#1 Could be the Loneliest Number

I knew as soon as I finished last month's column, that I would need to follow up on it with another part. I had thought that I was going to go deeper into the economics of backlist, and how the math of that segment works. But, given the announcement of DC Comics' September relaunch of their superhero universe with 52 new issue #1s, I guess we'll be better served to continue to focus on the periodical side of things.

Let me restate my original premise first: The actual business model of the Direct Market -- I mean the mechanical rules under which we take on risk versus reward as well as the method in which things are paid for -- is really modeled on a premise that has ceased to be true for the majority of participants for many years. That equation -- a relatively small quantity of titles selling in fairly large numbers -- is what makes it possible to profitably sell comic books on a non-returnable basis, but it has been absolutely eroded as we increase the number of titles the market is expected to support.

It's very common to hear people say, "Well, comics is clearly dying because [insert title here] sells barely a quarter of what it did 20-30 years ago," but, of course, this ignores the fact that there are four times as many comics being published as there were back then. Duh, do the math.

The Direct Market system (he said, really dumbing this down) is designed to sell fifty series that each sell thirty copies, not two hundred series that each sell eight copies. While the latter means we're actually selling more pieces overall (if this example was even slightly accurate, that would be nearly 7% more), the risk to get there is magnified by some ridiculous amount.

A Direct Market retailer likely has to sell something like 70% of what he orders to break even, and something much closer to 90% to show an actual profit. Again, these are broad, ball-park numbers to give you a sense of what retailers face, and will vary even from book to book and discount tier to discount tier.

But what this means is that a book that you "normally" sell 50 copies of (and there is no such thing as "normal" in an actual working market place -- most books can fluctuate wildly month-to-month), leaves you 5 copies of "safe wiggle room" without even blinking, but if you're only selling five copies in the first place, then even as little as one unsold copy probably means you're making a marginal profit at absolute best.

The problem that our market has shown over the last decade or so is that in a marketplace where the publishers control the product flow (Diamond is the sales agent for Marvel, DC, Dark Horse, and Image, Diamond does not own the books in their warehouse!), the publishers have decided that it is better to produce more titles that sell fewer copies, rather than less that sell more.

This is not actually rational behavior past a certain point. Creative costs (the "page rate" of the creators) remain a generally fixed cost that doesn't benefit from the economy of scale, and while you can amortize editorial costs, and office rents, whatever, there's only a certain amount of fractionalizing where that yields true benefits. In fact, I suspect that it actually tends to drag creative costs that much higher because the best-selling creators can legitimately demand greater compensation, but the lower end is not coming down fast enough to compensate.

Past a certain (low) point, producing more material inevitably yields lower sales as similar books directly compete with themselves. If the first "Spider-Man" title cost X to produce and generated Y in sales, adding the second one cost 2X to produce, but only generated 1.8Y in sales. The third one takes costs to 3X, but only generates 2.4Y in sales.

These diminishing returns can be slightly mitigated by, or almost hidden because of other factors -- in the modern era that's a spiking effect from new #1s, tie-in storylines, variant covers or whatever -- but if one spends really any amount of time seriously looking at the underlying trends of the charts, it becomes absolutely clear that more titles ultimately yield lower sales for each individual participant.

I want the market to decide what the market wants, of course -- I can't say what is actually "too much material," only what I think it looks like to me -- and nor do I get to dictate what books live and what ones die, because my tastes are not necessarily the market's tastes, but I do absolutely believe that the number one barrier to growth (retailers having enough of the right products to sell to their customers, and the tools with which to help them find those customers) is a direct and active result of the sheer quantity of material with which we are now inundated.

That's the State of the Market in 2011 -- we simply are producing too much material for the market to absorb, and the dramatically low quantities that far too many books sell make it difficult to be more than really marginally profitable. It isn't that people don't want comics, it isn't that the business model of Direct Sales isn't generally smart, it isn't "the future is digital" or some other nonsense, it is that you really can't make money selling hundreds of SKUs in single digit quantities at low prices -- the cost of inventory and overhead eats up all of your profit.

The distributor (whom I know so many people want to cast as the Devil Incarnate, but Diamond's really not that bad) has effectively no ability to say no to DC and Marvel (and a much lesser extent to Image and Dark Horse) because Diamond is no longer their customer any longer! That is what allows Marvel and DC do the kind of outrageous line extensions and to make too high of a percentage of what they produce to be largely unprofitable for both retailer and distributor!

Seriously, as little money as can be made by me selling 3-4 rack copies of (Title X), it makes even less for Diamond which has to do precision picking for a moving target at extremely low numbers. I'd be very surprised if Diamond is profitably distributing books from Marvel and DC selling fewer than, say, ten thousand copies. And that's a lot of them. I doubt those same books are generally profitable for retailers. And, frankly, I genuinely doubt that they're profitable for Marvel and DC.

Ugh, the system is crazy-making, but only the person with their hand on the throttle can change it. Before the Marvel and DC exclusives, distributors held that throttle; afterward, in theory the retailer holds it, but we're too diverse and spread out (plus, of course, barred by Federal Law to do anything in an organized way) to actually control that throttle. Which leaves it to the publishers.

I love most of the people working at Marvel and DC, I really do, but let's be realistic: it has turned into leaving the foxes in charge of the henhouse.

So, that's why we are where we are. I am naïve enough to think it can be fixed, most of the time, but it really comes down to publishers being responsible partners in the course of business, to not simply produce more and more because they can and it is easy enough for them to do.

Which will bring us to DC's new initiative.

Let me be perfectly one hundred percent clear about what I think about this plan: it holds the absolute potential to set the world on fire. If marketed and promoted (and advertised!) correctly, if they have strong and clear creative visions, this holds the potential, I think, to increase the audience for print comics by a third or more. There are a lot of lapsed readers out there; there are a lot of might-be-interesteds who could possibly be enticed to come into the fold.

I want to be clearer than that, even: I absolutely 100% without hesitation of any kind think that the potential market for sampling print comics (alone!) is probably at least five times what it's throughput is today and even modestly decent retention rates on a solid program for this new sampling could significantly increase the overall audience. I'm not talking simply about converting Marvel-primary fans to DC-Primary fans, but generating wholly new readers. It can be done.

Will this plan do it? Are these the right creative visions on the right books and the right time? I have no idea, and it is a very steep bet to find out if it can or not.

The problem is, the onus is on the retailer to pay that bet.

I say "problem" because of some simple rules of capital -- the retailer community is, generally, poorly funded at the best of times, and we're in a general economic climate that can probably be characterized fairly as "disastrous." The average number of copies sold-per-title is probably the lowest ratio it has ever been at in the history of the market, which means absolutely nothing but shrinking profit margins.

Let me stop here and tell you a story from before I owned my own store. It's 1986, and I'm working at a local chain of Bay Area stores, and it's the big official Superman reboot. "Man of Steel" #1, baby. We ordered 1000 copies (or, roughly, triple what our best-selling series at the time ["Uncanny X-Men," duh!] was selling), and as I recall we were well past 85% sell-through in the first month or so, so it was golden.

See, so I know, for a fact, that there are at least 850 people who have bought a "Superman" #1 in my neighborhood in San Francisco -- I'm about six blocks from that former chain's location -- and yeah, sure, different times, different worlds, but I think I can reasonably conclude that a new "Superman" #1 has the potential to sell at least 3-400 copies in my current, modern store.

But I can't order that many copies.

In this century, I can say that we've sold more than 175 copies of "All-Star Superman" #1 -- that's reasonably recent, even. Morrison & Quitely, dream-team supreme, but point of comparison.

But I can't even order that number of copies, either.

Understand this: I'm selling something sub-25 on "Superman" right now. To serve the market I know I have, with the rumored George Perez doing the book (not exactly an artist renowned for speed and monthly-like-clockwork runs), meh, I'd probably order forty copies. Oh, it's a mega-hyped new direction #1, alright, then I can go to sixty copies, maybe?

But, seriously, if this is a slow-news-Wednesday, if the day it goes on sale things reach a frenzy or something? No question we could sell several hundred in the first few days. None whatsoever.

But I can't take that gamble.

Even sixty copies is pushing safety, technically speaking -- I'm only selling sub-25 on "Superman" at the moment. I love Perez personally, but the most recent thing he drew (the first 15 pages of "Flashpoint: Secret Seven") didn't even sell half that many copies, so he's no longer in the can-sell-anything-his-name-is-on category -- that's more than double. That's relatively risky from what I guess Donald Rumsfeld would call the "known knowns."

The "Known Unknowns" are things like "Will the current audience respond to the reboot? How wide will the sampling be within the existing market?" and so forth, while the "Unknown Unknowns" are what the not-currently-reading-comics audience will do.

Let's look on the bottom end, where this might be terrifically more instructive.

Without naming specific names, at where I am in the release cycle of news of the creative teams as I am writing this, I now know like 31 of the 52 launch titles and teams. There are at least eight of them so far that, were they pitched as new series in the "old DC Universe," my orders for them would almost certainly be three to five rack copies -- dead man walking books.

But in the "new DC Universe," who the heck knows? See, because I can totally envision 20-30 customers in my store being willing for one single month to sample every single DC #1 that month. How do I bridge the gap between 3-5 and 20-30? Mathematically that's a crazy jump, and while I might make it for one book, making it for the scope of titles we're talking about, really pretty impossible for all but the steeliest and most profligate gambler.

That's what works against this the most -- the fifty-two titles involved.

Traditionally when you have a big book, or a stretch-to-a-goal book, your risk is mitigated across the stability of the rest of the line. I mean if I go nuts for "All-Star Superman" #1 (or even "Xombi" #1), I've got the whole rest of the DC Universe, safe and dependable as houses, to absorb that risk.

Not so here.

The DC Universe could be anything at all in this next incarnation, whatever base we envision ourselves to have is complete illusion for three or four months until we settle out to the new bases.

Why is having a higher base absolutely critical? Because there is always an automatic drop of at least 20% from issue #1 to #2 because of people sampling and not liking it, and the same between #2 and #3. Then drops should probably stabilize to the 5% range through to issue 6 or 8, then drop down to the 1% range over the national figures from then on out. Events and things can spike them up, but the 1% monthly decline almost always sets in.

(There are a few exceptions to that pattern -- "The Walking Dead" might be the prime one -- but it is a good general rule when doing market prediction.)

So starting from 30 people sampling your book is much much better than starting from 5. 5 becomes 4 becomes 3, whereas 30 becomes 20 becomes 12. Twelve copies puts you in a decent position for the next year, where you'll be down to, say, ten copies by issue #13, whereas that three copies means you'll be selling one or none by issue #13 -- heck it will probably be cancelled before then.

DC has offered some returnability; unfortunately, as of this writing, it has a 10%-of-cover-price fee attached to it -- surely you can see that the math of 30-cents a book quickly becomes untenable if the books don't sell? Further, returnability is really awkward mechanism because it inherently carries a cost -- the shipping to you, the handling and processing of the returns, the postage back.... And in exchange for that you don't have a product to sell any longer. It's a terrible business model for a line-wide promotion.

The cold reality is that the way Marvel and DC (mostly, but no doubt smaller houses overproduce drastically as well) produce comics has trained the Direct Market retailer to sensibly order to minimize risk rather than maximize profit. I do it allll the time. If you don't, you run a dire risk of going out of business.

In order to order to maximize profit you have to have a personal investment in the work -- if you believe in what you're ordering, there's no problem letting the fire hose gush wide, and so the question really becomes, Tinkerbell, do I believe?

But it simply isn't possible to believe in fifty-two things at the same time, all at once, so we're not going to be able to clap, and the fairies will die, man.

The Direct Market simply doesn't have the capital on hand to order this relaunch in the manner it would need to, to let it succeed. I don't think it even has the psychic will to do so, even if it had the liquid cash.

See, I don't know about you, but I kind of think that if "Batman" is relaunching from #1, for the first time since, oh god, 1940! then it really shouldn't be considered a success unless you hit an in-store number of the first issue that is very high? How high? Well "Amazing Spider-Man" #583 appears to have sold 550k copies over multiple printings, and I believe it could have been significantly higher had enough copies been on hand at the apex of the consumer interest, so probably in that range would seem reasonable?

"Superman" #1? At least 80% of that kind of figure. "Wonder Woman" at at 60% or more, "JLA," "Green Lantern," "Flash" at at least half, and even the worst selling, completely failtastic, that number-fifty-two-of-fifty-two book coming in at least (hahahahaha) 30k (instead of the 12k-ish that poorly launched books do these days in the DCU).

As a market, we could do any two of those at any one time, but all at once? As Ralph Wiggum would say: unpossible!

There's really only a few conceivable ways to get the market properly stocked. One might be to set a modest threshold (150%?), and then crazy free-overship it (300%? Maybe as much as 500% on some books?) once a store hits the "sure, we're participating" target.

You could also deeply bribe the market by offering massive discounts to the point where it's cheaper to take the books and throw them away if they don't sell -- nearly the same difference, except maybe for accounting purposes, though overshipping is more likely to help the bottom books, I think.

There's a couple of more possibilities available here, but any of that will almost certainly cost many hundreds of thousands of dollars for DC to implement. If it works, however, it will ultimately provide millions in profit, not just in month #2, but in months 8 and 16 and 52. I know it is easy to spend other people's money for them, but there simply won't be a better opportunity to create a massive wave of samplers in the rest of our lifetimes, and the retail base just isn't capitalized well enough to do it on our own.

This is a one-shot attempt, and the nature of the relaunch makes it all-in, win or lose; but it simply can't work if sufficient copies aren't available at retail.

Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989, and is a founding member of the Board of Directors of ComicsPRO, the Comics Professional Retailer Organization. Feel free to e-mail him with any comments. You can purchase a collection of the first one hundred Tilting at Windmills (originally serialized in Comics Retailer magazine) from IDW Publishing. An Index of v2 of Tilting at Windmills may be found here. (but you have to insert "classic." before all of the resulting links)

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