Magazine publishers, already reeling from a slowdown in advertising and circulation, have gotten slapped with word that a major distribution company is about to jack up the rates it charges to deliver issues to retailers.
Anderson News earlier this week informed publishers that it would impose a 7-cent charge for each copy of a magazine that it delivers to stores, and warned that any publisher that refuses to pay the fee could no longer count on Anderson to distribute its magazines.
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.
Indeed, American Media, which is already on the brink of bankruptcy, could be hit with a bill of up to $12 million, one source estimated.
Another source said People, which has one of the best sell-through rates in the business, could be hit with up to $15 million in extra charges.
Michael Sullivan, president of Comag, a national wholesaler that is jointly owned by Hearst Corp. and Condé Nast, said his clients have no intention of paying.
“As we understand it, Anderson’s proposal is a unilateral effort to shift substantial costs to magazine publishers and does nothing to address the fundamental inefficiencies in the newsstand-distribution channel.”
Sullivan said Comag is working to find alternatives.
A Time Inc. spokeswoman said, “We met with Anderson and we’re analyzing the situation.”
Magazines have a sell-through rate of around 38 percent and the surcharge would apply not to just the copies that are sold but to all unsold copies as well.
Word of Anderson News’ move comes as the Publishers Information Bureau, which tracks consumer-magazine ad spending, revealed this week that total ad pages sank 11.7 percent in 2008 from 2007 levels.
Anderson News also wants to offload a $70 million inventory charge onto publishers for the unsold copies that are at some major retailers such as Wal-Mart.
Retailers that use scan-based tracking only pay for copies that are scanned through its computers. The rest are returned, and traditionally wholesalers have taken charge of the returns.
Anderson, which also distributes greeting cards, delivers magazines to retailers like Wal-Mart, Walgreen and CVS.
It is believed to handle about 25 percent of the magazine retail traffic in North America.
“If what [Anderson] is saying is true, then I think he goes away,” said Castardi, who noted that rival distributors will likely step in to grab Anderson News’ share of the business.