Just before everybody popped open their bottles of champagne, Advanced Marketing Services filed for Chapter 11. Publishers Group West is owned by AMS. (PGW, which had operated independently for thirty years, was purchased by AMS in 2002.) And PGW is the exclusive book distributor for many of the independent presses you enjoy: Avalon, McSweeney’s, Soft Skull, North Atlantic, Shoemaker & Hoard, the list goes on.

All of these publishers are owed money by PGW for revenue collected during the last three months. And they haven’t received it. Nor are they guaranteed all of it. In other words, the monies that were collected during the last quarter of 2006, which includes the Christmas season, are now locked as AMS undergoes bankruptcy filing procedure. I don’t know how well Dave Eggers’ What is the What sold (perhaps someone with a Bookscan account might offer a sum), but given that this was positioned as the big McSweeney’s title, the loss must be staggering. To say that this will leave “pain in its wake,” as Michael Cader suggested yesterday, is something of an understatement.

In a story filed this morning, Publishers Weekly reported that Costco will operate “on a business as usual basis” and that publishers would soon have access to the inventory now being held in AMS’s Indiana warehouse, once they have received approval from the court. AMS has also had $75 million in debtor-in-possession financing approved, but it’s unknown when these funds will move. The San Diego Union-Tribune reports that AMS needs about $14 million to purchase new books to be delivered. But, again, these monies are to ensure that AMS remains in operation as they undergo bankruptcy restructuring and these are not necessarily monies that will find their way to all the publishers left in the lurch.

Publishers are remaining understandably silent about this major setback. After all, no man wants to confess the amount he has in his checking account. But given that many indie publishers operate from paycheck to paycheck, this may signal significant loss and possibly a death knell for more than a few of them.

Here’s a list of the top twenty-five creditors:

1. Random House ($43.3 million)
2. Simon & Schuster ($26.5 million)
3. Penguin Putnam ($24.6 million)
4. Hachette ($22.6 million)
5. HarperCollins ($18.0 million)
6. Publications International ($12.5 million)
7. VHPS ($9.6 million)
8. Andrews McNeel Publishing ($8.7 million)
9. John Wiley & Sons ($6.0 million)
10. Leisure Arts ($4.7 million)
11. Workman Publishing Company ($4.4 million)
12. Rich Publishing ($4.4 million)
13. Chronicle Books ($4.3 million)
14. Meredith Corporation ($4.3 million)
15. Houghton Mifflin Trade ($2.6 million)
16. Avalon Publishing Group ($2.3 million)
17. United States Playing Card Co. ($2.0 million)
18. Zondervan ($2.0 million)
19. Global Book Publishing ($1.7 million)
20. Cook Illustrated ($1.5 million)
21. Client Distribution Service ($1.4 million)
22. National Book Network ($1.1 million)
23. New World Library ($1.1 million)
24. Grove/Atlantic ($1.1 million)
25. Hugh L. Levin Associates ($1.0 million)

And that’s just the first twenty-five unsecured claims. That’s a total of $210.7 million dollars owed to these creditors. Clearly, $75 million isn’t going to be enough.

The big question here is how the creditors will be prioritized. If there is only a fraction of monies available for the creditors, will it be awarded to those with the largest bills (i.e., the big publishers) or will the Bankruptcy Court Judge understand the precarious position that independent publishers are in?

Judge Christopher Sontchi is presiding over the bankruptcy in Wilmington, Delaware. Judge Sontchi appears committed to moving things along. In the Home Products bankruptcy, Judge Sontchi permitted pre-bankruptcy claims of creditors to be paid in full before confirmation of a plan. Whether this will translate into a quick remedy for AMS’s tremendous debt remains to be seen.

It’s unknown what this will mean for PGW employees. Will PGW be purchased by another entity or will it struggle along under AMS’s ownership? For the moment, it appears that AMS will continue operations on a day-to-day basis.

I will keep tabs on this story as I learn more info.

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8 Comments

  1. The key question, at least in the short term, will be—what other sources of revenue or capital does each publisher possess? One thing McSweeney’s has going for it is ongoing flows of subscription revenue from the Quarterly, and from The Believer. And one thing that Grove and Avalon (Carroll & Graf, Thunders Mouth, Shoemaker, Seal etc…) have is banking relationships.

    As regards the bankruptcy, in theory at least, a judge can’t play favorites. You get cents on the dollar. You’re correct in noting that the $75M debtor-in-possession financing may not be used to pay PGW publishers. However, PGW is indeed a wonderful operation, with wonderful people, and they’re aware of the implications of this and are doing what they can. What’s unknown right now, is what they can do, and when.

    In the interim, the well-capitalized will be OK, the ones with alternative revenue streams will just about hang in there, and the rest…

  2. Thank you for your statements about the AMS/PGW debacle.
    PGW has distributed our book for over 10 years.

    To clarify the financial loss to us – the bankruptcy court is holding 4 months of our book sales, not 3. AMS filed for bankruptcy on December 29th. The next working day, January 2nd, we would have received a payment for September book sales. Because of the timing of the bankruptcy filing by AMS, we have lost payments for our book sold in September, October, November and December. As for the possibility of receiving repayment – we are unsecured creditors and are paid after the attorneys. I think that speaks volumes about the likelihood of recovering any of the money owed us.

    Most small publishers have small margins and the lose of 4 months of income will be devastating. If PGW publishers aren’t talking, there could be several reasons: 1. Shock, 2. The hope a white knight will ride in and rescue PGW, and/or 3. Fear they’ll be excluded from any potential offer(s) to buy PGW if they say anything.

  3. According to an article on Publishers Weekly, Perseus and Avalon are cooking up a plan to possibly take up where AMS is leaving off (somewhat, at least).

    blockquote cite=”http://www.publishersweekly.com/article/CA6406735.html?nid=2286″> Steinberger said about the PGW proposal. “Our goal is to move quickly, since circumstances require it,” he added. Steinberger had no comment on reports that Perseus is planning to offer to pay publishers up to 75 cents for every dollar owed PGW clients on the AMS bankruptcy in exchange for a multi-year contract.

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