Source Interlink Distribution Files Lawsuit Against Time Warner Retail

RELATED DOCUMENT: Source vs. Time Warner Retail [PDF]

The battle between wholesalers, retailers, distributors and publishers has just taken a more public turn with a lawsuit levied against Time Warner Retail by Source Interlink’s distribution division, Source Interlink Distribution, LLC. The former Chas. Levy Circulation Company, acquired by Source in 2005, is alleging breach of contract; discriminatory and retaliatory business practices; unfair competition; and interference with existing retailer customers.

The suit was filed in Los Angeles Superior Court on May 9 by Blecher & Collins, the attorneys representing Source Interlink Distribution. The suit names “Time Distribution Services Inc.”—now Time Warner Retail Sales & Marketing—as defendant.

When contacted by FOLIO:, a Source Interlink spokesperson declined to comment.

According to the lawsuit, Source alleges Time Warner Retail broke an agreement begun in 2001 by selling “Levy Data”—information “relating to the delivery, sale and return of magazines” at various retailers, including “purchase and return patterns of individual stores which magazine publishers covet”—to third parties as a service or part of a package of services. Source claims that the 2001 agreement was created on the condition that Time Warner Retail did not disclose the Levy Data to a third party.

Damages

As a result of the breach, Source is claiming it has lost or will lose customers, value and goodwill in its business. The company has not yet figured exactly how much value has been lost but has “reason to believe” damages are no less than $4.6 million.

Source Interlink is also claiming that Time Warner Retail began a discriminatory return policy in May where Barnes & Noble—Source’s largest retail customer—must return all unsold Time titles. “It has never been industry practice, policy or custom to require specialty retailers such as Barnes & Noble to return entire magazines to Defendant [Time Warner Retail],” says the suit. “Such a policy is unjustifiably onerous and burdensome and will tremendously increase costs associated with returns for Plaintiff and retailers.”

Source is claiming that Time Warner Retail’s pricing policy of Time titles is cutting into margins in high-cost distribution markets such as New York, Los Angeles and Chicago, and “deliberately forcing Plaintiff to operate at significantly lower margins in these markets.”

"Source has been growing rapidly," says one industry observer. "They
have purchased wholesalers over the past few years, and when they do
that they have access to all of their pricing. So they can see where
there’s parity in pricing and where there is a discrepancy. That’s why
they have visibility to these types of things that would potentially
lead to this kind of action."

Source also alleges that Time Warner Retail is interfering with its retail customers: “Plaintiff is informed and believes and thereon contends that Defendant has contacted Plaintiff’s retailers in an effort to interfere with its business relationships and to exert pressure to force Plaintiff into substantially devalued pricing deals."

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what about the small publishers

Submitted by Todd Matherne on Tue, 05/27/2008 - 16:27.

I am not sure of all the facts in this specific case but I glad to see it go to the court system for some conclusion in the publisher vs the distributor vs the retailer. For years small magazine publishers like mine have been losing profits to rising cost of distributors and retailers in what seems to be an ongoing issues of cost after cost and finally one of the big boys seems to have had enough. In New Orleans we have had to go direct with a lot of retailers because the distributors have very poor service and in some cases will not even take our local city magazine that has been around for over 40 years. Maybe this will shake up the industry and when it all settles out hopefully it will be fair.

Nothing will change

Submitted by Anonymous on Tue, 05/27/2008 - 16:58.

This is just a turf battle, don't expect anything to change for others when its settled. Distribution is difficult and very expensive give the margins now in the business. With volumes falling it will only get worse. It used to be the big books carried the freight for the smaller ones. As the giants leave the marketplace someone has to pick up the freight costs.