Magazine publishers, their newsstand sales already hammered by shrinking retail visits and nervous consumers, faced a new potential blow last week as they faced down major wholesalers who want to jack up the fees they charge to deliver magazines to the nation’s retailers.
Some say the potential for higher costs on already burdened publishers could hasten efforts to contain their circulation costs in the face of falling single-copy sales and ad revenue. Already this past year, publishers have been variously cutting rate bases, trimming frequency and closing struggling titles.
With a Feb. 1 deadline looming, publishing company reps and their distributors held nail-biting meetings last week with the wholesalers over the demands, which single-copy analyst John Harrington estimated could cost the industry $267 million. Meredith Corp. alone could face an added $7 million in annual expenses, Deutsche Bank estimated in a research note on that company.
“I think it’s going to force more magazines into the magazine graveyard,” said George Janson, managing partner, director of print, Mediaedge:cia. “Where’s the money going to come from? You can’t charge advertisers more, they’re loathe to charge the readers more. I think you’ll see some magazines abandon the newsstand altogether—which could help some magazines if there are less on the newsstand.”
Hit hard would be newsstand-dependent companies like Bauer Publishing, parent of celebrity weeklies In Touch and Life & Style, and Star and National Enquirer parent American Media Inc., which has been flirting with bankruptcy. “This is something the publishing community is not in a position to afford,” David Leckey, executive vp, consumer marketing, AMI, said of the proposed surcharges.
Anderson News Co. and Source Interlink Distribution—estimated to be responsible for half of U.S. magazines’ retail distribution—demanded that publishers pay 7 cents on each copy delivered, on top of existing incentive agreements. The wholesalers told publishers they needed the extra fee to shore up their own long-struggling businesses.
“Our industry will be unable to generate sustained growth unless we focus on aligning economics within the distribution channel,” Alan Tuchman, president of Source Interlink Distribution, wrote in a letter to publishers.
It’s unclear if the other two wholesalers, The News Group and Hudson News, who together with Anderson and Source account for an estimated 90 percent of magazines’ retail distribution, have followed suit.
Observers said the current demands are more draconian than those Anderson has made before. Deutsche Bank said the wholesaler move could eventually lead to a service-based fee model from one based on copies delivered. Others expect a resolution to be reached without disruption to distribution.
“I don’t think wholesalers can afford to be without product,” said Gil Brechtel, president of MagNet, a service owned by the major wholesalers which tracks most of the nation’s single-copy sales. “And I don’t think the publishers can afford to not be in the stores.”