This week I'm going to jump right into the snakepit by defending Marvel's recent decision to limit their print runs to orders actually received from retailers, plus a limited overrun for damages. For a variety of good reasons, this is a topic that has created more controversy within the comics retailing community than any other publisher policy put into effect in the past five years. I can't cover all angles of this controversy in this single column, so I'm going to start with an overview. I'll be moving from minefield to minefield as regards Marvel's policy as the next few weeks go by...
For those of you who are not aware of the basics, comics publishers experienced a massive shift in their operating dynamics over the past twenty-five years. Until the mid-1970's, comics were published in huge quantities, and then placed for sale to consumers almost exclusively into mass market retail outlets (such as newsstands and drugstores). Those outlets purchased comics from local magazine distributors, typically at a 30% discount off of cover price, but with the right to return any unsold copies for full credit.
This sale-and-return policy had been in effect since the mid-1930's, and worked quite well for many years. In fact, during the years of World War II, sales were running at a very high percentage, with only nominal unsold copies being returned. After the end of the war, however, sell-through percentages began to decline. By the mid-1970's a sell-through of 40% was considered very good. By extrapolation, this meant that having "only" 60% of a given print run destroyed was considered excellent operating results. Clearly, this kind of waste could only exist in an environment of very inexpensive printing and paper costs. As those costs rose during the 1970's, publishers gradually increased cover prices. This led to further percentage declines in sell-through, and to many mass market retailers eliminating comics as a product line.
By 1979, comics publishers were at a crossroads. Either a new methodology had to be discovered for retailing comics, or the industry was doomed. It was at this point that publishers began paying serious attention to the Direct Market. Begun by Phil Seuling in 1972, this nation-wide group of comics specialty distributors and retailers had gradually begun to capture a greater and greater percentage of the overall market for new comics. The key to this market, at least as far as the publishers were concerned, was that the sale-and-return aspect was eliminated. Comics retailers were allowed to purchase from Direct Market distributors at discounts as high as 55% off, but in exchange for that enhanced discount, they agreed to take on the entire risk of ordering. No returns were allowed.
Right from the beginning, comics specialty retailers sought to offset some of the risk by ordering an initial quantity of comics offered in a given month, and then hedging their bets by later placing reorders for issues that they sold out quickly. In the early days of the Direct Market, when publishers were still selling the majority of their copies through the mass market, this was no big deal. Production and raw material costs were still relatively low, so overprinting as many as 10,000 extra copies of an issue was within budgetary constraints.
The situation today is radically different. Because print runs have declined so dramatically, the add-on cost of printing additional copies is no where near as low as it was in the past. For publishers to print additional copies of a given title is use of working capital that may very well have a zero rate of return. I had lunch with a Marvel executive soon after the "no overprinting" policy went into effect, and he confided to me that they had just shredded 600,000 recent comics that they had printed in expectation of reorders that never came. With Marvel's current precarious financial condition, the decision was made internally that this was a cost that simply could not be borne any further.
In that regard, I completely agree with the Marvel executive team. I do not think that it is the duty of any publisher to hold inventory above and beyond orders received. The entire concept of the Direct Market was founded on the notion that comics retailers would receive enhanced discounts in exchange for taking on the risk of deciding what would sell to our consumers. At Mile High Comics we have established a variety of procedures which guarantee that over 85% of the new comics we receive in any given week are pre-sold. These procedures are expensive to administrate, and sometimes unpopular with some comics buyers (such as requiring up-front deposits with guaranteed subscription orders), but they allow us to keep a very clear handle on what to order from the publishers. We do place advance reorders based on surges in consumer demand for a given title, but because so many of our sales are based on advance subscriptions, we generally can place these orders early enough for publishers to increase their print runs to accommodate this increased demand.
The one place where I think all the publishers (not just Marvel...) could be doing a better job to mitigate retailer risk is by making more previews of their comics available, well in advance of actual print deadlines. With the current high cover prices for comics, I believe that it is imperative that publishers overcome their long-standing paranoia about their editorial material being disseminated too widely in advance of publication. In my mind, I believe it is grossly unfair for retailers (and consumers) to be forced to advance order $3 comics based on a simple plot synopsis, and a couple of rough panels of artwork. Especially when the Internet provides a remarkably cost-effective method for putting advance pages of a publisher's entire line out in time for print runs to be adjusted based on consumer awareness.
As I see it, the real battle with the publishers is not over print overruns, but on advance previews. Either method helps mitigate some of the risk of ordering for comics retailers, but advance online previews are free, where as unsold overprintings drag down the earnings of the entire industry. I want to keep costs down, so I go with online previews as the preferred method for managing risk of ordering with the Direct Market.
Next week, I'll explain why I think the Direct Market is benefiting greatly from Marvel's underprinting policy.
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