Wednesday, January 21, 2009

A Newsstand Fable: The Fox and the Jackal

A Newsstand Fable: The Fox and the Jackal
The latest Anderson broadside, no matter how crude, has left publishers in a very uneasy defensive position.
By Baird Davis

Thank goodness for the Anderson family. Their Anderson News Company can be counted on for keeping the fascinating newsstand fable alive with their periodic threats of Armageddon. What would the industry do without them?

Well the magazine industry might soon have to face that unpleasant reality. If truth be known, many of Anderson's wounds are self-inflicted. In the 1990's the Anderson family saw the dramatic changes occurring in the magazine distribution landscape as an opportunity to greatly expand their successful regional wholesaling operations. They were banking on synergies of scale and a core belief in the superiority of their operating practices. Instead they discovered that regional success does not necessarily translate on a larger scale and retailers, not wholesalers, dictate the channel rules. The grand Anderson strategy has been a big disappointment. They have since pulled back from their most far flung geographic excursions. Overall it has been a humbling lesson in business hubris.

Anderson's actions have always been defined by a strange naiveté about both the magazine and retail industries which they serve. Their latest initiative is no exception. In it they "mandated" an across the board price increase (with no publisher quid pro quo) and in classic Anderson fashion included an ominous threat about closing their magazine wholesaling doors if a significant number of publishers don't acquiesce.

This latest Anderson broadside, no matter how crude, has left publishers in a very uneasy defensive position with only Hobsonian choices. Yes, there does seem to be some sentiment among national distributors/publishers to call Anderson's bluff. However, an Anderson family departure from the magazine wholesaling business would leave a gaping hole in the distribution pie. Many of the major chain retail stores, currently serviced by Anderson, can probably be accommodated (over time) by other wholesaler organizations. News Group, Source Interlink and Hudson News are undoubtedly waiting anxiously in the wings for the chance. But make no mistake about it, an Anderson departure would be a traumatic blow for publishers.

While Anderson was struggling, the self-absorbed brotherhood of publishers (i.e. national distributors) failed to address the gravity of channel conditions. It's almost as if publishers were in a time warp-trapped by a nostalgic yearning for yesterday. They have been unable to adjust to the unalterable fact that magazine distribution ground rules have changed dramatically in the last decade. The major chain retailers now set most of the industry's operating and financial parameters. Wholesalers, for the most part, have agonizingly adjusted to the new channel order. However, national distributors have chosen to ignore the effect of change, often blaming wholesalers for their own woes. As a pragmatic negotiating ploy, this might be considered good strategy. But the tough-guy stance of national distributors now appears to be a relic of the past-one that's caused publishers to miss a critical opportunity to direct much needed channel reform to their advantage.

The classic struggle between retailers, wholesalers and publishers is nearly as old as time. The Greek Aesop's fable, "The Lion's Share," captures the essence of this conflict. In it the lion (retailer), the fox (wholesaler) and the jackal (publisher) go hunting and successfully kill a deer and divide it into 4 pieces. The lion (retailer) takes three quarters and leaves the fox (wholesaler) and jackal (publisher) to fight over the remaining quarter. The battle for the remaining quarter is a test for survival in the treacherous, yet nourishing, forest.

That's the Aesop question-can wholesalers and publishers, like the fox and the Jackal, find a way to do what's prudent and equably divide the remaining quarter? If they can't they'll soon find that life outside the forest is less appetizing.

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