Tuesday, January 20, 2009

The benefits of a monopoly: Free shipping!

Once again I was thinking about the news that Diamond is raising their minimum sales order threshold to $2500. I'll state right now that I've never solicited a comic through Diamond, although I've looked at their web site information in the past and read everything I can about the solicitation of a comic and the act of being a "vendor" to Diamond (that's how they refer to comics publishers and artists). I started to do some more research and found this page (that's a Firefox transcript of a PDF- if that link doesn't work then here is one to the PDF) which reaffirmed my understanding that a vendor is responsible for freight costs to Diamond. By the way, that site is a great step by step numbers guide for a person looking to publish comics.

Now, I'm also fairly certain that retailers are responsible for freight from Diamond to their stores. A little research backs up that suspicion. Wouldn't you like to be the middle man dealing in a product that didn't cost you money to get to you or out to the stores? All you have to do in that situation is provide shelf space for the short time product sits in your warehouse awaiting delivery to stores. Obviously, there are other costs but the physical transport of the product is usually a prohibitive cost in doing business. Diamond outsources shipping in both directions.

According to this article by Chuck Rozanski at Mile High Comics, one of the ways Steve Geppi took control over direct market comics distribution was that he bought his own trucking company and the savings in freight costs helped gain him a competitive advantage. I can't find much else on that with my feeble attempts at using the Google. Though I did find this interesting Business Week profile from 1997 that also includes a gem about Geppi being "an unpaid adviser to Marvel since investor Carl C. Icahn took control in June." The article glances over some of Geppi's history as a comic book baron...

Geppi constructed an elaborate--and flexible--system of air and truck shippers to whisk books to retail racks nationwide. If one carrier ran into trouble, another leaped in to haul the colorful cargo. Timely delivery was a big hit with avid readers, who wait eagerly for their comics to arrive at the store every Wednesday. Publishers liked it, too. Says Paul Levitz, executive vice-president at No.2 DC Comics Inc., home of Superman and Batman: "He does an incredible job moving the product."

Diamond's advance hasn't been trouble-free. Some store owners complain that his near-monopoly has let him hike prices. And in the early '90s, publishers pumped out too many titles, leading to a glut that damaged the entire industry, particularly Marvel. Geppi got hurt when Marvel, looking to save money, decided in 1993 to distribute its own books. Overnight, Geppi lost 30% of his business. He scrambled to make up the loss via DC. By dangling attractive discounts, he expanded from handling half of its deliveries to all of them. Geppi also branched into comics-related trading cards, video games, and collectibles.
Wow. So in one article we find that Geppi gives advice to Marvel while running a business in which he cut an exclusive deal with it's main competitor? Sometimes you just have to shake your head when reading about the comics industry.

But back to the point, if Diamond's shipping costs are completely outsourced to the vendors and the vendors to which Diamond vends then Diamond hasn't been hurting through recent fuel increases. So, what could possibly be Diamond's motive for squeezing the industry for few more pieces of gold? More from that Business Week article...

Now, as an adviser to Marvel, Geppi is pushing the company to bring out new characters and freshen its mix. Marvel had pared its 200-title list to 45. Geppi feels that's going too far. And he thinks Marvel should use its clout to get special rates from printing companies for new titles, which tend to lose money. Although it's too early to tell what the impact of his counsel will be, there's little doubt that Marvel values his expertise. Geppi's free advice is hardly selfless: A robust Marvel will boost his business.
Read that last sentence again and maybe a couple more times.

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