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The Broken Business Model of Source Interlink

source interlinkIt’s been a gloomy week for action sports. Most notably we have ASG filing for a pre-packaged Chapter 11 Bankruptcy. Here you have an organization that epitomizes a broken business model. How do you function knowing that you’re 1.5 billion in debt? When does the cycle finally end?

Is this our version of the auto industry bail out? It certainly seems that way with their pre-packaged filing they’ve presented. Citigroup, the same consortium that we the tax payers have bailed out, is going to do the same for Source Interlink to the tune of 900 million dollars. Giving them an 80% controlling share of the company after its 35 day restructuring and privatization.

So here we have one group that was bailed out only to step forward and bail out another group. One would think that Citigroup would only look at the amount of debt they have and the amount of assets they have and revenue they generate to say, “I don’t think this is a good idea”. Unfortunately for us they don’t see it as that.

Hunting around the internet you can find some amazing quotes from Source Interlink’s personnel.
My take on it all, I’ll be very open, I’ve been hoping this would happen for a very long time, to get us out from under the debt the company assumed when Prime Media sold to Source. It’s been a very difficult couple of years, with everything going to service a couple billion dollars of debt.“, said SVP Al Crolius. CEO Greg Mays had this to say, “This restructuring will materially reduce our interest expense and debt levels, substantially improve free cash flow and allow us to capitalize on several operational opportunities to further improve and grow our business.” “Our employees are going to continue to come to work, they are going to get paid, they are going to receive their nice benefit package they’ve been getting throughout this whole time. And we expect to be here for a long time and continue to grow,” said Cynthia L. Beauchamp, a group vice president for human resources and labor relations at Source. Anyone else think this showcases that they have a broken business model?

Will it be a shame if we action sports enthusiasts were to lose their publications? That’s questionable but as we are at a turning point in the history of action sports journalism only time will tell. In the hierarchy of media magazines are no longer on the top tier and this will force a struggle amongst publications for better quality articles and content that is more centric to the average patrons.

While they’re in their restructuring one can only hope that they address all these problems and realize that this bail out shouldn’t allow them to be so negligent with their finances. If this isn’t addressed don’t be surprised if you see them on the chopping block again in another year or so.

Posted by Avran on Friday, May 1st, 2009 in Industry.

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2 Responses to “The Broken Business Model of Source Interlink”

  • Aeromoto Says:

    Let’s see, Source assumes debt they obviously can’t handle, further cuts already deplete magazine staffs at the bottom level — where all the work of producing a magazine actually gets done — and then increasingly uses freelance people to produce content for their magazine. Freelancers say they haven’t been paid for months. No they declare bankruptcy, so they won’t have to pay those freelancers either.

    This isn’t business, it’s piracy.

  • Action Sports Branding Says:

    No lie, I used to work here years ago down in Florida is where their HQ is located. I was an account manager with some skate titles at the time. I didn’t realize they where hurting this bad.

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