Comics Economics, Part 3

So, what have we gotten out of the last days' worth of posts here? We've got some data that suggests that comics aren't doing too badly, and some more qualitative statements that point the other direction. Let's take a look at the comic book supply chain to see what might be going on there.

Gas prices have gone up. There's been some surprising declines in the past week or two and we're now down (on average) 88 cents from a year ago. But, historically, we're running pretty high and have been for the past year or two.

Fuel costs affect everyone. Yes, it will cost more to fill up your own tank, but that ALSO means it will cost more for every delivery truck and plane to fill up their tanks. That means the cost of moving goods is up. So, even if you don't drive at all, you're still paying for the higher gas prices every time you buy anything from corn to jeans to laptops. It costs more money to ship those items to wherever you purchase them, and that impacts the entire supply chain.

Let's look at a specific example.

Marvel has hired Mark Millar and Bryan Hitch to create The Fantastic Four. Hitch receives an electronic script from Millar and begins drawing an issue. But he doesn't make his drawing paper himself; he buys it. Some company had to chop down a tree, convert it to wood pulp, press that into paper, and ship that to wherever he bought it from. Looking at just the gas consumption alone, the paper costs more to make. So they pass those charges on to Hitch in the form of a price increase. Maybe one or two cents a sheet.

Marvel receives all the material electronically. It gets reviewed, approved, and then sent (again, electronically) over to their printer in Canada. That printer needs paper to print the books on, so they have that shipped in not unlike the way Hitch does. Except Marvel needs around 60,000 comics at 32 pages each. Even at only one mil (one one-thousandth of a cent) per page, that amounts to an additional $1,920 every month. Sure, Marvel has deeper pockets than I do, but I don't mind saying that's a fair sight more than my monthly mortgage payment!

But now that printer needs to move those 60,000 comics. They get shipped out to regional Diamond warehouses. Again, increased gas prices impact how much that will cost. And from those warehouses, the books will then be distributed (i.e. shipped by a gas-guzzling truck) to your Local Comic Shop.

So before the comic has reached the hands of any of the ultimate recipient, we've already seen cost increases at almost every stage of production and distribution, just based on gas prices alone. Now, start to factor in that many electrical plants that supply power to Millar's and Hitch's homes, the Marvel offices, the printing plant, the Diamond warehouses, your LCS, and the administrative offices of every delivery business in the process are powered by the same fossil fuels that are the cause of higher gas prices. Now factor in that each and every one of those individuals along the supply chain need to eat, and have their food shipped to them in some capacity. Now multiple that by every almost every comic that's published in the United States every month.

Since I'm trying to explain this from a practical perspective, I don't want to get into all the details, but you can at least start to see the cascading effect even small price changes can get felt throughout the industry.

"But, wait," you say. "I'm paying more for groceries every month because of these fuel increases. Don't the producers just pass their cost increases along to us consumers?"

Generally, yes. But what does Fantastic Four cost you, the consumer? $2.99 -- the same price it was back in 2004.

So, somebody along the supply chain is taking a financial hit and I suspect, at the moment, it's your LCS. They're still selling you a $2.99 comic but had to pay more in shipping charges to bring it to their storefront. That means that it's almost assured that every comic shop in America is making less money than they used to, even if their sales haven't declined at all.

Now, most of the comic shop news I follow comes from the most successful stores, in part because they tend to have more note-worthy online presence than less successful stores. So it's difficult to gauge how hard they're actually being hit. I do note, however, that the last comic shop that I used to frequent recently (last week) let the domain name for their web site lapse. They were pretty good about keeping it up to date, but I'd guess they've opted for channeling information solely through their (free) MySpace account for financial reasons.

Comic shops typically run pretty lean operations. They have to; there's just not that much profit in it. I guestimate that an LCS gets to keep around one dollar from every three dollar comic they sell; but that's before their own operating costs and doesn't take in to account any file customer discount they might give you. I expect the actual profit they earn from the sale of a three dollar comic is closer to ten cents. Some quick back-of-the-envelope math then puts the actual profits of any given comic stores total sales of Fantastic Four in a given month somewhere around two dollars. Let me state that another way: if your LCS sells every copy of Fantastic Four they order every month, they earn a net profit of two dollars. Granted, it's a better return than any number of other investments you could make these days, but it's not exactly a way to be able to retire early.

Going back to the shipping dilemma. If it costs an LCS and additional five bucks in shipping charges every week, that means they've just lost all of the profits they used to make on selling Fantastic Four and Green Lantern. They have to sell more just to keep up with where they used to be.

Don't get me wrong; I think a lot of comic shops are poorly run and really have no business remaining open. Simply having a love of superhero comics is absolutely the wrong reason to get into the business. And that's really the key: comics ARE a business and need to be run as such. One of the problems is that so much of this whole industry has been built up by passion and little in the way of business acumen that it doesn't have a terribly strong foundation. That's part of why the industry took a big hit in the 1990s after the collector bubble burst, and why I think it will take another big hit in the next year or so. Passion and tenacity will keep the industry going in some form, I think, but a few more business degrees would help more.

To be continued...

Related Items business