Friday, January 16, 2009

Seven Cents Between Life and Death for Magazines

Things are pretty dire in the magazine world with plummeting ad revenues and ever repeating news of shut downs and layoffs. And if the specture of rising paper costs wasn't enough to worry the manufacturing and distribution staff the NY Post reports this morning that one of the business' largest wholesalers is set to impose a 7cent per copy surcharge on magazines it delivers to retailers.

CEO Charles Anderson insisted the new charge would help the company make up lost ground on a business that he said is losing money. The hike would add 3.5 percent to distribution costs, which translates into $200 million more for Anderson News.

"The last thing we want to do is exit this business, but why should we continue in a business where we are not making any money?" Anderson asked publishers on a conference call yesterday to discuss the new fee.

Publishers, which have until Feb. 1 to agree to pay the new fee, are balking at Anderson News' move, which would drive up costs at a time when most magazines are hurting.

If that isn't enough, the company also wants publishers to pick up the cost of unsold inventory sitting in the Anderson warehouse. In recent years, large retailers like Walmart have attempted to force the industry to adopt scan based tracking which effectively enables a retailer to accept inventory but not pay for it unless/until it passes through a register. It is not widely adopted for a variety of reasons including a disagreement over standards as well as publisher's concern over cash flow. Returns, lost copies and general inefficiency have long been issues in the magazine business with some reputable magazines skating through with 20% sell through. Tough love programs like the one Anderson is trying to impose will push many magazines over the edge.

It is debatable whether Anderson will get away with this; however, severe 'right sizing' is going to occur in the magazine business regardless. Watch this space.

Note: Ingram is also a magazine wholesaler but their reaction (if any) isn't noted. Anderson News racks books as well.

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