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Magazines in Tough Talks With Major Wholesaler

Publishers face potential rate hikes
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Magazine wholesaling giant Source Interlink Cos. and publishers are locked in battle again, two years after Source’s demand for higher rates temporarily disrupted newsstand deliveries.

It’s bad timing for publishers to get hit with higher rates now, as it was then. Newsstand sales remain soft and advertising has barely recovered from the ad recession. Some publishers also are seeing their paper costs go up.

Given those pressures, the publisher of one large newsstand title said he was determined to dig in his heels. “I’m not giving you a penny,” he said he would answer if Source asks for more money. “You can stop selling us if you like.”

Representatives of the largest publishing houses and their distributors didn’t reply to requests for comment on the talks, but the head of one multi-title publishing company said Hearst and Condé Nast were in tough discussions with the wholesaler. “Everybody is waiting for the next round,” this person said.

Source executives said the company needs to bring its revenue in-line with expenses, adding that some publisher clients haven’t had a price increase in five or more years.

“Sales have declined on the newsstand for several years, and at the same time costs for wholesalers have continued to rise,” said David Algire, president of Source Interlink Distribution.

In the past, magazines have raised cover prices, offsetting soft unit sales. But cover prices have been flat lately, cutting into Source’s profit margins, said Algire, a publishing-side veteran who was hired away from Meredith Corp.

Algire said Source wasn’t taking the tough stance it did two years ago when it demanded a per-copy price increase, which led to the standoff. “We’re not taking that approach,” he said. “We’re trying to work with each magazine to make it profitable within the channel.”

Source went bankrupt after the 2009 feud with publishers and came out a private company. It sold off its DVD distribution business and outsourced its soap opera titles to celebrity and fitness publisher American Media Inc. It’s said to be trying sell a handful of other magazines, including its boating and home entertainment titles.

Source execs said the company isn't actively selling any titles and that it is hitting its goals. An outsider familiar with Source’s business said the firm, which also publishes more than 75 special-interest magazines, is in a bind because it was behind budget, though.

Source’s challenges aren’t unique, said John Harrington, editor of The Single Copy newsletter. “There are three wholesalers, and I would guarantee they’re trying to squeeze every nickel out of publishers they can,” he said. “Source is being more aggressive.”