Why They Went Exclusive

Mark Thompson, August 3, 1995

Mark Thompson, president of Cold Cut Comics Distribution, which has just picked up its first (probable) exclusive! The Hilly Rose T-shirt will be available next month through us long before any major distributor gets it (sometime next summer for them, perhaps?), Turns out both Cap and Diamond refuse to carry it because BC Boyer is making them himself, and can’t get them in individual plastic bags. We somehow manage to carry shirts which aren’t individually bagged. Must be our superior inventory system… :-)

Well, I’ve been watching this carefully from the start, attended all the meetings, listened to all the questions & answers, and even asked a few questions of my own, trying to find out why these various companies went exclusive. Here’s my conclusions:

Marvel went exclusive because they wanted to Control The Industry

This is by far the hardest to answer. There are lots of reasons for Marvel having gone exclusive, but none of them ring truer to me than this one. Cathy, one of my partners, thinks they went exclusive in preparation for supplying their own line of MarvelStores. Marvel’s official statements imply that they were worried about their decreasing sales and that they thought it was the distributors’ fault. But truly, I think they just plain wanted control over retailers, and this gives them that control.

Of course, not as much as they probably thought. A lot of retailers rebelled against the Marvel Mess, and even now Heroes World can’t cope with the volume of orders they’re getting, so accounts are angry. Still, Marvel now owns a list of retailers across the country, and has complete control over whether and how individual stores receive Marvel comics. If you run a Yellow Pages ad featuring Superman instead of Spider-Man, Marvel can now find you and punish you, specifically, for this transgression. They can lower your discount, reduce your credit terms, or (if you went so far as to publish a less-than-glowing review of a Marvel comic) cut you off entirely. This was impossible under the former system—it is now a “marketing tool” with Marvel’s new power. They can dictate display, they can force new minimums, they can force stores to buy gobs of unsaleable product. It’s Marvel’s ball of wax.

One telling detail of this, though, is how many stores are rebelling against Marvel. When Maggie Thompson asked each distributor to estimate the number of comic shops in America on Tuesday night at Punchline Live, Diamond estimated 6400 international, 5900 USA. Cap City also estimated 5900. Heroes World estimated 5000. I immediately inferred that almost a thousand existing stores have not yet opened a Heroes World account! Which means nearly 15% of the stores in the market are actively rebelling to the point of no longer carrying Marvel!

Admittedly, some of those are probably “show dealers” and such who feel that Marvel won’t let them buy. But Marvel may be unhappy to find out exactly how much of their sales went to those folks they don’t “want” to sell to anymore. And for certain, some of those 900 are just plain stores who either are actively rebelling by refusing to order Marvels which could sell, or are passively rebelling due to the fact that their Marvel orders alone would be so small that either Heroes World wouldn’t sell to them (below minimums) or there would be little or negative profit (shipping costs, ordering costs, etc). And this doesn’t even count those stores who have HW accounts, but are rebelling by cutting back their orders.

It will be interesting to see what happens. I predict Marvel will slowly lose sales until it is approximately 15% of the market instead of the 30% it is today. It will end up cancelling about half of its books, retaining only the Spider books and most (but not all) of the X-books. But Perelman will not care, and the company will continue blundering down the path he divines.

DC wanted Marketing Power

The DC/Diamond deal was pretty clearly not Diamond’s fault. DC went forcefully courting the Big Two and said quite clearly they were going to pick one. Geppi only had the choice of getting DC and surviving, or losing DC and withering away. He fought and won DC. Cap lost.

DC, when asked point-blank “WHY?!?”, said they needed to do this to “compete effectively with Marvel”. And from their perspective, looking only at the present, they may be right. They don’t see Marvel declining in the future; they see Marvel with incredible power in the present.

But it is not the dictatorial power that Marvel wields which interests DC so much as it is the marketing power. DC made a few points on this matter.

One straightforward example is that they tried to do some sort of “one per store” super-promotion last year. It was quite important that they only do one per store, as this thing was expensive—it was some sort of super- duper Superman inflatable display or something or other. So they could only afford about 6000 of them. They then noted that it was impossible for them to get them to stores. They could pick one distributor, but would miss a lot of stores. But if they sent them to all distributors, the overlap of accounts would cause them to ship some 10000 or so, which was unacceptable.

They gave another example—they’d like to do some cross-promotion with, say, McDonald’s. They’d like to get coupons for a free happy meal into stores which are carrying Batman Adventures, say, when the Happy Meals offer Batman Adventures toys. But there’s no way for them to coordinate such a program through a myriad of distributors. So it’s cancelled.

Their fear is that Marvel will now be able to do this type of thing. Marvel will have a list of the stores in America and know exactly what they buy. They can tailor their promotions to certain geographical areas (for instance, if a movie is in local release only). They can provide lists of “local comic shops” to theaters showing New World movies. And so on. DC was scared that such powerful marketing tools would leave them out cold in the “reach the mass market” race. So they had to self-distribute, but they felt their best deal was a brokerage arrangement. No huge overhead, but access to all the data they needed to effectively plan national promotions. They set Capital versus Diamond and waited to see who would offer the best deal. Diamond won.

DC obviously made what it thought was the best decision for its own interests. What I think it failed to consider was the fact that this big jump was the final straw in destabilizing the market. If they had kept the status quo, the distributors could have survived. Smaller, leaner, but alive. But DC felt they couldn’t keep the status quo if they were to compete with Marvel.

I wonder if they’re having second thoughts as they watch the market collapse around them? Did they consider that their actions precipitated the destruction which is causing stores to fold, trimming profit margins sometimes dangerously, cutting even retail discounts on their books, and filling the industry with bad will? Was it worth it to them?

I don’t know. I don’t think even they know.

Image wanted money

That’s the only explanation I can think of. As Milton Griepp said at the Capital City breakfast Saturday morning, at Capital they would have been the number one publisher. Instead they decided to go with Diamond and be number two. He has no idea what Diamond offered them, but it must have been good.

I can’t imagine Image being concerned about stores getting their books (see Dark Horse below)—every store carries Image, in one form or another. Nor can I imagine Image wanting extra promotional power to tie in with Taco Bell—they don’t seem that sophisticated. Maybe they wanted that list of all the comic shops, but surely they could have gotten that some other way? And either of these last two points would be addressed at Capital anyway.

Nope, the only thing that makes sense to me is that Diamond waved fistfuls of dollars under Tony Lobito’s nose and he drooled and jumped. Here’s where I start blaming Diamond. Diamond was now apparently actively trying to kill Capital. The only reason for getting Image is to kill the competition. This is where I start steaming at Mr. Geppi. This, and all later signings. There’s no reason other than maliciousness.

Image was, of course, Capital’s best hope. And the fact that Image caved in (not really surprising, given their inexperience and general immaturity as a company, but depressing nonetheless), caused one more big domino to fall:

Dark Horse was frightened

Dark Horse alone is not enough to get every comic shop in the nation to order from Capital. There are a lot of stores out there who either barely carry Dark Horse now (Star Wars books and that’s it), or who order so few that they couldn’t make a Capital minimum.

So Mike Richardson would be giving up sales in the short run. Sales which might never be recovered (or might). He discounted the effects of any retailer backlash (“hate marvel? buy dark horse!”), and saw only declining sales on a possibly-sinking island.

What’s more, he saw a competitive opportunity—with the deal he cut with Diamond, he has complete control over discount on Dark Horse product. He can try undercutting his competition on price, to induce stores to try his admittedly-diverse line of books. He can offer super-discount incentives if a store agrees to sample some of his “alternative” line. He can offer bonuses to stores which carry the full line (a heck of a lot easier than carrying Marvel’s full line).

But mainly, he was scared. Scared of losing sales, and scared of tying his company’s fortunes to a sinking ship. Because once it sank, where would he be? See Everyone Else below.

Acclaim was even more frightened

Or maybe it was money. I don’t have a very good handle on Acclaim. Does anyone? Does Acclaim even know what they’re doing? Their books drop in sales each and every month, and show no signs of getting better.

So my gut instinct is that Acclaim felt the Dark Horse syndrome, but more so. They wouldn’t be enough to save Capital alone, so they’d only be cutting their own throat. So Diamond said “Jump!” and they jumped. I don’t believe they’re setting their own discount (lord, I hope not!), so the only advantage they’re getting is guaranteed access into every comic shop in the nation.

Kitchen Sink is pissed off

Denis Kitchen has always been an individual, and never one to follow trends just because they’re financially expedient at the moment. He looks long-term. This man has created undergrounds, sold them, then formed his own distribution system before Phil Seuling even came around. He’s not scared—he’s Angry.

Denis looks at the market and sees Capital as more than just “hanging in there”—he sees them picking up the slack in the Alternative Comics market which Diamond ignores and leaves dangling. He’s looking at the way the market is changing and truly believes that Diamond will become somewhat secondary. He sees an expansion of comics into the mainstream, through books like The Crow and From Hell and Kings in Disguise, and thinks that Capital is leading the way, where Diamond forgets to follow.

He’s right—at least for the present. Who can tell the future? I hope he’s right about it—and if he is, and the alternative market grows, Diamond sure as hell ain’t gonna be there supplying it; Cap will be. So Kitchen Sink going exclusive with Cap was just his way of saying “let’s hang in there together as this market grows”—Cap needs his support and that of other “alternative” publishers to make it through this mess—and hopefully that market will expand (as the superhero market shrinks or levels), and Cap will be back on top once again. Or at least, will not really be competing with Diamond in any real sense.

Everyone else is scared out of their pants

Every middle publisher at San Diego is getting pestered by the Big Two about going exclusive with Diamond or Capital. These medium-sized publishers have a problem.

They don’t want to go exclusive with anyone. They don’t like the way Diamond is swallowing the market, and would prefer not to sign with them—and why purposefully cut off a distributor where you get sales? Why would you do that? But signing with Capital would mean an instant drop in sales, and remaining independent would leave you in the (shaky) status quo. But both have one other important thing:

Signing with Cap or staying indy means that if/when Capital dies, Diamond gets to sit on you and stab you and make you scream. And we’re all fairly certain that Diamond is a heartless son-of-a-bitch. If you’ve signed with Cap and Cap dies, you have to go crawling to Diamond, hat in hand, begging to be carried. They can outright refuse, and you’re dead. Or (in some ways, even worse) they can say they want an 80% discount on your product instead of the normal 60%. Or that they want you to pay Mr. Geppi a special kickback of $10,000 every month. Personally. Wrapped in chocolate. They can do the same thing even if you’re independent—they may not be as vicious, but you can bet they’d still find some way to make you pay.

What choice would you have? You’re screwed.

Meanwhile, signing with Diamond means you can get now, on paper the fact they they will continue to distribute your books in perpetuity, that you will get standard discounts, that no bribes are necessary, that they will list your books in the catalog, etc. You may not get great deals like DC or Dark Horse, but you get guaranteed access to every store in the nation —and more important, you get a guarantee that the sadistic overlords at Diamond won’t stab you in the heart if Capital dies.

This is obviously a temptation. It’s a hard choice.

But this is why you will hear about more exclusivity deals over the next few weeks. I’m sure Diamond is busy calling up the next ten or fifteen biggest publishers and threatening them with the doomsday scenario above and seeing who falls in. Meanwhile, Cap is busy calling folks trying to get the Angry Vote out. They’ll pick up a few of the more strident and independent publishers (I wouldn’t be surprised, for instance, if Gary Groth went with Cap). WaRP supposedly was on the verge of signing last week.

We’ll see.

What a mess.