I was exchanging e-mails with Sean O'Reilly, the founder and CEO of Arcana Studio, just before Borders filed for bankruptcy, so when the other shoe dropped, I asked him to talk a bit about how it affects his business. Arcana is a small publisher, and I assumed the bankruptcy would have a big effect on them. What interests me about his response is the importance of the middleman, Diamond Book Distributors, in this case.
As always, I also wanted to talk about the different ways the company gets its books out to readers, and the relative importance of the different channels. Having spent the weekend at C2E2 talking about these different factors, I was interested to hear how they directly affect a single publisher.
Brigid: How much of your revenue comes from each channel—comics shops, bookstores, online sales, digital?
Sean: While digital is an ever-growing market to keep an eye on, that part of the industry is still in its growth phase. The majority of Arcana's current sales come from bookstores and online – still primarily through Diamond Comics and Diamond Books, Amazon, eBay and of course you can find our product in local comic shops as well. That said, we've made a significant turn away from the 'floppy' comic market and are concentrating on the graphic novel market. Digital is the next step and we’re working with Comixology, Wowio, Graphic.ly and others.
Brigid: Looking just at the bookstore piece, how big a part of your business was Borders?
Sean: Borders made up a huge chunk of our sales from the bookstore market making up about 25%. Their bankruptcy will be a huge hurdle to overcome and we'll have to try to develop our other revenue streams to make up for the loss.
Brigid: From your perspective as a small publisher, what are the advantages and disadvantages of selling through bookstores versus comics shops, online retail, and digital?
Sean: Bookstores like Borders allow you to reach a much broader audience than the more niche audience you're able to access in comic shops and online. Again, while digital and online sales will continue to expand and drive a lot of growth, there are still people who actually want to go into a store and hold the book in their hands before they decide they want to purchase it. At the same time, 'brick-and-mortar' bookstores are limited by their locked physical and geographic space. That's why the potential in online and digital is so promising. For us our orders have gone up 50% in the last six months (even with the Borders announcement) and sadly I believe it’s more of a state of the industry rather than Arcana’s growth. That is, even though we are a small fish, with so many companies gone we’re become bigger relatively and as a result have been getting bigger numbers.
Brigid: Back when things were going well, did Borders stand out in any way? Were they easier to work with, offered better terms, did more marketing, or in some way help you establish yourself in that sector?
Sean: I did love how Borders would contact us and help us work together on marketing, what’s coming up and they always wanted to see what we were working on. There are a number of measures being implemented to allow consumers choice and previews.
Brigid: How did Borders' problems impact your relationship with them, and when did that start to happen?
Sean: Ultimately Borders’ relationship was with Diamond Books, and other than the previously mentioned, we really didn’t work together first hand.
Brigid: Were you able to do anything to protect yourself?
Sean: I was able to protect myself by not relying too heavily on the income from the books. Sounds weird from a publisher, right? Well it might be but Arcana is a transmedia company that relies on building brands, not just book publishing. We’ve been working hard on The Clockwork Girl animated feature film, working hard for Mattel on a number of projects and a couple more feature films. Ultimately we were protected because we have developed enough of a cashflow to publish 140 graphic novels in about two years and make sure we give enough of a runway so that revenues can come in the door.
Brigid: I understand Borders stopped paying their vendors in December. How much money do you have tied up with them, and do you think you will actually get any or all of it?
Sean: Diamond Books is ultimately the one that gives me a check and as a result I’m not sure how it’s affected the numbers at that level of detail. I have to say Diamond Books have been amazing during this time being professional, and even more than that, they’ve been very communicative to publishers. The faster and clearer we know a problem exists, the faster and more realistic we can respond. Here’s a public thank you to Kuo, Kate and the Diamond Books team!
Brigid: How has the bankruptcy filing changed the situation from your point of view?
Sean: It's unfortunate, but it likely needed to happen. They'll be able to restructure their finances and hopefully, pay off their debts. It’s a Chapter 11 so they should be looking to reduce overhead (storage costs, facilities) and after the crash in 2008 it seems like most finances are being relooked at to see if it can be done better. I’m hoping they can get things together and we can start working together again.
Brigid: Going forward, how will you do things differently?
Sean: Honestly, keep doing what we’re doing. I’ve never had a financier I’ve had to listen to, I’ve been able to be quick and nimble with our decisions and we’ve had continual growth since 2004. I’ve learned a lot of lessons through other publishers and we’ve accumulated a library of nearly 150 graphic novels being distributed worldwide. We’re doing more international publishing deals, digital distribution deals, deals with Scholastic and Harper Collins more than ever, and ultimately I think we just keep driving with the same passion we started with.
Brigid: Do you think that bookstores will continue to be a viable channel for your books, or are you going to look elsewhere?
Sean: With regards to the advantages of 'brick-and-mortar' I mentioned earlier, I don't see traditional bookstores disappearing completely and we have had great success in books in the last year and will continue to pursue this as a great channel. We love holding books, we love graphic novels and while there is real potential in online/digital markets it is still emerging. Arcana was already looking at expanding our efforts there even before the Borders bankruptcy and we'll have to continue our efforts there. If the right fit comes along for a more 'traditional' bookstore partnership, we'd be open to looking at that too.