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Source Interlink, the distribution company and publisher of magazines such as Motor Trend, Automobile and Hot Rod has filed for bankruptcy.
The publishing side of Source is focused almost entirely on the automotive sector with 70 magazines dedicated to covering the automotive and motorcycle industries. With the suffering auto industry (March sales down 37 percent from the same month a year ago) it’s no surprise that Source is hurting. Magazine ad sales were down 20 percent in the first quarter of 2009 compared to a year before.
Source can’t, however, entirely blame the economy. The company hasn’t posted a profit since the second quarter of 2007. Things have been getting progressively worse for Source as well, recently laying off 115 employees and cutting several of its magazines including Sport Compact Car and Modified Luxury & Exotics.
Recently the company also entered into legal action, suing several of its publishing house clients after a strong-arm tactic to raise distribution costs failed. Instead of folding the publishers rejected Source’s offer and stopped shipping magazines (including titles like People and Sports Illustrated) to the distributor.
In retaliation, Source Interlink filed an antitrust suit against the publishers (and several competing distributors) claiming the group tried to force Source out of business. The suit has since been settled, however, the move by Source to sue its clients was seen as a desperate move by a desperate company.
As we’ve already brought you several stories about the ongoing shenanigans of Motor Trend’s publisher and distributor Source Interlink, so we feel compelled to carry through with the unfolding events.
The latest news, as reported in the Down Jones SmartMoney wire service, is that Source has filed an antitrust suit against several publishers and competing distributors, after several publishers stopped sending their magazines (like People and Sports Illustrated) to Source for distribution.
The suit alleges that the defendants’, “indisputable goal is to destroy Source’s business so that defendants – through Hudson and News Group, the two remaining wholesalers – will monopolize the wholesale market and use that monopoly power to shift to retailers and consumers – and away from publishers – the entire financial burden resulting from worsening market conditions and publisher-induced inefficiencies in the distribution system.”
Listed as defendants are American Media Inc., Bauer Publishing Co., units of Time Warner Inc., and Hachette Filipacchi Media, which publishes major Motor Trend competitors Car & Driver and Road & Track. (We suggest you dig up your copy of The Da Vinci Code and start dreaming up conspiracy theories right away).
Other defendants listed are the competing distributors Curtis Circulation Co., Kable Distribution Services Inc., Distribution Services Inc., as well as wholesalers Hudson News Co. and The News Group LP. (For the record, AutoGuide is NOT being sued, despite a post by one of the company’s employees on our last story that we should “get ready to be served by lawyers.”)
Source claims the publishers and distributors acted to cut off Source’s supply of magazines and to spread a campaign of lies about the company’s financial situation.
“The goal of that coordinated campaign was to… put Source out of business,” the suit claims.
Either way, the suit looks like a real Catch 22 for Source. Win or lose the company has burnt its bridges with its entire customer base of publishers.
[Source: Dow Jones Newswire]
After we reported on a story from Foliomag stating that the Anderson and Source Interlink (Motor Trend‘s parent company) distribution companies were exiting the magazine distribution business, both companies are vehemently denying the rumor and Source is even vowing legal action.
The complex situation came about after Source and Anderson asked for an additional 7 cent per issue distribution cost from publishing houses they distribute for, claiming that if the 7 cent fee was not agreed upon by the publishers that the two distribution companies, which handle 50 percent of all magazine distribution in the United States, would cease distributing as without the 7 cent increase profitability would diminish or cease altogether.
According to Mediaweek, Time Inc. and Bauer Publishing (which publish magazines like People, Sports Illustrated, Time, and National Enquirer) balked at the threat and have stopped delivering magazines to both Source and Anderson. Comag Marketing Group, which delivers for Hearst, Conde Nast, Wenner Media, as well as others has, however continued to ship magazines.
The story recently got a whole lot more interesting when Source Interlink CEO wrote a letter to retailers, in which he stated that Source would pursue legal action, reports Billboard. Billboard obtained a copy of the letter in which Source Interlink chairman and CEO Greg Mays writes that the company will take legal action against, “an unprecedented and unprovoked assault on this channel by certain publishers and a national distributor… “They are trying to lock out competition 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.”
Presumably, the “certain publishers” are competing publishing houses Time Inc. and Bauer and the “national distributor” is either Curtis or Comag.
Source also alleges that rumors about the company’s liquidity problems are unfounded that that the company has available funds to the tune of $200 million. Source also recently paid down its magazines accounts payable by $100. Still, it’s no secret that the distribution side of the business is hurting with Source recently laying off 462 workers at it’s Coral Springs, FL, distribution center, according to a report in the Miami Herald.
The publishing side of the business (including Motor Trend, Automobile and dozens of other titles), which Source purchased from Primedia for $1.2 billion has also been a financial drain on the company and our sources inside Source say that recent layoffs and magazine closures (including Sport Compact Car and Modified Luxury & Exotics) were necessary to free up funds so that Source could meets its financial covenant.
Source Interlink, the parent company for Motor Trend magazine (among dozens of other automotive titles) has ceased distributing magazines. We’ll try to explain.
Source has both a publishing arm and a distribution arm. The distributions side of the company distributes for Source publishing as well as for many other publishing houses in the US, including Time Inc.. Source and another publishing giant, Anderson, (which together account for roughly half of all magazine distribution in the United States) recently announced a seven cent price hike and several of the publishing houses balked at threat, hoping that Source and Anderson would back down. They didn’t.
In response to this move Source Interlink will no longer be distributing magazines. The only problem is, Source distributes its own magazines. We’re left wondering how the company plans to get all those copies of Motor Tend, Automobile, Hot Rod, etc. to their faithful readers.