Courtesy of BoSacks & The Precision Media Group  
America's Oldest e-newsletter est.1993
Fear is a reaction. Courage is a decision.
Winston Churchill
 
Dateline: Charlottesville, Va
In This Issue
The American Newsstand - "A Riddle Wrapped in a Mystery Inside an Enigma"
The Chatham Assent Management Effect
By Baird Davis
 
In deference to Winston Churchill, who coined the phrase (above) in reference to Russian intentions in 1939, the American newsstand also defies normal description.  
 
I suspect that Churchill, from his London perch 80 years ago, wouldn't have been surprised by the carnage that has occurred at the American newsstand. The last ten years has provided a devastating portrait of the magazine newsstand channel slowly disintegrating. During this period the newsstand sale of audited publications fell by nearly three quarters (70%). The steep decline was precipitated by a magazine industry convulsed by technological change and recently traumatized by massive consolidations - Meredith's purchase of behemoth Time, Inc, Hearst's Rodale buyout, the breakup of Wenner Communications and American Media Inc's (AMI) bewildering expansion.
 
Leading Publishers Abdicate Newsstand Responsibility
The recent consolidations have many newsstand channel ramifications, not the least of which has been what amounts to a publishing industry leadership abandonment of a very valuable industry resource - the fragile American newsstand.
 
This kind of leaderless chaos was certainly familiar to Churchill, a person, at the time, dealing with Russia's amorphous intentions and America's isolationist attitudes. But unfortunately for the rudderless newsstand there is not a Churchill waiting in the wings. Instead the newsstand leadership vacuum that Meredith, Hearst and others left in their rush to a digital/video future has been filled by a mysterious set of financial players.

Chatham Asset Management to the Rescue?
Well not so fast! The always daunting newsstand channel has taken another bizarre turn. It's been taken over by an unlikely group of leaders unfamiliar to publishing industry followers and neophytes in the newsstand business. This new leadership battalion is headed by Anthony Melchiorre, President of the Chatham Asset Management hedge fund and Leon Cooperman, hedge fund manager and large Chatham investor. They stealthily entered the magazine industry in 2014 via their investment in American Media Inc (AMI), the current publishing leader in newsstand sales. Although described as an investment it was more like a take over.

They now control 80% of AMI stock. Their investment gave AMI a veneer of financial stability, allowed them to delay payment options on their bond notes for 3 or 4 years, which in turn enabled them to purchase three of the top six newsstand sales publications - US Magazine from Wenner and In Touch and Life & Style from Bauer.
 
Chatham's investment in a newsstand-centric publishing company was, if nothing else, a major bet on the viability of the newsstand channel.
 
Chatham Asset Management Doubles-Down on the Newsstand
Chatham's investment in AMI would seem to be risky enough, but they doubled down on their newsstand channel bet by purchasing, from the Pattison Group, the industry's leading wholesaler - The News Group (and changed the name to American News Company) and a controlling share of Comag the largest national distributor. In so doing they further scrambled the fragile dynamics of the newsstand channel.

What The Hell Was Chatham Thinking?
Top of mind must have been the brutal realization that their AMI investments were doomed without a viable newsstand channel for distribution of their newsstand-centric publications. Their anxiety level must have been further raised by the prospect that The Pattison Group might have been nearing a decision to close (not sell) The News Group, their financially challenged subsidiary.
 
The future success of Chatham's risky newsstand bet rests on four fundamental assumptions:
  1. Efficiency Gains - Increase efficiency primarily by reducing wholesaler/national distributor duplication of effort.
  2. Reduce the level of service
  3. Raise Prices for Services
  4. Secure Hudson News Cooperation - Required for eliminating wholesaler and national distributor competition.
The assumptions on which Chatham's bets are based have all pretty much materialized. The newsstand channel's check and balance mechanism (separate management control of wholesalers and national distributors) has been breeched. The Comag staff has been significantly reduced. Service price increases are actively being considered. Hudson News, working in lock step with Chatham, has, for practical purposes, eliminated all competition for newsstand channel wholesaling and national distributor services.
 
Chatham Newsstand Channel Control Raises Serious Conflicts of Interest Concerns
It is argued by Chatham that these changes were needed in order to "save" the newsstand channel. They have a point and it's worthy of consideration. But lets be frank here. The newsstand channel, even in its best days, was always balanced on a thin line of trust. It was not, in the purest sense, operationally efficient. But publishers found it prudent to have a vigilant network of national distributors charged with checking wholesaler veracity. These arrangements, however, always made for an uneasy truce. This balancing act was partially punctured when the Pattison Group, along with Hudson News, bought Comag in 2012. But Comag, although slightly conflicted, prevailed as an independent check on wholesalers.

But Chatham control has, in effect, now eliminated the national distributor check and balance mechanism that has described the newsstand channel for decades. Combine that with their ownership of AMI, the leading publisher of newsstand sales, and it becomes readily apparent that conflict of interest concern has been raised to a high alert level.
 
What Are Publishers Doing to Protect Their Interests?
Four publishing companies control nearly 80% of the newsstand sales of consumer magazines - Meredith, Hearst, Bauer and American Media. These four publishers carry the fate of the newsstand channel in their hands.
 
We know where, Chatham owned, AMI stands - surrounded by controversy and conflicts of interest. And we've recently learned that Bauer is pursuing alternative newsstand distribution options. They have contracted FTI Consulting (a large global management consulting company) to review the viability of distributing their publications with wholesalers that distribute packaged goods to supermarkets. Meredith and Hearst have largely been silent (at least publically) about their newsstand intentions . But they can't be happy about the heavily conflicted state of the newsstand.
 
Let's Hear It from Meredith and Hearst
The highly conflicted state of the newsstand can't, and shouldn't, be acceptable to either small or large publishers. The small publisher, with vanished national distributor support, will become defenseless. The influence of large publishers (not including AMI) will also be greatly diminished.
 
But, as always, the task of protecting the newsstand rights of the magazine industry largely falls to the large newsstand publishers. Without their active involvement the newsstand channel could easily morph into something that no longer serves as a vital showcase for the industry's varied array of products.
 
The burden falls to Meredith and Hearst - Bauer, a large newsstand presence, has long been an outlier on the American publishing scene, generally resistant to teaming with other publishers on industry projects. Therefore the task of preserving publisher newsstand rights largely falls to Meredith and Hearst - the two uncontested giants in the consumer magazine business.
 
What say you Troy Young and Tom Hardy? - I say this with all due respect  - quit acting like print is dead. Get your heads out of the digital and video sand. Provide the Churchillian industry leadership necessary to turn the floundering newsstand ship around. Advise Chatham, in no uncertain terms, that you're not satisfied with current conditions and that you must be allowed to actively participate in how the revised newsstand channel is managed going forward.
 
The newsstand channel is an extremely valuable magazine industry asset that must be saved. Messrs. Young and Hardy don't let your industry colleagues down. They're all counting on you.
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"Heard on the Web" Media Intelligence:   
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