Source Interlink CEO: 'An Unprecedented and Unprovoked Assault' on Us

Source Interlink sent a letter to its retailer partners today explaining how the distributor is reacting to the current chaos in the magazine newsstand channel.

(If you haven't been following this saga, read these stories here, here, here and here.)

It's pretty strong stuff. Claims of an "unprovoked assault" and competitive lockouts. It's damage control, to be sure. There are a number of reports attempting to shed light on an extremely contentious and emotional distribution market that's been tough to pin down. Indeed, trying to describe what's going on is like trying to hit a moving target. Tempers are through the roof and the finger-pointing is severe.

Here's the letter in full:

Source Interlink is still in the Magazine Distribution Business

I am writing to you to explain why you may have experienced some interruptions in your magazine shipments. This has been caused by an unprecedented and unprovoked assault on this channel by certain publishers and a national distributor. 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. Just to clarify, Source has ample and readily available liquidity, in excess of $200 million, and is current in its obligations to all its customers. We are part of a large and vibrant company that includes DVD and CD distribution and more than 75 magazine publications and 90 related web sites. 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.

Over the past 5 years, Source has invested millions of dollars in distribution equipment, distribution centers, technology, logistics and software; expanded its service footprint; and worked long and hard to become the most efficient and lowest cost magazine distributor. Unfortunately, while we were in the middle of pursuing good –faith negotiations to secure necessary financial adjustments to outdated distribution agreements those publishers colluded with two large and less efficient distributors to take over Source routes and customers. They characterized this as a dispute over “7 cents”, but they really used that as a cover to roll out their scheme. The 7 cent increase was rescinded within days and no price increases are now proposed.

What this is really about is an attempt to eliminate competition in the magazine distribution chain that is primarily directed at you. Their goals are simple. By locking up all distribution with two distributors beholden to them, they will be able to:

Control your margins – they effectively dictate retail price and with this will also dictate your cost structure.
Reduce service to you – they have no incentive to provide more labor to your store. If you want it, you will have to pay for it.
Eliminate important programs you may want, such as scan based trading

In short they want to control the entire channel and effectively eliminate any control you have. Your margins will be reduced with higher fees.

Hopefully knowing the facts will make it clear that this group is attempting to limit supply options no matter how much disruption is caused in the retail community, as evidenced by the fact they have no viable plan to make this product available in Source’s distribution area.

You should also know that we are going to fight to keep and grow our current magazine distribution business. We will shortly be filing a major anti-trust lawsuit and seeking a restraining order so we can continue to properly service your stores.

With your continued support we will have our business channel operating at normal efficiency within a short period of time.

Sincerely,

Greg Mays
Chairman & CEO

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Playing chicken

Submitted by Anonymous on Thu, 02/05/2009 - 16:20.

As a publisher of consumer magazines sold on the newsstands, it sounds to me like Source and Curtis, et al., are involved in an epic game of chicken--all the while forgetting, as usual, that their job is to get my product into consumers' hands. The joke will soon be on them, however; as Internet marketing and publishing options expand, it begins to look like we publishers will be able to survive in the future without any of these incompetent middlemen leeches. Moving information is the way of the future; moving units is the way of the dinosaur. In the meantime, while these animals fight over the scraps, we're making plans to live long, happy lives without them.

Losing at Chicken

Submitted by Anonymous on Thu, 02/05/2009 - 16:46.

This whole mess is one that was created by ANCO & The Source themselves. They promised the sun, the moon, and the stars to retailers on the false hope that volume alone would solve thier financial issues. Look at anytown USA, the question is how many magazine suppliers are in that town? Any where from 1-10, especially when you factor in all the small accounts that are shipped via UPS or Fedex. Find any distribution type business where this occurs, please. I have wracked my brain and others in an effort to come up with one. And Why is that, that approach doesn't work. It hasn't for the last 12 years! First, most of the independents went, then Unimag, now ANCO and the Source have failed the system doesn't work. We will drive magazines out as a category once and for all with this. Mays is basically trying to inflict as much damage as he can to the other wholesalers. He is creating an atmosphere where retailers will want even more. Is this the death knell for the category?

Lies

Submitted by Anonymous on Fri, 02/06/2009 - 12:53.

Unprovoked? What was the unilateral .7 per copy decision, Mr. Mayes? With that, weren't you forcing national distributors and publishers to make this difficult decision? And, accusing national distributors/publishers of collusion? Your decision to do this was a carbon copy of Anderson's decision just prior to yours. Isn't that a little fishy? And then you contradicted yourself by accusing national distributors/publishers with using the .7 per copy as an excuse to roll out their "plan", then saying that they really don't have a plan to cover Source markets. Which is it, sir?

The Black Hole

Submitted by Anonymous on Sat, 02/07/2009 - 14:32.

I am new to the business of selling magazines and even newer at selling them on the newsstand. The vast majority of my experience has been is buying distribution like direct bulk mail or zoned newsspaper subscribers. And putting ad-driven pubs in front of these targeted audiences. Publishing a local magazine is a smaller urban area in Texas I was able to talk a major retailer (who was serviced by a major distribution company to test my magazine above-the-belt at cross-section of urban locations. The above-the-belt position was available because of a unique, regional situation that judicially excludes one of the US's most popular tabloid's from all retailers in my market area. Anyway, we tested real well (e\ven though that took months) and a year or so latyer I have become the biggest selling monthly in the retailer we tested in and they opened up a pocket at virtually every checkout in every store in my market. We were cruising with new-found revenue most of which I devoted to improving my editorial content. But then I found that the check-out pocket was a black hole. I have never done business with any vendor of any product or service that was so seemingly incompetent, no that is too innocent a word, so incapable of delivering the delivery services they had to offer. The more data I could collect and analyze on sales of diferent covers, in different months to different audiences and from that analysis we would request customized allotnments and split deliveries for specific issues. Have we seen any of this come to fruition, have we seen any results of this infomation we have, improve our sales and distribution? No. In fact, the more we try to control it the less contriol we seem to be able to exert. I do all of this on a micro level so I can only imagine what kinds of sellingg opportunities national magazines, with fewer "boots" on the ground, lose to the seeming ineptitude of the distribution companies, companies in other production and service businesses would be sued out of business for doing such an incompetent job. But it appears both publishers and retailers these distribution services jointly serve are simply stuck in this black hole. \\

Greg Mays' letter to retail partners.

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