In advance of its spinoff from Time Warner, Time Inc. has terminated its business with Source Interlink Distribution, its second largest wholesaler. According to a regulatory filing, the decision was made due to $7 million in uncollectible receivables owed to Time Inc. that will be recorded as bad debt in 2Q 2014.
Source Interlink distributed Time Inc.’s titles to retailers in the U.S. and sales of these magazines represented about 2 percent of the company’s total 2013 revenues—about $70 million.
Actions like these in the magazine newsstand distribution market typically cause an immediate 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.
In the meantime, Time Inc. says it’s transferring Source Interlink’s distribution business to The News Group, which, along with Comag, is owned by the Jim Pattison Group.
Time Inc. estimates that it will take up to 12 weeks to re-align the distribution operation under The News Group to accommodate the added retailers. Because of this, Time Inc. expects to take a $4 million revenue hit and incur about $1 million in transition costs.
Under the new payment terms with The News Group, which extend through May 2019, Time Inc. expects a $12 million decrease in operating cash flow.
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.