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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.
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.