Cash flow at Time Inc. will be crimped this year — the result, sources said, of a behind-the-scenes battle with a wholesaler looking to force the giant magazine publisher to accept a rate hike.
But instead of caving in to the hike, Time Inc. dumped the wholesaler — the company that trucks the magazine from a warehouse to stores — and switched its business to a rival.
The moves were partly disclosed in a regulatory filing Tuesday.
Time Inc. only identified the wholesaler being dumped as “the second-largest wholesaler of the company’s publications” — but sources fingered the jilted company as Source Interlink.
The company that won the business is referred to as the “selected wholesaler” — but it is said to be The News Group, owned by Canada’s Jimmy Pattision, already Time Inc.’s No. 1 wholesaler.
The battle could make it harder for consumers to find People or other Time titles on newsstands over the next few months.
The price hike demand by the wholesaler is not a total surprise. The sector has been under intense pressure for nearly two decades.
In the mid-1990s, there were 300-plus wholesalers in the US. Today, there are three major players: News Group, Hudson News, headed by James Cohen, and Source Interlink.
Source Interlink was probably betting that Time Inc., only days from being spun off from Time Warner into a new public company, would fold and accept more costly terms, one source said.
“The feeling on the street is that this is a new Time Inc.,” said the executive. “The old Time Inc. would have folded.”
Time Inc., headed by CEO Joe Ripp, said the dumped wholesaler was responsible for approximately 2 percent of its revenues — or just about $67 million of its $3.3 billion in 2013 revenue.
The publisher acknowledged that it expects it will take “six to 12 weeks for the selected wholesaler to fully ramp up its distribution capabilities to cover the additional retail outlets.”
About $7 million in the first quarter will have to be written off as “bad debt,” the company said in the filing, as will $19 million in net sales made to the wholesaler in the second quarter.
Wholesalers, in a bid to hang onto market share over recent years, would often promise better terms to retailers and then try to recover the added costs by raising prices on publishers, said one publishing executive.
A Time Inc. spokeswoman said, “The company is taking this action in order to strengthen the financial stability of its retail distribution network following the discontinued wholesaler’s failure to pay amounts due to the company and subsequent discussions with that wholesaler.”
Source Interlink did not return a call seeking comment.