Thursday, May 29, 2014

[Update] Newsstand wholesaler Source Interlink to go out of business after Time Inc. dumps it

[This post has been updated] 

[Update: Source Interlink Distribution Company, one of the largest newsstand wholesalers in the U.S., faced with losing some of its biggest customers in a dispute over price and payments, has decided to discontinue operations after 20 years in business. Michael Sullivan, the CEO, sent a letter to distributors and customers saying, in part, that 
While we have made significant progress in finding mutually agreeable solutions with publishers and national distributors alike, one of our largest suppliers has recently decided to cease supply and move in a different direction. As such, it's with a heavy heart that I am writing to advise you that Source Interlink Distribution Company will be discontinuing all operations in the near future... 
While this is truly a sad day for Source and its roughly 6,000 employees, we are hopeful that we will be afforded the opportunity to wind down our operation in a smooth and orderly manner. In the coming days, we will do our best at keeping you informed as things progress.]
Time Inc. has dumped its 2nd largest single copy wholesaler in the U.S. and switched business to a rival. It became known as part of a regulatory filing on Tuesday. The jilted wholesaler, who had been demanding a price hike, was reported to be Source Interlink, the second-largest wholesaler of the company's publications. The filing said that the decision was made because Source Interlink owed $7 million in receivables. 

The company that replaced it was reported to be the News Group, owned by Canada's Jimmy Pattison, who was already Time Inc.'s number 1 wholesaler, according to a story in the New York Post.
Source Interlink was probably betting that Time Inc., only days from being spun off from Time Warner into a new public company, would fold and accept more costly terms, one source said. 
“The feeling on the street is that this is a new Time Inc.,” said the executive. “The old Time Inc. would have folded.” 
Time Inc., headed by CEO Joe Ripp, said the dumped wholesaler was responsible for approximately 2 percent of its revenues — or just about $67 million of its $3.3 billion in 2013 revenue.
The story said that in the mid-1990s, there were 300-plus wholesalers in the U.S. but now there are three major players: News Group, Hudson News and Source Interlink.  (A similar consolidation took place in Canada during the same span.) 

A story in Folio: said, as in similar situations, the decision caused a chain reaction:
According to a source, Curtis, a national distributor, has pulled its business from Source Interlink as well and Comag, another national distributor, had already done so, going as far as sending letters to its publisher clients notifying them of Source Interlink's supposed payment problems.
The story said Time Inc. anticipates it will take up to 12 weeks to re-align distribution under the News Group, which will mean $4 mlllion in lost revenues and $1 million in transition costs. That's in addition to the expected $12 million decrease in operating cash flow due to the new terms struck with The News Group. 
The publisher-wholesaler relationship has been a contentious one. In 2009, Time Inc. and Source Interlink effectively settled an anti-trust lawsuit brought by Source when Time Inc., along with other publishers, refused to go along with a per-copy distribution price increase. As part of the deal, Time Inc. entered a multi-year contract with Source, but didn't have to pay the increase.
Prior to that deal, Time Inc., other magazine publishers and national distributors had threatened to deny shipments to Source, which was granted a restraining order from the U.S. District Court for the Southern District of New York which prevented the publishers and NDs from doing so.

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