Some Thoughts About DC's June 5 Announcement

On June 5, 2020, DC pulled the trigger on plans they'd been talking about for a few months, and formally withdrew from Diamond Distribution.  The absolute cut-off date for the final Previews catalog was made to be June 15.  To replace Diamond, DC will be working through two new distributors created by large comics retailers (Lunar Distribution and UCS Comics Distributiors) for their "floppies," and Penguin Books for their trades and other book-like products.  Lunar is owned by DCBS, an online comics retailer, while UCS is owned by Midtown Comics.  Penguin Books is currently owned by German media company Bertelsmann.
Before I go on, I've long complained about Diamond's "not legally a monopoly but basically a monopoly" on comics distribution, ironically triggered by Marvel's mid-90s decision to break away from the usual distributors and do its own thing.  (Aside: to legally be a monopoly, Diamond would have to be the only practical option for retailers to get any and all periodicals.  Comics are not considered a monopolizable sector on their own.)  Anything that brings competition is going to be good in the long run, in my opinion.  Of course, I am not a retailer or a publisher, so my opinion is not as informed as one might like.  And if this had happened last summer, I'd still have some reservations (especially with HOW DC went about it), but right now?  With many retailers just starting to open back up after months of little to no income?  Yeah, not the stressor they need.
(Disclaimer: this is something of a Hot Take, coming as it does the same day as the announcement. But I felt I had to get my thoughts together as soon as possible.)
Okay, so why is this such a big deal?  Sure, there's some extra paperwork when dealing with multiple distributors, but why is this a potential "death of the Direct Market" thing like some are saying?  I'll start with the "this is a reasonable complaint and will clearly cause problems" points, and move towards the more pessimistic projections.
First, and probably the biggest problem in the short and medium term, is that this will cost everyone involved more money.  Discount rates are traditionally calculated based on order size...Midtown's order size gets them the best possible rate from Diamond. while small town "business as hobby" stores might have to pay a high enough rate that they can't afford to offer any sort of discount to their own customers.  A store currently paying 60% of cover price from Diamond might see their numbers drop enough to bump to the 65% or even 70% bracket.  Even if DC adopts a flat discount rate, the shops will still lose money on the books they still get from Diamond.
The distributors could soften the blow by flattening the discount structure somewhat, but then they would lose money on the deal from their smaller accounts, and in turn have to pass the cost on to publishers.  Some publishers haven't bothered with Diamond at all because they can't stay in business selling to Diamond at the required rates.  
When you come down to it, monopolies tend to happen because they reduce duplicated effort and are more efficient.  Selling a million comics through a single system requires fewer employees than selling them through three systems, and economies of scale help out in things like warehousing and shipping.  Even if Diamond is super wasteful right now and takes this as motivation to clean up their act, a three distributor system will cost more money to run for the same amount of product, and that money has to come from somewhere.
Second, again independent of how it gets implemented, multiple distributors also means more time and hassle for the retailer.  I don't know how different the ordering systems will be, but there will be a learning curve.  More order forms means more chances for Murphy's Law to kick in, plus Lunar and UCS are going to be scaling up rapidly, which tends to expose flaws even in systems that have worked pretty well so far.  A few botched orders could sink a smaller retailer.
Those problems would still have been problems no matter the timing, but the third issue is the timing.  And I don't just mean that it's coming hard on the heels of COVID closures.  Retailers were told on June 5 that the current Diamond catalog would be the last one, with an order deadline of June 15 (moved back from June 8).  And they need to now set up new accounts in time to make the post-Diamond orders, which are due in a few weeks.  If everything goes perfectly, a few weeks might be enough time.  Everything is not going to go perfectly.
And on top of the first two problems?  It's already looking pretty bad for retailers for the next few months, even if nothing else goes wrong.
At this point, I'm going to move into the more speculative side of things, in which the purity of motives comes into question.
Third, Midtown Comics and DCBS are retailers.  Midtown even has brick and mortar stores, and I know several retailers who call one or both their direct competition at the retail end.  I'm sure that on a purely legal level, Lunar and UCS are independent companies.  Okay, I HOPE that this is the case, because if not, the cracks are already showing in the competence area.  Anyway, assuming that they are legally independent in the same way that Diamond was legally not a monopoly, there's still valid concerns with having them run a big chunk of the distribution market.  They will have the power to really hurt other retailers without crossing any legal lines...and absolutely destroy other retailers if they do cross those lines.  The simplest case that comes to mind is a printer having troubles and a shipment being shorted.  When the distributor also has their own linked retail outlet, there's going to be a temptation to make sure their shelves are stocked first, and let other retailers wait for the second shipment.  Even if Lunar and UCS remain scrupulously honest, any actual mistakes are inevitably going to be seen as evidence of ill-intent.
Fourth, there's those people who are impugning DC's motives here.  I'm not going to cite any specific people proposing this, suffice to say that I heard pieces of such theories from several quarters during the hours after the announcement.  To wit, DC is trying to collapse Diamond and hurt their main competitors (mainly Marvel, but basically any "Premium" section publisher).  Other companies would be caught by surprise by the suddenness of the cut-off, DC already wrapped up the best options available for alternate distributors, and Diamond might not be able to survive losing about a third of its volume.  By the time the dust settles, DC would have a bigger market share of what would probably be a rather smaller total market.
But, you might ask, why would DC sink the ship they're already on, just because they'd secured the best lifeboats? The Heroes' World debacle did a lot of damage back when the Direct Market was a lot healthier, after all.
Destruction might be the goal.
The theory goes like this: DC and Marvel are both IP farms, most of the money their properties make is in other media.  The comics companies might be required to operate profitably, but ultimately they're tiny parts of Warner and Disney.  If taking a loss for a few quarters looks like it might lead to greater control of the market, they can afford the hit. Ultimately, they can take stupid risks and survive the chaos that results. Furthermore, they can even profit from it in the long run.
How? Well, if things go completely up in flames, a lot of publishers will go under. DC has a history of buying the intellectual property of defunct publishers and bringing it under their umbrella. Sure, some of their bigger competitors are license-heavy (IDW and Dark Horse come to mind), so they couldn't outright buy those rights, but they might be able to make advantageous agreements with some licensors that go beyond just the comics.
Yeah, collapsing the retailer end of the market would not be optimal, I doubt DC wants to buy up a bunch of stores and go full vertical monopoly. But if enough local stores die, more people will move to the online stores like DCBS, with which DC already has a relationship. And in a pinch, they could expand their distribution relationship with Walmart. A quick online search shows that there are about twice as many Walmarts in the U.S. as there are comic shops, after all.
Even if the Direct Market somehow survives this, at least DC has taken greater control of their own distribution. If they can keep that going and not pull a Heroes' World, that alone is enough of a positive outcome to keep corporate happy. Having a greater percentage of the "raw materials to customers" flow under control tends to make megacorps smile.
(Another theory bouncing around is that DC/Warner management doesn't care for comics publishing, seeing it as too much of a drag. But if DC wanted to divest, they could just license out publishing to someone else to keep a token lineup on shelves. It seems unlikely that anyone's disdain for periodical comics is enough to explain wanting to burn it all down, although I suppose they could have some sort of Xanatos Gambit that ends with them leveraging the wreckage to become more profitable.)
Is the Direct Market doomed by DC's June 5 announcement?  Maybe.  More likely we'll see some strife and rearrangement and a lot of smaller retailers and publishers going out of business, then stabilizing in a new status quo.  And things were already not going to be great for the Direct Market thanks to COVID...but this is like seeing someone teetering on the edge of the pier and deciding it'd be a good time to push them into the water to test for sharks.
Dvandom, aka Dave Van Domelen, is an Assistant Professor of Physical Science at Amarillo College, maintainer of one of the two longest-running Transformers fansites in existence (neither he nor Ben Yee is entirely sure who was first), doesn't have any DC books on his pull anymore but is worried for the industry as a whole, is an occasional science advisor in fiction, and part of the development team for the upcoming City of Titans MMO.
Some Thoughts About DC's June 5 Announcement Some Thoughts About DC's June 5 Announcement Reviewed by Dvandom on Friday, June 05, 2020 Rating: 5
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