by Brian Hibbs

#125 – September 2004 – ‘A Tale Of Two Publishers’

I’m not generally a big fan of the exclusive distribution agreements that are in place in the Direct Market – I think it stifles competition in both distribution and publishing and that’s never a good thing. But it has certainly created a great deal more accountability from the major publishers.

Back in the old days if there was a problem or complaint about publishing policy, you often had to filter things through multiple bureaucracies and finding a solution that worked through Diamond might not necessarily work through Capital City, or Friendly Franks or whatever.

But today, because the distributor doesn’t actually own any of the comics he’s delivering to retailers, we can take our cases directly with the publishers, greatly streamlining the communication process. In fact, I think that we can point to any number of recent occasions where retailer communication has directly changed publisher policy – usually for the better.

So, in that spirit, let’s look at both Marvel and DC’s policies, and where I think they most need to be modified to serve the market better. Maybe we can do some good today?

* * *

Let’s start with DC. As some back ground reading for this column, I strongly suggest that you read ICv2’s recent interview with Paul Levitz, Publisher of DC (Bob Wayne, VP: Marketing is also in the room). It is broken into three parts, part one, part two and part three. I strongly urge you read all three parts, but the main portion useful for this column is part three. Go, read, I’ll still be here....

Ah, you’re back? Spiffy. So, what have we learned?

● There are not enough stores

● Investing in backlist (with thousands of SKUs [“Stock Keeping Units”]) is a financially difficult proposition

● DC is the backlist leader, with the largest number of in-print titles

Given this, one really has to question just why it is that DC effectively doesn’t allow backlist items to count towards discount plateaus.

Certainly, I was one of the original people who argued to DC that backlist was the business they really wanted to be in (Myself, Rory Root of Comic Relief, and Bill Liebowitz of Golden Apple were the participants in one of DC’s first focus groups – I think of it as “RRP #0” – some dozen years ago. We were very focused on “You’re leaving money on the table by not pursuing this format more”), which is why it is all the more frustrating that only a percentage of my DC purchases count towards my DC discount.

Let’s backtrack a smidge for all of the non-retailers out there, so everyone is on the same page with the discussion. Discounts for Direct Market retailers are generally calculated from your initial advance orders. What this means is that if I turn in an order for, say, $2000 worth of DC product from the September Previews, I’ll get a 50% discount. That’s because the range is $600-2199 for 50%. If I order $2200, I’d receive 52.5%

The thing is, discount is based upon your initial orders. If I’m that $2000 order above, and I reorder another $200 worth of material, I don’t get bumped up to the next plateau. What this effectively means is that in this situation I’m getting a 2.5% lower discount on my entire order, including that initial $2000.

This kind of a system worked more or less OK when plateaus were first instituted – that is, decades before DC went exclusive with Diamond – because there wasn’t much, if any, backlist back in those days this really only affected people right “on the cusp” of a discount bracket.

For example, the 55% mark is between $3400 and $16,999 in monthly volume. My August DC order came in around $8500 – I’m solidly in the middle of the bracket. It would be exceedingly difficult, if not impossible, for me to double my initial orders to get up to the 56% bracket. Conversely, I’m at more than double the bottom of the discount, so I can be sure that I’m unlikely to drop back to 52.5%. I’m pretty sure that most retailers are in a similar circumstance: they’re not seeing month-to-month changes in discount.

On the other hand, as the number of in-print and commercial backlist items grows, I will, sooner or later, get my monthly DC volume over $17,000. Currently I appear to be more than halfway there – if my quick math is correct, I ordered nearly $4500 in DC backlist throughout the last 4 weeks. Under the current system, my only recourse is to order backlist items as frontlist, in order to receive the volume that I’ve earned – despite this being the least efficient and most risky way to order that backlist.

DC has put a tremendous amount of resources into building a sound and sustainable backlist. This system is predicated upon on “just-in-time” ordering – there are too many SKUs to frontload your orders, and, besides, they recognize that the party with the smallest per-unit investment (that is: the publisher) is the one that should be holding the inventory. DC, I understand, regularly prints books to have stock for 3-5 years – because, in the long run, this is cheaper than frequently going back to press on small quantities.

DC is also dramatically stepping up the amount of “original” backlist material they’re producing – beyond “OGNs” like Orbiter or Endless Nights or It’s a Bird or whatever, where there is no serialization to amortize production costs, they’ve also added another half-a-dozen or more (per month!) “International” titles via the Humanoids, 2000 AD, and CMX lines. This is astonishing growth and movement towards perennial-first. And yet their pricing policies belong to an era where they only produced disposable periodicals.

That’s insane.

Paul talks about comics being “understored” (I agree!) and about how daunting it is to build a backlist section in the face of thousands of SKUs (I agree!) – yet DC denies retailers the most fundamental tool (discount) to open new stores or to create or expand a capable backlist system! And I very much disagree with that.

Let me try to spin this another way so you understand why I think this policy is so antithetical to DC’s received goals: In the last 4 weeks I appear to have reordered more than $4500 in backlist from DC. That, by itself, even if I never ordered a “new” comic from Previews, would still be enough to earn me a 55% discount if backlist volume was credited. However, that volume isn’t included at all in any calculation of my discount.

Does that sound right to you? Does that make any sense?

To me, this is a no-brainer “carrot” that DC really needs to offer if they actually want to effect the change in retailer’s behavior they suggest they do

* * *

Across town, at Marvel, they implemented that change something like a year ago. Every single product from Marvel you receive is counted towards your discount. Backlist, frontlist, doesn’t matter. It adds to your discount calculations. Now I think they made a big mistake by making it a one year rolling average – you can’t actually change your discount by ordering more, unless you do it in a sustained fashion over a long period of time – but it is sure a lot closer to a rational system. Things’d be considerable more fair if the system was a no-more-than-quarterly-calculation one, but at least that’s one step closer.

Where Marvel really drops the ball is in their no-overprint policy.

Well, wait, there’s a background interview for this one as well, also on ICv2. Marvel’s publisher, Dan Buckley is interviewed in two parts: Part One and Part Two.

I can understand, a little, why overprinting might “scare” a publisher – if you had a retailer account code you could look in the bowels of Diamond’s inventory and you’d find certain Marvel books, years old, still sitting in their warehouse. No one really wants Marvel to have 776 copies of Trouble #1 laying around the warehouse, let alone 355 copies of X-Treme X-Men #35, but sit there they do.

The thing is, these are tiny fractions of the print run. ICv2 estimated Trouble #1 as selling nearly 54,000 copies. 776 copies is all of 1.4%. ICv2 estimated X-Treme X-Men #35 as selling around 61,000 copies. 355 leftovers is 0.6%. These are not life-threatening problems, y’know? I’d be doing the happy dance if I could get 98%+ sell-throughs – and I have not only a higher Cost of Goods, but a lower Profit Margin than Marvel does!

A little back-of-the-envelope math here: even including Diamond’s cut, the least that Marvel makes on a comic is around 35% of cover (Their top discount is 59%, and let’s say they give Diamond an additional 6% [though I think it is lower than that, actually]). On a $2.25 comic that is around $0.79. Given that Marvel offers “promotionally priced” comics (like the 25-cent experiments, or Free Comic Book Day) for under 19 cents it’s probably safe to say that a $2.25 comic costs them under a quarter to print. That’s a 216% profit margin.

(Notice that I’m trying to favor Marvel in all calculations: going by the least profit they’d make – 59% probably goes to less than 5 DM accounts; and I’m almost certainly over-estimating production costs)

Meanwhile, as a DM store, buying at 54% off cover in my case, my cost on a $2.25 comic is $1.04. That gives me a profit margin of about 116%.

Again, that comic costs Marvel 25 cents, and costs me $1.04. Who can better afford the expense of stocking copies over and above the guaranteed sales?

Exactly.

And here’s the important bit: it’s that “guaranteed sales” that’s the real sticking point for growth in the Direct Market. We constantly discuss how lower-selling books aren’t getting the support they deserve. How much we love, say, She-Hulk, and how it should be doing better. Even Joe Quesada makes comments like this in the weekly mailer that goes out to retailers.

But, with the way advance ordering works, where retailers are asked to commit to quantities weeks before they can see a work, and where Marvel launches new book after new book into the marketplace, how can a retailer discern the difference between a historically poor-selling character in what will turn out to be a high-quality comic (like She-Hulk) versus what will turn out to be a low-quality title (like, say, Iron Fist)? The answer: we can’t.

So retailers order low, seeking to sell out quickly so they don’t get stuck with unsold stock. That’s just common sense for a retailer.

(Try this little experiment the next time you’re in your local comic shop – walk the racks and look at the “marginal” material – your Iron Fist or Starjammers or Guardians or Silver Surfer – and see how many copies are sitting there. Then recognize that each and every one of those comics represents at least one dollar. How much money can you add up, languishing on the racks?)

There’s another side of this problem, and that is that Marvel has radically reduced the wait time between periodical release and the trade paperback. It’s not at all unusual to see the TP on the shelves 4-6 weeks after the last issue in the arc has shipped.

The original mechanism of the Direct Market was that if you didn’t sell a book during its release window, at least you’d move those books down the line as back issues. But if a TP comes out that fast on the heels of a periodical release, and when the TP is usually a) better (no ads, better paper) and b) cheaper, then there is much less traffic for the older periodicals.

See, we retailers have to frontload our Marvel orders because there are effectively no copies of periodicals available for reorder, yet we have to sell them all very quickly or risk having a ton of left-over unsalable stock. My philosophy of ordering modern Marvel comics has had to largely devolve to ordering only marginally above “subscription” copies – and this flatly minimizes the amount of money that either we or Marvel (or the creators!) can make. Further, this creates a “hit maker” kind of philosophy where the market gravitates towards “sure things” like more X-Men or Spider-Man titles, further minimizing orders on anything at all “fringe”.

And that’s not healthy. For the market, or for Marvel.

Let’s be clear here, no one is asking Marvel to turn on the floodgates and overprint each and everything in the line to a great extent. For many, perhaps even most titles a “handful” of copies (half a percent?) over and above traditional shortage/damage rates is more than sufficient. But on work that is new, there’s a certain amount of manageable risk that has to be taken so to offset the extremely conservative instincts that the majority of retailers use to place their orders.

Within that, you use both common sense and understanding of the market to move that needle: You go big on She-Hulk because it is good, you go lower on Iron Fist because it’s not. You go “nuts” on something like Whedon’s Astonishing X-Men because you understand that few of his audience are regular comics buyers, and might be coming in months later to look for the comic. I fundamentally believe that the 200k-ish that ICv2 reported for #1 could easily have been 300k if Marvel had printed for a quarter’s sales.

The cold reality is that even in regards to “sure things” there’s an ordering ceiling that most retailers are going to work within. That’s because “sure things” often aren’t (Ask me about my sell-through on Jim Lee’s Superman for instance! Owch!!) – and a forward thinking publisher is going to understand that it is up to them to cover for the inherent conservatism of a retailer’s ordering.

Ultimately, I’m going to sell less copies of She-Hulk #8 than I would have if I had been able to steadily reorder #1 (and #2 and #3 and...) – while the quick TP will mitigate a little of that, when the goal is to build the periodical’s sales you have to have the periodical there for the customer when they want it. That’s why I was able to sell more copies of Ex Machina #3 than I initially ordered of #1 – because #1 was available for reorders.

I’m strongly of the opinion that Marvel is leaving millions of dollars off the table every year because their comics aren’t available for reorder as a matter of policy. Not simply from the loss of sales from not being able to fill immediate demand (though that’s huge), but also from the future demand that is being quelled from not being able to “jump on at the beginning”.

Business is always about matching supply to demand – Marvel clearly needs better supply.

* * *

Hrm, well 2500 words already – thank god this is the internet and not print, and I can squeeze in one last little topic.

Chuck Rozanski, owner of Mile High comics, writes a really interesting column, Tales From the Database, for CBG. Chuck’s one of the largest retailers in the Direct Market – probably one of the top 3. Chuck almost always has something interesting to say, and I recommend it as a regular read.

Still, I think that Chuck is wildly off-base in his latest column about variant covers.

See, the “problem” is that Chuck’s perceptions are filtered through the lens of being one of the largest retailers in the DM. To ask Chuck about variant covers is like to ask a billionaire about republican tax cuts – of course they favor it, it nets them lots and lots and lots of money. But, for the bulk of working retailers, it helps much less.

Let’s try an example to put this in some sense of perspective. Marvel recently announced a one in sixty-five variant for Wolverine. ICv2 pins the latest Wolverine at 66,589 copies sold. That’s about 1025 copies of the variant for the market, assuming sales stay flat (They won’t, but I don’t have the data to argue otherwise)

Mile High buys a lot of comics. How much? Can’t really say, but received wisdom has never been challenged that 90% of the comics sold are from the top 10% of accounts. Therefore, it’s probably safe to think that Mile High moves at least 1% of Wolverine’s print run. All things considered, it’s probably 2-3 times that, but that’s for Chuck to reveal. All I can do is guess.

That means Chuck’ll get 11+ copies of this very rare variant.

Meanwhile, back in the rest of the DM, there are 3800 stores, so the “average” store gets... um... no copies of the variant. That’s because the “average” store orders about 18 copies of Wolverine – less than a third of the target number of 65 for-a-variant.

Oddly, I’d have little problem if Chuck had said “Variants are good because they make me more money” – but the suggestion that they’re great for the market as a whole, or great for the smallest stores struggling the most is really far from any kind of reality. Because most stores never even qualify for the things!

Even for those that do, our on-the-ground reality is vastly different than Chuck’s. I assume Mile High has an entire department of packers and pickers whose full-time job is to handle mail order processing. If someone mail orders something from me, I am the one to handle it – and very much outside my normal routine at that. I suspect Chuck has a daily UPS truck pull up to his loading dock to take away all of the orders he runs. Me, I’ve got to make a special trip to the post office.

I think variant covers send exactly the wrong messages to comics consumers (because, let’s face it, your comics are, in the main, actually worthless as a “collectible”), and set up a have/have-not division in the market which is extremely unhealthy. Chuck has every right and obligation to seek more benefits and protections for his being one of the top DM retailers – but don’t try to sell that kind of program as being a panacea for the average small store, because that dog just don’t hunt.

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Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989. Feel free to e-mail him with any comments. You can purchase a collection of the first one hundred Tilting at Windmills (originally serialized in Comics Retailer magazine) from IDW Publishing. An index of Tilting at Windmills on Newsarama can be found right here.