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Business Observer Thursday, Jun. 5, 2014 4 years ago

Source runs dry at firm

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It appears time has run out on an effort at magazine distribution firm Source Interlink to save itself from industry forces and the steep decline in publishing.

It appears time has run out on an effort at Bonita Springs-based magazine distribution firm Source Interlink to save itself from industry forces and the steep decline in publishing.

The effort crashed May 29, when the firm's CEO, Michael Sullivan, announced Source Interlink “will be discontinuing all operations in the near future.”

The shut down is the direct result of a terms dispute with Time Inc., one of Source Interlink's largest clients — and the source of a previous dispute over fees from five years ago. But the closure also reflects the current cycle of the industry, where a middle-player distribution firm that works in between thin margin bookends like magazine publishers and retailers, was destined to get squeezed.

Yet while the Time dispute simmered, the overall decline at Source Interlink, with 6,000 employees nationwide and 240 in Lee County, was significantly accelerated and likely surprised many in Lee-Collier business circles. It was only eight months ago that Sullivan, in an article in the Business Observer, boasted about the firm's nimble approach to adding digital and video divisions to its publishing arm. (That publishing arm is still in business, now under the name TEN: The Enthusiast Network.) And it was only a year ago that Lee County updated a performance-based agreement from 2009, when Source Interlink received $250,000 in capital incentives in return for maintaining 238 jobs in the county.

But any momentum the firm had, and any progress it made from a June 2009 bankruptcy filing, washed away in the Time dispute. “One of our largest suppliers has recently decided to cease supply and move in a different direction,” Sullivan writes in the May 29 letter.

The firm, adds Sullivan, had been “vigorously engaged in discussions with publishers and national distributors across our business in an effort to correct the inefficiencies and unnecessary redundant costs that currently plague the wholesale distribution channel.”

In other words, Sullivan wanted to change the pay model in the magazine distribution industry. In the traditional way, retailers like Walmart pay wholesalers like Source Interlink for an entire shipment of magazines, no matter what sells. Retailers can receive credit for unsold magazines in the next billing cycle.

But in that model, the distributor is on the hook for unsold magazines — a problem in an era when readers are shifting away from newsstand purchases and to Web and mobile products. So the Source Interlink strategy, according to reports in the New York Times and several industry trade publications, was to only charge retailers, like Walmart or CVS, when a magazine is bought. No more full shipments equals full pay. That would eliminate what Sullivan calls “inefficiencies and unnecessary redundant costs.”

Looks like Time didn't want to make that shift with Source Interlink.

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