Tilting at Windmills #291: I didn’t leave floppies; floppies are leaving me

[Editor’s note: we are aware of the divisive nature of the word floppies, it is used with Brian’s permission here in the headline.]

You will, I hope, recall that last column I discussed the changing discounts that retailers are facing for periodical comics? Well, apparently I wrote too fast because (naturally!) within a month of writing that piece, DC’s sole periodical distributor, Lunar, who is owned by every US retailer’s number one competitor for periodicals (Discount Comic Book Services), switched from the “grandfathered” discounts to new “calculated” discounts. Under the new scheme, your discount is based on the total volume you purchase from Lunar. When all periodicals were purchased from a single distributor, this kind of plan made a sort-of sense – but in a world where there are (at least) three different distributors and our volumes are inherently split, I believe this to be an entirely irrational way to sell them.

So as to not bury the lede: I dropped from an I‘ve-had-it-for-thirty-three-years 55% discount on DC from Lunar down to a 50% base discount. After shipping, this then works out to an effective 46.8%. This therefore means that A) DC comics are now the worst discount of my three largest periodical vendors (Marvel’s effective discount is 50%, Image’s is 47.2%); and B) selling periodicals from DC comics are now a roughly break-even possibility with very little room to make any kind of a profit. Those single percentage points are where pretty much all of the profit are in selling Periodicals.

I am pretty certain that my overall DC volume is in the upper quintile of all Direct Market stores, but I have purchased my Perennial DC stock from Penguin Random House since around 2016 not only as a way to avoid all wasted shipping charges (PRH charges no shipping on any shipment), but also because PRH has consistently had a greater amount of DC Perennial backlist stock than either Diamond or Lunar, and we are a Perennial backlist-focused store. But, because Lunar only calculates discounts from what I purchase from them (as opposed to what I purchase from DC), none of those sales “count”.

This is among the reasons that distributor-based volume-driven discounting plans really make no sense in 2022 – distribution is not sole-sourced through single entities any longer (a situation that I need must remind you was created by DC going exclusive to Diamond in 1992, and the successive centralization of Diamond as the exclusive distributor of all periodicals not long after), and the time-windows of how and when they calculate what your volume is are so wide that once a change is made, it would take forever to ever have a chance to change it back. Lunar’s policy is on a six-month buy, only calculated two times a year, so the next possibility of me impacting my DC periodical discount won’t be until after December.

That is to say that I could perhaps move every Perennial DC item to Lunar today (taking a drop from 50% from PRH to 46.8% at Lunar), but my actual live discount couldn’t be impacted until January of 2023. Thus, if I wanted to try that, I’d have to lose most of my Perennial Item DC profit for six months. This would be, shall we say, sheer Lunacy.

And, please, it is critical for you to understand that Lunar has pretty mediocre stock of DC Perennial backlist on hand. This is because Lunar is not actually a proper full-line distributor in practice, but, rather, appears to be stocking backlist inventory based on how it sells at their other direct-to-consumer outlet, In-Stock Trades.

The notion that the roughly three thousand independent comic book stores would have to sole source all DC purchases through their largest consumer-discount competitor is, frankly, sheer madness, if not marginally criminal. Each and every extra penny that goes to Lunar’s parent does little else but fund our own competitor.

As I say: Lunacy.

I believe this isn’t just crazy for my business, but it’s also crazy from DC’s position: I now make more money selling their competitor’s products than I do selling DC’s. Not just Marvel and Image as noted at the top, but, sheesh, I get 50% flat, no games, from selling IDW (a distinctly 2nd tier publisher at current) periodicals from PRH compared to 46.8% on DC comics from Lunar. Where then is my incentive to maximize my DC sales? And, y’know, even if I had some incentive, there’s absolutely nothing to do to change it until January 2023.

The inevitable outcome of this can only to be to tighten my rack purchases of periodical comics from any vendor where I can’t get at least an effective 50% discount. And, sadly, this pretty much means minimizing purchases for the rack on periodicals.

Let’s take a few steps back to consider the inherent maths of periodical comics. Periodical comics allow publishers to amortize the costs of creation via that serialization, and, in a best-case scenario make it so that all creative costs are wholly paid for making the Perennial backlist editions effectively “free” from creative costs to produce. Without this life cycle, you’re much more likely to see lower-page count books that are then released as $25-30 hardcovers versus $15-20 paperbacks. The inherent risk, for publisher, for creator, for retailer all scales up significantly at this point: it is significantly easier to sell a $3.99 serialization than it is a $24.99 hardcover for the overwhelming majority of material published today – often by as much as a ten-fold difference in audience size in the first year!

Further, the sheer existence of periodical serialization creates both a regular and ongoing material incentive for timely production of content (because everyone is getting paid during the serialization itself) as well as long-term marketing and awareness benefits as a title is out on the market month-after-month. These are things that not only should not be understated, but that drive almost all of the proper viability of long-term success in comics. Most of the creators who are able to make a steady and regular living in comics are able to do so because of the viability of serialization.

Super broadly, I think there are a really meaningful percentage of graphic novel advances that end up not paying out even minimum wage at the end of the day for creation of the work, and then never earn out that advance to make it get to royalties – it’s much easier to make a livable wage by working for page rate for serialized comics, and then also get the second paycheck for the collection.

On my side of the counter, periodicals are the items that bring in cash flow, impel regulars to return, and give us an easy-to-use Fresh Conversation every week. The audience for most periodicals is broadly significantly larger than the audience than the audience for that same material in a book format, and the periodical buyer is the most likely to buy the material again in book format, because they are the “super fan”. It’s a viable economic engine, as long as the market is properly maintained.

All of this makes me think that it is therefore extremely dangerous for the larger health of the underlying market to weaken the viability of the periodical serialization. Because when retailers can’t make a meaningful profit on those periodicals, it upsets the entire applecart. Not simply from what we buy upfront, but from what we both signal and learn about a title’s market viability – there are innumerable titles that I figured out the market after I sold the periodical that I otherwise would have written off; similarly I’ve avoided several costly mistakes on a book format item by having the serialization show me the true audience.

I don’t think that it’s really hyperbolic to say that the publishing business of DC and Marvel (and every other “Direct Market” publisher) is literally built around serialization, so changing the cost structure to the retailer’s disadvantage is inevitably going to bring more conservative ordering. How can it not? Unless I’ve been given the ability to make a viable profit, I can only order to the “safest” sales model. For some stores, that has become the strong lean-in to “collectibles”, the variant cover and other stunts where they can increase margin in that fashion; other stores have shifted to models where they are increasingly less “comics” stores, but are as much game or card or pop culture stores.

At the end of the day the Direct Market store I believe is pound-for-pound always going to be better than selling comics related material than a generalist business like a book store; I don’t think it’s going to be even close. But here’s the problem: anything less than a minimum of “keystoning” (a doubling of investment) makes retail nearly impossible to do and make a profit – certainly the “traditional” book market understands that, where I can get 50% off and free shipping from virtually each and every “Big Five” book source – and I hold it as a bedrock axiom that a specialist retailer like DM stores carrying periodical comics should be earning better than that. It’s why we have a multiple decade history of earning 55% off for most dedicated DM stores on the largest publishers. But that’s all going away; and it is entirely unviable. Publishers should be falling all over themselves to make sure that any “full line” store can always do better than merely “keystone” the core merchandise. To not do this? Well, I think it actively destroys the category of periodical releases.

Let me tie this to recent news about two promotional efforts recently announced: first off, Mark Millar’s new comic, “Night Club” has announced a price point of $1.99 for that mini-series. Second Frank Miller’s new publishing venture is launching with a $1 “ashcan”. This all sounds promising from a news and marketing point, but when I look at my average cost to bring in those comics over the last five weeks, my per-item average is currently coming out to nearly fifty-one cents. So, this includes graphic novels from Diamond (but, really, not all that many these days!), so maybe it’s actually running closer to forty cents, but even the most basic math can only show you that it is unlikely that these can make any money for the stores whatsoever – heck for the Frank Miller thing, after Diamond’s “reorder penalty” and usurious shipping, I estimate I can only make 2 cents selling it for the “cover price”. That doesn’t pay my rent or electricity costs, let alone staffing and labor! I’m certainly not going to order any of either of these comics to sell on my rack when I can’t make money selling them.

We are, I think, at a truly scary deflection point in comics right now where the core model of the business (serializing work to amortize expenses and provide regular cash flow) is breaking dramatically as the retailer’s costs go up thanks to lowering discounts, and insane policies like shipping-as-a-profit-center. All we can do in response is to order more conservatively, which in turn makes it harder to fix the underlying issues with radically increasing shipping costs.

Comix Experience just celebrated a third of a century in business (!), and up until this year I thought it would be trivial to keep this going to hit the centennial, and convert the store to a worker-owned business when I am finally ready to retire. I don’t think this any longer.

I didn’t leave periodical comics. Periodical comics are leaving me.

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Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989, was a founding member of the Board of Directors of ComicsPRO, has sat on the Board of the Comic Book Legal Defense Fund, and has been an Eisner Award judge. Feel free to e-mail him with any comments. You can purchase two collections of the first Tilting at Windmills (originally serialized in Comics Retailer magazine) published by IDW Publishing, as well as find an archive of pre-CBR installments right here. Brian is also available to consult for your publishing or retailing program.

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