Source Interlink ‘Looking for a Turnaround’
A Q+A with CEO Michael Sullivan.
Source Interlink, the distributor that added publishing to its corporate platform with the purchase of Primedia’s Enthusiast Group in 2007, has had a rough 18 months. Former CEO and current chairman Greg Mays led the company through a near implosion of the newsstand supply chain, lawsuits against a dozen publishers and distributors and, only months later, succumbed to its debt load and filed a lender-approved plan of reorganization under Chapter 11 in the U.S. bankruptcy court. Under the reorganization, Source eliminated $1 billion in debt, received a $100 million capital infusion and went private.
After this, and some organizational restructuring, Mays turned over the CEO position to Michael Sullivan [pictured], who started with Source on April 12 after an 11-year run as CEO of Comag, the national distributor jointly owned by Hearst and Conde Nast.
Sullivan’s appointment fueled speculation that the company was headed for a breakup and that the publishing group, which consists of 75 titles mostly in the automotive category, would be left unattended while Sullivan leveraged his background with the distribution group.
Here, we speak with Sullivan, who and he addresses this speculation and also talks about what needs to change in the magazine industry’s fragile distribution ecosystem.
FOLIO:: Your background is decidedly on the distribution side of the publishing business, but Source has a significant magazine publishing operation. Can you describe your operational involvement across the divisions?
Sullivan: People glaze over that I was at TV Guide from 1989-1996 during the Murdoch era. Also, when I was with Hearst and Conde Nast over the last 11 years we launched a number of the biggest titles in the business. I’ve been intimately involved in the launch of some of the major products out there.
FOLIO:: What was your role in the launches?
Sullivan: From the CMG perspective, we’d have a couple of members from CMG at the launch meetings. When you’re rolling out a magazine like that it doesn’t happen overnight. It’s a very integrated sequence of events that take place and they obviously have to be on queue. We would be responsible for everything on the retail side. The newsstand is really the first time the consumer is going to see the product.
FOLIO:: What are some specific strategies going forward for the publishing group at Source?
Sullivan: It’s hard to say when I’ve been here for four weeks. We are putting our game plan together, and looking at any indication of rationalization we might want to do with the portfolio. Those are some of the issues we’ll be looking at in the next couple of months. The management team in place has done a heck of a job in the last year since they came out of the bankruptcy. They stripped $50 million in costs out of here. The platforms are properly aligned, we just need to further develop the strategic business plan to get it to the next level.
FOLIO:: Greg Mays led the company through some significant changes, including the elimination of $1 billion in debt through a Chapter 11 reorganization. While the company might be in a less pressurized capital position, business is still very tough. There’s been ongoing speculation that the company is headed toward a breakup or sell-off, and your appointment as CEO fueled that chatter. Were you brought on to manage a divestment process?
Sullivan: I find that so interesting. I’ve never been a breakup guy in the past. When I joined Hearst in 2000 we formed CMG. That certainly wasn’t a breakup. We developed a strategic plan that took the next ten years.
Will we look at assets that don’t make good business sense and those that do. That’s all in the business model. Source Interlink was a rollup of disparate pieces. It was all connected in some way to retail. What eventually got them in trouble was the purchase of Primedia for such a steep price. The debt load was outrageous. Getting rid of that debt load and recapitalizing the company I can assure you has put us on very good footing. We just finished our first quarter and we’re right on plan. We do see, like most people in our business, a slight uptick. We’ll see what happens as the year moves on, but we’re looking for a turnaround.
I’m not sure where this rumor has come from. I would not have left Comag to come here to be part of a break-up. If you look at the history of Greg Mays in the last18 months, if anyone was going to break up the company it would have been Greg. That’s what his history has been. He left a very solid base for me to move forward on with a very good management team.
FOLIO:: Can you talk about what needs to change in the supply chain? We’ve heard over the last few years this need for everyone to come together and cooperate more, but can you articulate some specific examples of what needs to change and how you and Source might be positioned to contribute to that?
Sullivan: One of the things I’ve often talked about is we need to become a solution provider to the retailers. I’ve screamed it from the mountain tops. We’re a DSD category, [the retailer’s] people don’t touch our product. We’re making sure the right product is at the right place at the right time. I know that sounds like an age-old statement but it’s true.
Magazines and books are under pressure as a category. I don’t think print media is going away overnight, but we need to be a solution provider for retail, give them what they need. The mainline area doesn’t look like the greeting card rack, for example. The lighting and the signage aren’t as pleasing as the greeting card side.
It gets down to simply being best of class. I think we have to come up with new and innovative ways in presenting the product in the market place. We’re sometimes constricted on what the retailer allows, but I don’t think there’s enough creative thinking about what goes into the retailers.
I look at the publisher as the manufacture, it’s more up to the national distributor and wholesalers out there. We’re working with the publishers to ensure we’re putting the right product out there. We just need to do a better job talking to retailers.