Diamond's Bill Schanes on the Benchmark Change

UPDATED: Diamond Changes Thresholds

Since the news broke that Diamond was increasing its Purchase Order Benchmark , discussion (not to mention rumors) about what the change means has been non-stop. It’s gotten to the point that keeping track of those making the worthwhile points can take a chunk of time.

Newsarama spoke with Diamond Vice President of Purchasing Bill Schanes Wednesday afternoon to get the official word from the distributor, and what, in Diamond’s eyes, the change will mean.

Newsarama: First off Bill, can you explain what has changed?

Bill Schanes: Sure. Primarily, in 2008 and prior, purchase order benchmark at Diamond cost – so our cost of goods – has been at a guideline of $1,500 of our cost. We’re raising that to $2,500 at our cost. So when someone brings a new product to us, we look at previous sales on that same series, or with a like artist, or on a like product, and evaluate if we think the new product will hit that benchmark. If we think we can, then we’ll list them. If we think it will be less than that benchmark, then we’ll have a conversation with the publisher what they’re going to do to help sell the product – get a sales and marketing/promotional campaign together or other means to help drive consumer interest to the retailers.

NRAMA: To be fully clear – when you say at “our cost” – that’s…

BS: What Diamond pays the vendor.

NRAMA: So what’s the quick and dirty formula to gauge the benchmark?

BS: We take a book that we buy at 60% off – $6,200 at retail equals roughly $2,500 of Diamond’s cost of goods.

NRAMA: So any product needs to see retail sales of $6,200 across all the accounts serviced by Diamond in order to be listed?

BS: Basically – it’s a guideline. There can be fluctuation. When we run projects for the Comic Book Legal Defense Fund and Hero Initiative – I’m not looking at those guidelines at all. Those are totally different types of projects. And there are some products that we carry that we think are business tools, like Locus magazine, which we think helps retailers order books. So I don’t look at that with the same eye on the benchmark as I do other products.

NRAMA: Why were these changes needed?

BS: I think, as everyone is aware of, the economy across the whole world – and the United States not being immune to that – has been pretty tough through 2008, and there don’t appear to be any immediate signs going in to 2009 that things are going to change that much. Diamond’s sales were down last year – within a realm of acceptability, but they were down, and we’re looking at decreases in 2009. So we’re looking at ways that we can reduce costs on our side on the lowest selling, least profitable lines, and we felt this was a reasonable approach to reduce some costs and still provide a very high level of service to the vast majority of our clients and our retailers.

NRAMA: In doing this, what immediate effect will be seen? Will there be some publishers who are dropped outright, or will this be the beginning of a number of interventions with publishers who aren’t meeting the benchmark?

BS: It’s going to be a mix. If there’s a very small press publisher who publishes maybe one or two titles a year, and they haven’t been getting any kind of groundswell from the consumer base, or retailer recognition, they’re most likely to be affected first – and those will no longer be carried by Diamond in the future.

Those might be 20-30 guys overall over the course of all the vendors we deal with, which is 600 vendors a year – so that doesn’t seem like a very dramatic cut to us. To the vendors, of course, it’s very dramatic, but the overall count base is not huge.

There will be a lot of vendors, again, “lot” being relative, on the comic book side that we’ll have conversations with about some title reductions – or repackaging or reformatting based on long history of sales where the sales are continuing to decline, so there’s less consumer interest with every issue and they’re already under the old benchmark, so they’ll be under the new benchmark by quite a bit. So maybe have to go to quarterly or bimonthly, or raise the price. Those who are creative can figure out how to continue to exist out there, at least through Diamond.

Now, of course publishers can publish any comics they want for anybody, and no one’s every said that Diamond is the only place that you can sell comics through. We obviously have a considerable presence in the comics market, but there are other places that sell comics besides Diamond. So based on the individuality of the creator or the publisher, and their vision and ability to find new opportunities, there are absolutely new opportunities out there. We’d like to be part of that, but if the sales are so low that our cost of handling that book is more than the gross profits, then it does not seem like a very good business strategy for us.

NRAMA: In other words, on these lower end books, you were losing money – it was costing you more money to process and distribute them than they were bringing in…

BS: At the end of the day, once we looked at all our operation costs in handling the books, we believed that – not down to the single penny, but in overview – that they’re an unprofitable line to carry. We felt that was a level of service that we could no longer provide based on the current economics out there that we’re facing now, and look to be facing for the next 12 months or so.

NRAMA: And the benchmark goes for every individual product, not a punisher or vendor’s line offered that month, correct?

BS: Correct. It’s not based on any publisher information at all – it’s based title-by-title and what goes on the order form line. Sometimes a publisher will do a first issue and do five different covers – with each cover being its own line on the order form, and its own number. Therefore each cover would have to hit the benchmark. Most times what happens is that the consumer dollar gets split between the five books, making most, if not all of them, not profitable for us to carry. Our belief is that if there are fewer choices on those types of variant covers, the individual issues actually perform better, and are more profitable for all concerned. So that’s what we’re hoping that one long-term strategy will be, and we have some evidence that this has happened in the past – we’ve asked publishers in the past to reduce some SKUs, and they have indicated – not always, but sometimes – that sales have actually gone up, because the dollars are no longer split between so many versions of a book.

And there’s a big divide between retailers as well, if they are stores that carry the base code book, or if they carry all the variants – there’s a big spectrum in regards to how retailers feel about that topic.

NRAMA: Along that same line, in that the benchmark applies to every product with a code, some publishers have said that the new rule will have somewhere between interesting and devastating effects on their relist titles and their backstock that they can offer through Diamond…

BS: Right – it does apply towards what we call “Offered Agains” – some folks call them relists. Basically once a product comes out, and has gone live in the marketplace, and the publisher or Diamond wants to put it back in the catalog, we call it an Offered Again – it’s our name for it – and that’s generated some amount of revenue for all those concerned. The problem with putting it back in the catalog is that is has the exact same cost attached as a new product. We still have to process the orders, still have to pick and pack them, ship, and handle shortages and damages. There’s no difference from an operation cost standpoint for an Offered Again product and a new product.

Clearly we understand that the Offered Against generate revenue for the publishers – sometimes very much needed revenue, and we’re trying to be sensitive to that, and we have been for the last 10 years. We’re just not sure that we can be as generous as we have been in the past with the number of Offered Agains in our catalog every single month. So there will be less going forward. I don’t have an exact percentage, or what the numbers will look like until we go through a whole cycle, but it will be less.

NRAMA: Speaking of the cycle, when will this be going into effect?

BS: It will be going into effect with Previews No.3 which will go on sale the last Wednesday of February. You will see the new mix of product in there.

NRAMA: So there may be publishers that were in the latest Previews who will be missing from that volume?

BS: Yes. Number 2 goes on sale this coming Wednesday, and the new product mix will be reflected in Number 3.

NRAMA: How much of Diamond’s business do these new “benchmark missing” publishers make up?

BS: I don’t have the number in front of me, but it’s well south of 1%. It’s very small. I will say that it ties up a tremendous amount of energy processing these small orders that are not performing for us from a P&L standpoint. So we’re doing the same amount of work for the bigger titles as we are for the smaller titles with a totally different end result.

We’ve always taken a position that there is free access to the marketplace, and we want to help the small guys get bigger and we’ve helped grow many small guys to medium guys and medium guys to beiger guys, and are thrilled when that happens, but it’s not an imminent right to be in the catalog. Not everybody can be on the grocery store shelves with their products. The grocery store has to make some tough choices based on what it thinks the consumer base will want.

We act a as a responsible distributor, we want to make sure that products are available that are commercially viable. We actually use five retailers that are very independent friendly to help us some times on comics that we’re not sure will be commercial or not. And in the last three or four years, for every ten that we send out, they agree on less than one that they feel will be a commercial success. And these are retailers who support small press.

NRAMA: One myth to possibly bust with the benchmark change – does this mean that Diamond is now closed to new products from new, smaller publishers?

BS: Of course not – it has never meant that. But we’re also looking for things that sell – so are retailers, and so it everybody else. So if we see a new comic cross our door that looks promising, with a good concept or a good creative team, we’re going to give it a try. But when we have a brand new creator or a brand new talent team, that’s a judgment call. Hopefully we make the right call based on our years of experience here, but we may occasionally miss one. There are times that some creators have called me and said that they think we missed s good one, and sometimes we agree, and sometimes we don’t. But that’s a healthy dialogue, and we’re very open-minded with that.

NRAMA: We’ve heard from a number of publishers that their Diamond representatives have been helpful in suggesting different strategies and approaches that they can take. You mentioned a couple, but could you into that a little – what is a publisher to do?

BS: It’s almost on a publisher by publisher basis, because every product is a little different – a little bit different flavor, a little bit different feel to it, pricing, packaging – all those important elements. But if some publishers say that they’re really being affected by the Offered Agains, we might suggest that, for them to hit that P.O. benchmark, to do a bundle. Put two or three issues together to create a higher retail price, and even if the sales are relatively small, we believe that they might hit the benchmark and bring in enough revenue for the punisher to sustain themselves on Offered Agains.

So bundling is one way to approach it, they might be able to do a different format – instead of 32 pages at $3.99, do bi-monthly or quarterly, 48 pages at $4.99. That might be an alternative way of reaching the benchmark and still giving the consumer a good value for its money, and still being able to maintain being sold through Diamond.

There are a number of different things that can be done that are out there, but we also have to ask publishers what they’re going to do to help themselves? Often times, publishers feel their responsibility to the product is done once they hit send on that final e-mail. We don’t feel that’s fair – we feel that they should be driving business to the retailers, and helping Diamond help market their product. We don’t think it’s the responsibility of the distributor to be 100% of the sales, marketing and commercial arm of the publisher. We can augment their effort, but we should not be the only effort.

And primarily, those publishers who work hard and go out there and bang the drum and create the news do better. It just makes sense. Those publishers who sit back and wait for it all to happen on its own, for the most part, don’t do very well. And that also makes sense. Those that work hard can reap the benefits. Those that don’t fall by the wayside. It sounds callous or uncaring, but that’s not the case at all – we care very much, but we’ve got to be profitable here too. We’re asking that publishers help us to sell their books. If they can’t – I just don’t think that we can continue to support those titles that are doing very little to support themselves.

That doesn’t mean that they can’t exist – they can be in print, they can go to shows, and be sold at shows or over the internet, and they can use other distributors like Haven or Last Gasp. There are people out there who work under a different model than what we work under. We want to be a partner if at all possible – but we want to do it in a profitable way. That doesn’t mean that at times we won’t take risks as we’ve always done. We take a lot of shots every month right now, and it’s pretty ugly out there with how many times we try something new that we don’t make money on.

NRAMA: Finally, what net effect will Diamond see in the coming months? Will this lead to a thinner Previews for instance?

BS: I think we will see a thinner Previews, yeah – we don’t have an idea yet of what that will mean – we don’t know how many pages or products will be affected just yet. We’ll know that after a couple of catalog cycles. We hope that the products that remain in there will have a higher concentration of people looking at them. Hopefully, as a byproduct of those changes, maybe sales of the products that remain will increase. That would be a wonderful thing to happen, and we’ll know that after a few months time.

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