Evolution of the
Direct Market Distribution Part IV

In last week's column, I related how DC Comics made the announcement during the 1981 World Science Fiction Convention that they were going to allow only a select group of comics distributors to purchase from them on a direct basis. This decision on the part of DC management effectively passed a death sentence on those distributors who were excluded from DC's private club. The reason for this dreadful result is quite simple: distribution is a game of "points." The key to winning the game is to try and structure the rules so that you have a slight edge in which, all other events being equal, will ultimately allow you to win the entire game.

To explain how this worked in practice, the usual manner in which discounts are described is in terms of percentage of retail (i.e. "we're getting 57% off..."). The actual cost calculation to a distributor, however, is the inverse of that number. If I remember the percentages correctly (bear in mind that I heard these numbers second hand, as I wasn't allowed into most DC meetings) DC accounts were able to purchase at 62% off in 1981. Those fortunate distributors then resold DC's to the unlucky distributors who had been excluded from DC's select group. I believe that Nanette's company was initially purchasing their DC's from Pacific Comics at 58% off of retail. While a four point differential doesn't sound like much, it is effectively the difference between between being the "House" in Las Vegas, and just being another one of the suckers. Presuming that Pacific was purchasing their DC's at 62% off of cover price, their net cost was 38%. Nanette was paying 42%. That 10% wholesale cost differential, spread over many years, was an inexorable competitive disadvantage. Especially considering that Pacific was able to pocket 10% of Nanette's entire wholesale DC purchase for no greater effort than simply turning in Nanette's order form. Ironically, while DC wasn't willing to recognize Alternate Realities as a legitimate distributor, they were more than willing to drop ship books to her warehouse, after Pacific went through the charade of turning in her order form.

To be completely fair, DC did have a series of requirements in place from the beginning that they said could eventually lead to new distributors being accepted. I do believe that one Canadian distributor eventually made it through that wall of flame (after several years of trying...), and was thus allowed to purchase comics directly from DC. For the other non-DC direct distributors, however, it was just a matter of time before they went out of business.

While I am citing the experience of my wife's distribution company, Alternate Realities Distributing, Inc., to illustrate the historic record, the other distributors who DC failed to recognize underwent exactly the same experience. In fact, DC's initial tilting of the scales was aggravated even further a couple of years later, when DC effectively put a bounty on the smaller distribution companies. The way this worked was that DC decided to give their annointed few distributors rewards based on prompt payment, and growth in sales. Once again, I was not invited to participate in these meetings, but the details of DC's new contract were the main topic of discussion at the next meeting of IADD (the distributor's umbrella organization). Simply put, DC offered to raise distributors discounts up to as high as 65% off if they would pay their bills on time, and met certain specified growth targets. While this all sounds reasonable, the problems I foresaw with this new DC incentive policy were that A) this additional earned discount would increase the differential between the "haves" and "have-nots" in the distribution community even further, and B) that the easiest method for larger distributors to achieve DC's specified growth targets was to cannibalize their small brethren.

Before I go any further I want to make clear that there's no way that I would contest that it was only DC's policies that led to the consolidation of the distribution market for comics during the early-to-mid 1980's. While I thought DC's policies were very wrong, the secret freight rebates Marvel doled out to the larger distributors also certainly contributed to the competitive inequality within the distribution of comics to comics shops. As also did the simple realities of operating economies of scale greatly benefiting the distributors who serviced the larger population centers. DC's policies did, however, move the process of consolidation along at a far more rapid pace.

As I alluded at the end of last week's column, I have a personal theory that DC's actions toward the comics distribution community during the 1980's were far from random. I believe there was an underlying agenda that was being followed, and that that agenda ultimately led us to the distribution monopoly presently enjoyed by Diamond Comic Distributors.

To be continued...

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