Friday, November 16, 2001
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NetLibrary Files for Bankruptcy Protection, and OCLC Offers to Buy Its AssetsBy JEFFREY R. YOUNG
The struggling e-book provider netLibrary filed for Chapter 11 bankruptcy protection on Wednesday, and the nonprofit library organization OCLC immediately announced that it has offered to purchase all of the company's assets. The company's fiscal implosion came just five days after one of its investors had filed a lawsuit in federal court alleging that netLibrary had overstated its earnings to attract venture capital. The fate of the company's collection of more than 33,000 full-text books is now in the hands of a U.S. bankruptcy court, which will decide whether OCLC can purchase the virtual tomes, says Jay Jordan, president and CEO of OCLC. The proposed deal also includes a loan from OCLC to netLibrary to help the company continue its operations while the assets are transferred. Thousands of academic libraries subscribe to netLibrary's service to let patrons use all or part of its collection online. OCLC, based in Dublin, Ohio, provides computer cataloguing and other services to 40,000 libraries worldwide. If the sale went through, said Mr. Jordan, OCLC would "not only offer the current service, but improve it with new, relevant content on a continuous basis." Mr. Jordan said OCLC would charge some kind of fee to use the e-books so that the operation could be "self-sustaining." "Is it a perfect collection at this juncture? No. Is it a perfect business model? No. But there's enough critical mass there and enough benefit to library subscribers that libraries are very excited to see this particular business continue," Mr. Jordan added. OCLC officials would not discuss the price tag or other details of their bid. However, Nita Dean, a spokeswoman for the library group, said she was not aware of any other potential buyers for netLibrary's assets. Marge Gammon, a netLibrary spokeswoman, and Robert W. Kaufman, its chief executive officer, did not respond to voice-mail messages from The Chronicle. University librarians cheered the news that OCLC was stepping up to bid on netLibrary's books. "That's good news for all of us," said Dennis J. Dillon, assistant director for collections and information resources at the University of Texas at Austin. "It means we'll be assured of online access, and that's what we're all looking for." Librarians around the country have been worrying aloud about the future of netLibrary since last month, when the company announced that it had put itself up for sale after failing to attract enough investment financing to stay afloat. The new lawsuit might complicate the fate of netLibrary's e-books, however. Parthenon Investors LP, which had made two separate $7.5-million investments in the company, sued netLibrary and Mr. Kaufman, its CEO, in U.S. District Court in Denver late last week. The suit charges that netLibrary, after winning the initial sum, fudged its financing to meet the investors' criteria for the second $7.5-million infusion. In its lawsuit, Parthenon accuses netLibrary of falsely overreporting its revenues by at least $1.5-million so that it could meet a revenue target that would guarantee further financing from the venture-capital firm. Founded three years ago and based in Boulder, Colo., netLibrary was once widely seen as the most promising commercial effort to offer e-books to higher education.
Background articles from The Chronicle:
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 NAACP issues recommendations for reducing inequities in education Science journal retracts paper that veered into geopolitical speculation Updates on 8 capital campaigns netLibrary files for bankruptcy protection, and OCLC offers to buy its assets League president warns 2-year colleges to study students' technology needs Jenzabar officials say they have finished integrating 4 companies they bought Best-selling software on college campuses in October A digest of recent corporate news in distance education |
Copyright © 2001 by The Chronicle of Higher Education