Sunday, March 05, 2006

Abraham Maslow and the Underpants Gnomes Part C

Not a lot of folks have commented on the blog so far, so it's hard to tell if anyone is reading it or not but I'm having fun, even if the ony thing I'm doing is venting to an empty hall. It might also be a good time to invite you to hit me with any questions you have about the industry or things you want to hear my take on. Click HERE to let me know what's on your mind.

So, we've touched on Creator and Publisher contributions to the industry's depression and now the we arrive at Distributors. Within the direct market there are basically two distributors remaining, both serving a specific niche but maintianing a bit of an overlap. Quick history lesson. [edited to add: there is a great more in depth look at distribution here]

The largest and most important is Diamond Comic Distributors. With the recently announced closure of FM International, Diamond is the last front list comic distributor standing, meaning that this is where retailers order their new comics. Prior to 1994, there were two other full service front list distributors, Capital City Distributing which also was a with a a nationwide distribution system and and Heroes World a regional distributor in New Jersey. Many retailers dealt with at least two of these distributors and competition for business kept them on their toes vying for retailers business.

Due to machinations set in motion by Marvel Comics' purchase of Heroes World in an attempt to self distribute in the early '90s, DC Comics, Dark Horse and Image ended up signing exclusive distribution deals with Diamond, starving Capital City to the point that it resigned and sold it's assets to Diamond. Less than two years later Marvel came to terms with the fact that their decision to self distribute was a failure and with Diamond the only remaining distributor with the infrastructure to handle Marvel's sales volume, sold their HW assets to Diamond and joined DC, DH and Image as a Diamond exclusive publisher.

Rounding out the group is Cold Cut Distribution a backlist distributor in Salinas, CA. From their website,
"Cold Cut has been servicing retailers across the country and internationally since 1994... We currently mail our main catalogs to well over 500 stores, and service regular orders from around 300."

So ten years later Diamond, in addition to Marvel, DC, Image, Dark Horse has has also brokered exclusive rights to distribute Wizard, Tokyo Pop, Oni and a few other publishers within the Direct Market. Basically, if you want to be a Full Line Comic Shop, you have to deal with Diamond and if you aren't happy with the level of service, tough, there's nowhere else to go.

It's tough to blame Diamond entirely, their primary responsibility is to preserve their ability to earn a profit and to be fair, Diamond Owner, Steve Geppi has been very benevolent in his role as dictator of the Direct Market. Things like the Comic Shop Locator Service and Free Comic Book Day were born during this tumultuous time and owe a large part of their success to Diamond. Those publishers didn't need to sign those exclusive deals either (I wonder if they would have had they known where it would lead) but they did. And from where I'm standing, an industry that was hurting so much from the speculator bust of the late '80's and early 90's that it was unable to support multiple full line distributors is no closer to acheiving that today despite the reported growth in sales of comics and graphic novels in both the DM and Book Markets as well as on the big and small screens.

And the terrible thing is, that during this whole fiasco the DM has continued feeding on itself. Instead of increasing the customer base, the base has contracted and publishers are returning to gimmicks like variant covers to suck even more money from a diminishing clientele. Diamond further exacerbates the situation because as long as there is only one distributor to service the market, the market can only grow as fast as Diamond can. With the the stranglehold that Diamond has on the Big4 publishers, things they consider unimportant go unaddressed, and retailers are left wanting because their is no substantive alternative.

Have you ever heard the phrase Jack of all Trades, Master of None? That is now Diamond's position. In fact few years back I was among a group of retailers invited to Diamond's home office in Maryland to discuss the growing TPB/GN market and what Diamond could do to get more of our business. When the disparity in discounts as compared to Cold Cut were mentioned, we were asked if we would move all of our orders to Diamond if they increased their discount? Thank God, they were met with a unanimous, NO!

They can't serve their brokered publishers, their exclusive publishers and all of the smaller publishers in the back of the book, equally. The big guys set their own sales terms and discounts but small press publishers frequently profess that Diamond restircts the discounts they are able to offer to retailers and then there's the matter of a reorder fee that gets tacked onto all reorders of small press books. This is a problem because even a retailer who wants to stock a diverse mix of comics, has to consider that selling a $2.99 Marvel or DC comic could make them far more money than even a $3.99 small press title. Why risk more to make less money?

The other problem is as I mentioned earlier, that this results in the market eating itself. We've already looked at the lack of marketing done to support many of these books by their pubishers so with the majority of retailers forced to rely on Diamond for most, if not all of their product, anything Diamond doesn't offer, whether at all or profitably, will just not get ordered. So by choice or by necessity, a large percentage of the DM is forced to rely on Marvel and DC to stay in business. Of course if they'd done their homework before opening that might not be the case but as I said in the first installment, creators and publishers aren't the only ones who try to run before they can crawl. So Diamond hooks this group on the spandex teat, punishing those who attempt to build business outside of the front of the catalog with lower discounts and punitive reorder fees.

The ironic thing though is that by doing this, Diamond also becomes more reliant on the front of the book publishers and the retailers who love them and as those retailers drop off, whether due to competition from online discounters or the book market, Diamond suffers. To combat this weakness Diamond has started to place greater emphasis on toy and collectibles sales as well as creating a separate division to sell TPB/GN into the book market. This creates another problem too. As Diamond's Book arm pushes more TPB/GN into B&N, Borders, Amazon, WalMart... on a returnable basis, the book market can hold these books hostage, making them unavailable for DM retailers and their customers during peak sales periods and both Diamond and the publisher eat the books once sales start trending down and they are returned. Multiple distributors would make it harder for all of a publishers output to end up in one spot.

These days, this is where Cold Cut often comes in to play for me and according to Cold Cut's own website, about 10% of DM Comic Shops. Presumably these are shops that like Comickaze, are so firmly entrenched in their discount level with Diamond that they can afford to shunt orders for certain Publishers that aren't exclusive to or even carried by Diamond over, to Cold Cut.

Cold Cut does a reasonable job of supplying small press titles that aren't offered (for many reasons) or have already been offered through Diamond. What they don't do is make it easy for anyone to preorder new product. I'd move thousands of dollars of business to them in a heartbeat, all of my Fantagraphics, AiT PlantLar, Drawn & Quarterly... but for whatever reason, they're comfortable as is. I'm always leery when I here that a retailer turned down a sale by not ordering a book for someone but if Cold Cut is willing to forgo $2-3k/month, maybe it's true.

Oddly enough both distributors are there own worst enemy. One keeps grabbing for bigger pieces of a shrinking pie and the other sometimes doesn't seem to like pie at all.

Mmmmm... Pie!

Whew, I really didn't think I had that much to say about distribution but this is quite a chunk to digest so I guess we'll have to wait for the Retailer Round Up and the light at the end of the tunnel. And unfortunately it will need to wait a little longer than usual because, I'll be off on a cruise this coming weekend with Mamakaze, celebrating her birthday and our anniversary.

Take care and see ya soon.

4 comments:

  1. I'm reading this through the syndicated feed on LiveJournal (since that's where I am most of the time)...but I doubt very much you're venting to an empty hall.

    Today's post is an excellent crash course on the industry (at least the distribution side) and I hope there are some folks out there who are learning something.

    Have fun on the cruise...we'll *try* not to cause too much CBIA trouble in your absence.

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  2. Good recap.

    What if you ordered your stuff from Cold Cut and it came a week or two later than from Diamond?

    That is a VERY real possibility, and the customer service backlash is what is keeping them from moving to frontlist. At least according to discussions with Mark about that very thing.

    If you were in charge, what would you have Cold Cut do?

    best -

    chris

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  3. For me, I might actually sacrifice a week or so to get the better discount as long as I knew it wouldn't be longer than that.

    Most of my indy customers don't seem to be clock watchers so I don't know that there would be that big a backlash. Besides Cold Cut ships 5 days a week but Diamond only ships new books once a week so the lag would probably be fairly transparent.

    If I were Mark, I'd figure out a way not to let books lag vs Diamond. As little Indy product as Diamond actually moves, if ICv2 is close at all, it really doesn't seem that it would be difficult to build sales volume to a point that
    it would be in a publishers best interest to make sure books were available to Cold Cut or any other distributor at the same time they are available to Diamond.

    As a backlist distributor Cold Cut already is set to hold merchandise for future sales, pre-order sales gives them a better idea how much to order, like when I needed 24 copies of the 2005 24hour Comic Book Day Highlight book which they only ordered 3 of. Might even prevent their frequent and long lasting out of stocks as wel as earn them better terms.

    I assume that their 300 regular customers are among the more hard core indy supporters. If only 100 of them matched me and moved at least $1,000 in initial orders over to Cold Cut that's ~$180k/yr gross profit for Cold Cut on sales of $1.2m! That's a lot of pie!

    Seriously makes me consider leaving retail and start distributing

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  4. Heidi MacDonald linked to you on TheBeat, so I checked out your posts.

    I'm always looking for more insights from retailers as a self publisher!

    I'll be sure and add you to my watch list.

    Jason
    www.superrealgraphics.com

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