More Wholesaler Pricing Pressure: Source Interlink Also Raising Rates

New pricing structure and timeframe mirrors Anderson News demands.

By Bill Mickey
Wednesday, January 21, 2009

Wholesaler pricing demands have begun to accelerate. Source Interlink will be raising its per-copy distribution rates by 7 cents, effective February 1st. This price hike mirrors the increase Anderson News made last week.

Combined, the two wholesalers are said to account for about 50 percent of the market.

In a letter delivered to publishing partners Tuesday, Source Interlink said it had to increase prices to remain in business. In a New York Post article quoting the letter, Source Interlink Distribution president Alan Tuchman said, “As we continue to aggressively pursue and maintain an effective cost structure within our operation, we've come to the realization that more needs to be done if we are going to overcome the daunting financial challenges that exist.”

Indeed, Charlie Anderson, in a conference call last week announcing his company’s new pricing structure, said all four wholesalers were in a money-losing business.

It is unclear whether Source Interlink issued its price increase announcement with as much force as Anderson, which essentially warned publishers they’d be dropped from distribution if they didn’t comply with the new pricing. The company did not return comments in time for this story.

Anderson’s announcement also included a plan to shift $70 million in scan-based trading inventory costs to publishers. Source Interlink so far has not asked to transfer SBT costs.

John Harrington, publisher of the New Single Copy newsletter, calculated an industry-wide cost of $267 million if seven cents per copy were added to all 3.185 billion copies distributed to retail. Divide that in half, and the one-two punch of Anderson and Source Interlink amounts to an industry cost of $133.5 million.

Jay Annis, VP of single copy sales at Taunton Press, deals with both Anderson and Source. "The attempts by both at extracting a $.07 per copy fee for distribution is unfair for any number of reasons and the method in how they have gone about it is ridiculous."

Annis notes that publishers have already shipped product for early February on-sale dates and wonders how terms can be changed for titles already en route. He goes on to add that a flat 7 cent fee does not account for a variety of factors. "It does not take into consideration the current sell-through, cover price, and discount the publisher is already giving the wholesaler," he says. "Why should a title cover-priced at $7.99 and selling 40 percent pay the same distribution fee as a title priced at $3.50 and selling 25 percent? At a 15 percent margin, the wholesaler is making $1.20 a copy sold on the $7.99 title and $.53 per copy sold on the $3.50 title."

And Annis, presumably like most publishers, is disappointed by the immediacy of the wholesalers' pricing requirements. "To expect publishers to make the decision of spending hundreds of thousands or millions of dollars at any time is difficult. To ask them to do it in a two-week window is absurd."

Blog: Anderson Broadside Leaves Publishers Little Choice

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