Vertically integrating magazines, wholesale and retail

I’ve written before that I don’t blog about magazine transactions — the hiring, firing, launching, closing, buying, selling — as that topic is well-covered elsewhere. Another reason I don’t do it is this: I just don’t comprehend them sometimes. Like today. On the same day that Chrysler is sold for $7.4 billion*, a group of enthusiast magazines owned by Primedia — such titles as Motor Trend, Automobile, and Hot Rod — is sold for $1.2 billion*.

When Primedia (which, come to think of it, has skidded down a Chrysler-like slope of brand-crashing woes since the late 1990s — its stock is down 89 percent since March 2000) can sell off a group of supermarket distributed magazines for $1.2 billion, I’m befuddled and must leave it to the pros to explain such a valuation, even if it represents a mere fraction of that March, 2000 value.

According to the coverage of the Source Interlink purchase of the Primedia enthusiast group (which includes 70 magazines and 90 websites), it has something to do with the synergy that can be gained from Source Interlink’s ownership of grocery stores and its management of the retail checkout areas for more than 1,000 retail chains (according to Reuters) and “distribution of magazines and other entertainment products such as DVDs to retailers and consumers.” Sure, I can understand the logic of such synergy — I think I’ve read the same quote in a thousand previous press releases. But what will Source Interlink be purchasing next: movie studios and paper mills?

There’s one last thing I don’t understand, perhaps because I’m not an investment banker, anti-trust lawyer, retailer, distributor or “in private equity.” But whenever I see a company that owns both a large distribution business and a large retail business is also going to be the owner of a content business that distributes through those channels, I recall that when, in 1999, Barnes & Noble tried to acquire Ingram Book Group for a mere $600 million, the deal was abandoned when it was reported that the Federal Trade Commission was going to seek an injunction against it. While the circumstances of that deal may have substantial differences with this deal, the reason at least one commissioner gave for opposing that transaction (that independent booksellers would suffer by the consolidation of the major distributor and retailer in the channel) are worth recalling. Specifically, what does this portend for the newsstand distribution possibilities of independently-published magazines in categories competing with titles in the Primedia enthusiast group? Access to the channel by independents was challenging before so it can’t be good news for the indies.

Bottomline: I just don’t comprehend this stuff sometimes.

*When I see headlines like “Sold for $7.4 billion” and “Sold for $1.2 billion,” I figure those numbers are written by editors who need some number to plug in a headline and have little to do with the actual money that is being exchanged. I treat such transaction numbers as I do $100 million professional sports contracts: the actual amount the athlete gets has little to do with the number in the headlines.

Bonus link: Scott Karp asks if the private equity purchase of Chrysler is similar to such private equity deals taking place among traditional media companies?