Select bankruptcy drains publishers

Folio: The Magazine for Magazine Management, July, 1989 by Jean Marie Angelo

Select bankruptcy drains publishers

New York City--As the industry sorts out the damage following the May bankruptcy of Select Magazines Inc., many of the national distributor's 250 publisher clients are taking the blows--not only from direct financial losses, but from backlash attacks by wholesalers and retailers.

The Penny Press, publisher of 17 puzzle books, reports that it had to borrow money to cope with the $1.25 million that Select owes the company. "We couldn't deal with this loss out of pocket." says Buzz Kanter, vice president. New Age Journal reports that it's owed $50,000. "For a small business like ours, this is a big chunk of cash," says Elaine Valentino, circulation director.

World Publications, publisher of Women's Sports and Fitness and three other titles, says that Select owed them more than $50,000, while The New Republic says it's owed tens of thousands of dollars. Larger clients such as Times Mirror Magazines, Meredith Corporation, McCall's and Playboy would not reveal financial details. Select's telephone has been disconnected; part owner Robert Riordan did not return phone calls.

"For the small guy, this is devastating," says Ron Scott, newsstand circulation consultant. Indeed, publishers usually count on the national distributor's advance payment (issued 10 to 30 days after an issue is shipped to the newsstand) to pay printing bills. They also receive two later payments from their national distributors: 90 days and 120 days after sale. Sources now speculate that publishers will be lucky to get 10 cents on every dollar owed them.

To protect themselves, 30 publishers formerly serviced by Select, including Meredith, Viare Publishing, The Starlog Group and Raben Publishing, have hired a lawyer to represent them, says Kanter. "One of the concerns is the bankruptcy judge and bankruptcy trustee, both of whom have not dealt with this industry," says Kanter. "We have to have a unified group to guide them."

Certainly the first to stand in line for Select's assets, estimated at several million dollars, will be secured creditors, such as those that loaned money for equipment. Investor Riordan, chairman of Family Media, is reported to be fighting for a share of what is left, although he could not be reached for comment.

"No doubt the publishers will take the biggest bath," says John Harrington, president of the Council for Periodical Distributors Associations, "but wholesalers will suffer, too." Indeed, Harrington estimates that half of the approximately 400 wholesaler agents were owed money from Select--and some of them reportedly are taking it out on their publisher clients.

Traditionally, wholesalers advance payments to the national distributor for the allotment of magazines, even though up to 70 percent may ultimately be returned unsold. The national distributor then owes the wholesaler for these returned copies. Some wholesalers who have been left with debt have asked publishers directly to honor the returns, with a few even threatening not to service publishers who do not make this promise.

Several national distributors were angered by this move, and advised publishers to contact them if the wholesalers don't ease up, according to Frank Herrera, president of ICD/The Hearst Corporation.

"The wholesalers made some enemies with this move," says the circulation director of a small title.

Adding to the tangle are angry retailers who are still owed retail display allowance (RDA) payments from Select. The national distributor may have stopped issuing RDA payments for as many as six financial quarters before it filed for bankruptcy, say several sources. At least one supermarket chain, Albertson's, Inc., wrote publishers with a reminder that the RDA payments are due, and delisted 25 titles in their 500 stores, according to Stan Carter, cooperative advertising manager. The titles still off the shelves at press time included California, Model, and Working Mother.

Publishers are not even sure which retailers have been paid for which financial quarters. "We are hoping that we can start anew," says Gigi Bjornsson, circulation manager at World Publications, referring to the relationship with retailers. Herrera believes, though, that many publishers are paying the RDAs to keep their titles out of jeopardy.

Publishers to blame?

Select's bankruptcy is a first for a major national distributor. Other distributors who closed shop during the past few years, namely Dell Publishing Co. and DCI Magazine Marketing, left no trail of debt.

Select was founded by a group of large publishers to handle their distribution needs. But in the mid-1980s, a new set of backers, including Riordan, came forward. John O'Reilly, a financial executive from Dell, became president of Select.

The national distributor adopted a "good deal" strategy to attract new business, which, sources say, actually strangled the company. While a common brokerage, or commission, for the national distributor is 6 percent to 7.5 percent of cover price, Select was willing to take a smaller percentage, says Scott. In addition, Select was giving publishers unusually high cash advances--up to 50 percent of gross charges, instead of the usual 10 percent to 25 percent, says one publisher.