Keith J. Kelly

Keith J. Kelly

Media

Giant magazine wholesaler files for bankruptcy

One of the country’s largest magazine wholesalers officially went bust on Monday — one month after closing its doors after losing its largest customer.
Source Home Entertainment, which trucked magazines from warehouses to retailers for Time Inc. and other publishers, filed for Chapter 11 bankruptcy court protection after losing money for years.
While Time Inc., which publishes some of the best-read magazines in the country, like People, Sports Illustrated and InStyle, was the hardest hit by Source’s shuttering, the entire industry felt the blow, and some retailers could see a magazine shortage this summer as the industry looks for other companies to fill the void and get their titles to stores.
Source is owned by Golden Tree Asset Management, a hedge fund, with an 82 percent stake; JPMorgan owns 9.3 percent and GE Capital has a 5.7 percent stake.
In its filing, Source listed assets of $205 million and debts of $290 million, as of March 31.

Source Home Entertainment, which filed for bankruptcy court protection for its operating unit, owes Time Warner Retail Sales $53,776,843, according to court papers. Time Inc., in a regulatory filing last month, said it expected Source’s shutdown to cost it about $14 million in net profit in 2014.
Curtis Circulation Company, a national distributor for other magazine publishers, is owed $49.1 million, while CoMag Marketing Group, which is the national distributor for Condé Nast and Hearst titles, is owed $32.8 million, court filings show.
The shuttered Borders bookstore chain claims it is owed $16.9 million; Kable Distribution, another national distributor, claims it is owed $11.7 million.
Henrich Bauer LLC, which publishes In Touch and Life & Style, among other titles, claims it is owed $10.4 million.
In recent years, Source was increasing market share by adding retail chains such as Rite Aid and CVS drugstores, but it was still losing money and had a rocky relationship with its publishers as it tried to boost prices and streamline the sales process to accommodate for the better terms it was offering the giant retailers.
Wholesalers are involved in getting magazines shipped from warehouses to retail outlets. Source, along with Canada’s News Group’s TNG and Hudson News, were the three biggest wholesalers in the country, controlling about 90 percent of the market. Publishers have been scrambling to find news wholesalers ever since. Time Inc. recently agreed to get a big portion of its magazines handled by TNG.
The Barnes & Noble bookstore chain is now being serviced by Ingram.
Publishers, under pressure themselves, balked at paying more to Source to deliver the goods, leading up to its shutdown.
After months of wrangling, Time Inc. said on May 26 that it was pulling its magazines from Source because it said it had not been paid in recent months.
Bauer Publications had actually quietly pulled its magazines from the wholesaler only weeks earlier, precipitating the crisis. Source may have gambled that Time Inc. would capitulate because it was on the brink of its initial public offering in a spinoff from Time Warner on June 6.
But that did not happen. On May 26, Time said it was pulling its magazines from its second-largest wholesaler.
On May 29, Source Interlink Distribution said it was unable to stay in business and was shutting its doors, laying off 6,000 full-time and part-time employees.
The three former bondholders became stockholders under terms of a cash-free stock swap in an earlier Chapter 11 filing in 2009 that wiped out the equity held by Ron Burkles’ Yucapia Co.s, among others.
The latest Chapter 11 filing does not involve Source Interlink Media, which publishes special interest magazines including Motor Trend, Automobile and Hot Rod. Source owners had split the company in two earlier this year with separate boards.

Chapter 11 bankruptcy filing for Source Home Entertainment