A Comics Journal History of the Direct Market, Part Three

Posted by on February 17th, 2010 at 5:20 AM

 


From WildC.A.T.S. #6, penciled by Jim Lee, inked by Scott Williams, and written by Brandon Choi and Jim Lee; ©1993 Aegis Entertainment, Inc.

 

In December of 1994, Marvel acquired Heroes World Distribution. The following March, they inadvertently leaked a memo noting that Heroes World would serve as their exclusive distributor, and that Heroes World would no longer distribute any title not published by Marvel. In a page from the company’s June solicitations catalog for retailers, a letter from then-Marvel Vice President — Direct Market Matt Ragone stated, “While opinions may continue to swirl about the industry about the impact of the change, the fact is no segment of this industry is satisfied with 1994 performance levels, or early 1995 performance. […] To Marvel, the key to turning things around begins with consumers and works back from there.”

Marvel’s campaign of “Marvelution” had begun in earnest, but in the exact opposite direction stated: Starting with the distributors, Marvel clearly intended to use the soft market conditions to consolidate its dominance of the industry in a distinctly top-down strategy. While a press release from Vice Chairman Terry Stewart (according to Reynolds’ report, he’d held three job titles within the previous year) noted that “the time has come to emphasize the concerns of the retail community,” retailer concerns seemed like the last thing on the company’s agenda. Adding to the sudden turmoil were rumors of a possible exclusive distribution arrangement between Diamond Distribution and DC Comics, in an effort to counterbalance Marvel’s sudden seizure of distribution power.

Reaction within the industry was one of almost immediate antipathy, as best voiced by cartoonist (and former Marvel artist) Frank Miller, who in a statement released through his publisher Dark Horse said, “Can everybody stop apologizing for them now? For decades, Marvel Comics has denied who created their characters, who made their comics worth reading. Now, having driven the best talent away, they face plummeting sales. Desperate, and terminally unable to admit that it is their own historic mistake that has made their comics so lousy, they turn on the distributors and merchants themselves, applying the same grab-it-all, control-it-all mentality that drove the writers and artists and readers away. You folks who distribute the comics, now you know exactly what they did to the artists who gave loyal service to Marvel, who showed Marvel goodwill.”

Competing distributors were likewise understandably aghast at the decision. Writing in the June 1995 ordering catalog of his distribution company, Friendly Frank’s owner Frank Mangiaracina stated, “As a distributor, the only distributor-oriented complaint I’ve ever heard from Marvel was that their books weren’t selling, because distributors were making it too easy for other companies to come into the market. If only we’d never carried Image, Marvel would have 50 percent more business.” To Mangiaracina, the underlying motive seemed obvious: “Marvel’s real plan is to cut off their competitors’ distribution.”

Undeterred by the fear and chaos they were causing, Marvel representatives embarked on a 19-city tour of the United States in an effort to convince retailers of the sincerity and necessity of their actions, and to explain the terms that they would be enforcing under the new distribution arrangement. The second thrust of their mission was successful, as the new terms were explained at each stop; the first thrust… less so. At their April 2 stop in Bellevue, Washington, Terry Stewart announced that he was stepping down as Vice Chairman, in favor of “more corporate duties,” notably including the launch of a new chain of Marvel-themed restaurants. From Eric Reynolds’ news report on the meeting (TCJ #176, pp. 11-15):

Stewart also announced that his replacement as president of Marvel Comics was Jerry Calebrese, a five-year Marvel employee who previously owned Games Magazine. The announcement of Calebrese was met with a tepid response from the retailers, most likely due to Calebrese’s perceived masterminding of the controversial Marvel Mart program which offered mail-order items to Marvel consumers that were never offered to retailers.

Stewart repeatedly emphasized what he called “The Covenant of the Partnership” during the meetings. He began his explanation of this partnership with a series of projected slides detailing various “truths”:

The Marvel Covenant: Establish a Marvel/Heroes World relationship with the retailer

Truth #1: There are three parties that make a successful sale:
The consumer
The retailer
Marvel/Heroes World

Truth #2: Mutuality of benefit; the retailer and Marvel must form a partnership

Truth #3: Recognition that this partnership might not work perfectly all of the time

Truth #4: Retailers must share information to make knowledgeable decisions

Truth #5: That knowledge must be used to produce profitable performance levels for the retailer and Marvel

Truth #6: We must strive to offer the best possible, profitable product — based on entertainment value, not speculation

The Marvel Covenant: Putting these truths into action!

At this point, Stewart stepped down from the podium, to be followed by Heroes World executive John Pope, who explained the tentative retailer trade terms. These terms involved a sliding scale which ran from a monthly $300/40 percent discount minimum up to a $16,000/55-percent top-level unadjusted discount, with various sales incentives that could push the retailer discount upwards of 62 percent. Following this presentation, Marvel representative Craig Kunaschk took the podium to moderate a question-and-answer session. While most of the questions were related to the terms presented by Marvel, a few were more pointed. One example, again from TCJ #176:

One retailer from Anchorage, Alaska, asked Terry Stewart how he could be sure that Marvel wouldn’t eventually attempt to cut the direct market retailer out of the equation of selling to the consumer, given that Marvel so effortlessly cut the other direct market distributors out of its business.

Stewart’s answer was less than pointed, beginning by saying, “Today we’re here to talk about our relationship with the retailer,” and continuing by discussing the previously covered covenant of the partnership.

“Does that answer your question?” Stewart asked.

“Not really,” responded the retailer.

“I’m sorry to hear that,” said Stewart.

Writing in the following issue of the Journal (#177), Managing Editor Tom Spurgeon noted that he believed Marvel had asked for information from client retailers far in excess of their need to know for any other reason than to explore going into retail themselves: “It seems clear to me. If Marvel doesn’t end up doing something with retail, it’s because they’ve decided they can’t. Not that they’ve decided they shouldn’t, and not because they’ve decided they could but it’s better not to.”

Shortly after word of Marvel’s exclusivity with Heroes World first leaked, Capital City Distribution filed a complaint against them in a U.S. District Court in Wisconsin, in an attempt to prevent them from terminating their deals with other distributors in what they claimed was a violation of Wisconsin’s Fair Dealership Law. A flurry of suits and countersuits soon followed. In April, retailer Ross Rojek, owner of Sacremento, California’s Beyond the Pale, filed suit in California’s Superior Court, seeking a temporary injunction against the Marvel distribution deal for various claims of unfair competition and trade as well as an obscure clause in California state law that forbid forcing a party to buy a “horror” comic in order to purchase something else. Rojek’s suit further alleged that Marvel’s moves would force him out of business.

In April, DC Comics and Diamond Distributors let the other shoe drop when they formally announced an exclusive arrangement between themselves. While one Diamond press release from the period claimed that “Under this new sales representation arrangement, Diamond will remain a 100 percent independently owned and operated company,” The Comics Journal managed to obtain a copy of a DC memo concerning the deal (TCJ #177, pp. 9-19), which noted among other things that DC had the right (but not the obligation) to buy Diamond:

i) outright between the tenth and sixteenth year; or
ii) in the event of the owner’s death, disability or departure from the company;
iii) on a highly favorable formula ranging from 3 to 5 times EBIT, reduced proportionately for the portion of its sales derived from DC, which we anticipate will yield a final purchase price of 3 times EBIT or less if we decide to proceed

On April 28, just hours after the announcement of the DC/Diamond deal, Capital City filed suit against DC, in the same District Court and under much the same allegations as their suit against Marvel; on May 2, Capital amended the complaint to include Diamond as well. By May 5, however, DC Executive Publisher and Publisher Paul Levitz and Capital co-owner and President Milton Griepp announced “that an agreement in principle had been reached” in the suit. Capital co-owner and Chairman John Davis confirmed for the Journal that the suit had been dropped. Meanwhile, fourth-largest distributor Friendly Frank’s began making noises about filing a pre-emptive suit against DC and Diamond as well.

On May 3, Marvel continued its restructuring by laying off its Publicity and Promotions Department in its entirety, putting four people out of work. That same month the company lost 6.97 percent of its market share, and in June the company fell another 8.32 percent to just 18.88 percent of the market — leaving DC Comics, at 19.4 percent, with the number one market share for the first time that many people in the industry could remember.

 

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2 Responses to “A Comics Journal History of the Direct Market, Part Three”

  1. Tim Tylor says:

    Much thanks for reposting these – it’s been a fascinating read. Is there any chance of a Part Four in the future? There must be something worth saying about the last ten years, even if they haven’t had as much drama. How have graphic novels and bookstore competition affected the DM? Has the internet changed things seriously?

  2. Mint City says:

    Thanks for the interesting story. Having lived through these dual nightmares (speculator crash and distributor wars) I can attest to the difficulties retail stores had in trying to survive day-to-day much less try to look forward to the future. This was about the time I realized that there wasn’t a future in comics retailing and obtained a teaching certification. From about 1997 on (I sold the shop in 2002) I had less than a focused attitude on the shop, thus did sales fall on top of the BS you described in your story. What is interesting is that I did supplement my sales with Magic cards, toys, and other material that kept the store alive; regulars maintained that I “sold out” yet the shop remained open so that they could still make their weekly purchases. I still have all of my Heroes World invoices from the transition and the “newsletters” make for some interesting reading today! Thanks for the travel down memory lane, as distressing as it was to live it at the time.