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All the variables in the recent newsstand supply chain fiasco are beginning to fall into place, but perhaps not as the wholesalers hoped. National distributor Curtis Circulation says its publisher clients will not comply with the Anderson's 7-cent price increase. Comag, however, has extended its contracts with both Anderson and Source Interlink under its IMPACT I program—without the price increase.
Yet the retailers remain a wildcard. One source with direct knowledge of the situation says the major retailers fully intend to stick with their current wholesaler configuration. "They don't like being dictated to," says the source. "This disruptive event certainly doesn't help our cause as a category."
Indeed, other industry observers think it's the retailers, after all, that have the upper hand in the channel.
But for now, some tough decisions are still being made. "At this point Anderson is no longer receiving Curtis product," says Dennis Porti, Curtis' executive vice president. "And I wouldn't say that Curtis cut them off. Because of their unilateral mandate, they more or less cut themselves off. The publishers simply cannot afford that kind of money."
Meanwhile, Comag has negotiated a deal with Anderson and Source to extend contracts under the IMPACT I pricing details, says Richard Lawton, senior vice president. Comag's IMPACT program essentially gets the wholesaler to agree to deliver on a bundled set of services for the publisher, which, if completed, qualifies the wholesaler for another layer of compensation. Consequently, services will continue uninterrupted.
Curtis' decision could be a major setback for Anderson, which announced a 7-cent per copy distributed price increase on January 14. Reports this week said Time Inc. won't play ball either. Time Inc.'s decision—not to mention Curtis'—not only erases a major revenue source for the wholesaler, but also denies it a newsstand lynchpin: People. That fact alone could prove damaging to the wholesaler-retailer relationship.
To get a sense of Time Inc.'s leverage, a loose, back-of-the-envelope estimation of total sales for 20 of its newsstand titles is approximately $550,921,963, per first-half 2008 ABC statements. The wholesaler slice of that pie is estimated at 15 percent or almost $83 million. Anderson and Source are said to have a combined 50 percent share of market.
As for Curtis, the distributor is the largest, in terms of billing, with a 40 percent share of market, says John Harrington, publisher of the New Single Copy newsletter. According to its Web site, clients include Rodale, Forbes, AMI, Hachette, Johnson, Taunton, Newsweek, The Atlantic, The Economist and F+W.
How all of this will shake out next week remains to be seen. But at this point, publishers are not only taken aback by the unilateral price hikes—despite the significant financial pressure wholesalers themselves are under—they're simply not in a position to pay, citing tight finances themselves. "All I can say is our company, just like most, can't afford the money that these wholesalers are asking for," says Will Michalopoulos, VP, retail sales and marketing for Hachette Filipacchi.
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