The Latest on Source Interlink

Yesterday I reported that magazine publishers Source Interlink and Anderson Merchandisers planned to add a 7 cent surcharge for each magazine they distribute to retailers. Anderson News even threatened that if publishers did not sign off on the 7 cents fee, it would exit the magazine distribution business rather than continue in an unprofitable business. Source Interlink has since backed down from its demand for the surcharge, sources say.

Back in 2007 Source Interlink acquired 80 consumer magazines and 100 Web sites from Primedia (since consolidated to 75 magazines and 90 websites) including Soap Opera Digest and Soap Opera Weekly.

In a new article on Billboard.biz, a few additional details are revealed:

In the latest move, Source Interlink has written a letter to its retail customers explaining why some of them may have experienced an interruption in magazine shipments from the company. The letter from Source Interlink chairman/CEO Greg Mays stated the company will file a major anti-trust lawsuit and will seek a restraining order so it can properly service stores.

It said its shipments to store are due to "an unprecedented and unprovoked assault on this channel by certain publishers and a national distributor," according to the letter, which was obtained by Billboard. "They are trying
to lock out competition [Source] in the magazine distribution chain to the retailer's detriment. To accomplish this scheme, this group has spread false
rumors about Source and attempted to undermine us in the community."

Those rumors include claims that Source Interlink has liquidity problems and is unable to make payments to publishers, sources say. In a move to parry that rumor, Source Interlink has paid down its magazine's accounts payables by some $100 million in the past week. Moreover, the letter added, "Source has ample and readily available liquidity, in excess of $200 million, and is current in its obligations to all its customers...We have solid backing and support from our investment partner, The Yucaipa Companies. Most importantly we are enjoying solid support from the retail sector and many publishers who have the best interests of the industry at heart."

Source argues in the letter that while the magazine publishers characterize the brouhaha as a dispute over seven cents, the whole situation is actually a part of bigger picture negotiations to "secure necessary financial adjustments to outdated distribution agreements."

According to a story on businesstn.com, retailers like Wal-Mart are increasingly turning to scanned-based-trading (SBT), which means they pay for magazines when the products are scanned at the check out counter, rather than purchasing them in bulk from wholesalers like Anderson and Source Interlink on the front-end. This new business model impacts cashflow and squeezes liquidity for wholesalers and inflates inventory on their balance sheet.

New developments will be posted as they happen.