BusinessTN

Most considered it a bold move. Some said it was a necessary ploy to shake things up a bit. Regardless, last fall, when Charlie Anderson Jr., CEO of Knoxville-based magazine and book wholesaler Anderson News Co., notified Time Warner and other top-tier magazine distributors that his company was going to withhold payments from them, it almost created a magazine industry crisis.

According to industry experts, a relatively new technology called scan-based trading (SBT) is at the heart of the conflict. Chain retailers, such as Wal-Mart—to whom Anderson is the prime wholesaler—are increasingly turning to SBT, which means they pay for magazines when the products are scanned at the check out counter, rather than purchasing them from the wholesaler in bulk before selling them to the consumer.

"Consequently, at the beginning of an SBT contract, the retailer shifts the value of the inventory back to the wholesaler," writes John Harrington, editor of industry newsletter The New Single Copy. "Wholesalers report that, in a large store, that cost can easily be $20,000. For a chain of 100 stores, that can be a $2 million change in a wholesaler's cash flow."

As a result, Anderson believes distributors like Time Warner should carry (or help carry) the cost, but efforts to resolve the issue had proven unsuccessful.

"The reason Anderson made a splash is they had been trying to talk to the magazine companies for a long time, but things weren't being done, and they felt like they were getting slighted," says Jeremy Greenfield, former editor of industry trade minonline.com, which broke the story. "So, they said, 'We're not going to pay you next month,' and it created a domino effect."

Time Warner and others responded by threatening to discontinue shipments of its magazines to Anderson News, which would have kept magazines off the shelves at Wal-Mart and some 40,000 other retailers that Anderson supports. So, Charlie Anderson and other Anderson News execs trekked to New York to negotiate. Magazine deliveries continued, and the controversy apparently cooled from a boil to a simmer.

Charlie Anderson did not respond to BusinessTN interview requests, and it's unclear as to how the parties resolved the conflict. But after the smoke cleared, another story emerged. Greenfield and others say they've heard that Anderson News—the country's largest magazine wholesaler responsible for about one-fourth of the national market—is considering getting out of the magazine wholesaler distribution business all together.

"The economics of the distribution supply chain are not in favor of Anderson," Greenfield says. "They are fighting back whenever they can, but magazine wholesalers are not making much of a profit."

A departure from the distribution biz would be big news, considering the Anderson family has been at it since 1917. But since taking the CEO helm in 1994, Charlie Anderson has made the company—which also owns Anderson Merchandisers, a leading distributor of pre-recorded music, movies and books, and Liquid Digital Media, an Internet music download service—into much more than a magazine wholesaler. So, it would not be the first time he's reinvented the family business to adapt to a changing market.