So where does this leave us? Probably in a worse spot than we can even imagine, for a few reasons that became clear in the court filings.
Diamond's de facto monopoly position gave it certain obvious advantages, as well as a lot of power over smaller publishers and retailers. The placement of solicitations in the Previews catalog could make the difference between success and failure of independent books. Retailers absorbed a lot of top-down policies set by Diamond because it was not like they were going to take their business elsewhere. Handling of service could be… inconsistent.
On the other side of the ledger, over the years, the company and Steve Geppi personally did hundreds of small, one-off good deeds for customers, extending credit terms to cash-strapped stores, expediting payments, re-shipping books, and many other acts of kindness that took the edge of their institutional power. Boy are we going to miss that stuff now.
For all the good and bad, the biggest victim of Diamond's 24-year monopoly turned out to be Diamond itself. Without competitive pressure to innovate, a certain atrophy sets in that makes it harder to make big decisions or to make necessary changes. It was easier, cheaper and probably more gratifying to handle situations on an ad hoc basis than to make the larger, more disruptive investments to update processes at a systemic level. But ad hoc only gets you so far.
Diamond also took full advantage of a business model that allowed them to leverage the economies of scale they got from handling the industry's biggest accounts to provide a higher level of service to small publishers, leaving them uniquely vulnerable if those big accounts ever got cherrypicked by a newly-arrived competitor or two (cue the ominous music).
So, even though Diamond had more than 20 years to build itself a nice brick house, it was still mostly made of straw when the Big Bad COVID Wolf came around in 2020. And the rest, as they say, is history.
That was then, this is now. Of more immediate concern, the Chapter 11 proceedings required Diamond to provide a list of creditors whose payments are being suspended while the company undergoes reorganization. At the top of that list is Penguin Random House, which Diamond owes $9.2 million, due to in large part to Diamond's position as sub-distributor of publishers for which PRH is now the primary (see "Penguin Random House is Diamond’s Largest Unsecured Creditor").
While there is perhaps some poetic justice that one of the immediate causes of Diamond's troubles is now the biggest potential victim if Diamond can't successfully restructure, the fact that comics' new largest distributor is also facing headwinds is not good news. Some back of the envelope calculations based on 2023 data on the periodical market, and PRH's share thereof, suggests that $9 million, if a total loss, represents expected profits from the comics distribution business for multiple years.
Now you might say PRH writ large is big enough to absorb that kind of a hit, but assuming the comics distribution business is being run as a separate P&L, not being profitable because of bad debt write-offs is a big deal. If the odds of PRH picking up some of Diamond's smaller accounts were already slim to none, it's safe to say "slim" has left the building. I hope I'm wrong about this, but PRH's strategy to date has given us no reason to believe preserving the long tail of publishers in the Direct Market was ever the company's main priority once they locked Marvel Comics down, and it seems even less likely now.
Lunar's exposure of just under $500,000 is considerably less, but there are already questions about Lunar's ability to execute on the accounts it has. This has left all the smaller publishers still serviced by Diamond, some of whom are themselves owed money, lashed to the mast of a ship with a some rather urgent water retention issues.
Wait, there's more. Even before the troubles started in 2020, Diamond had been warning retailers about the need to diversify away from periodicals as the main source of store revenue due to concerns about small margins. So, many comic stores dutifully expanded to carry a larger share of merchandise, collectibles, Funko POP!s, and of course trade books relative to individual comic book issues.
There are a few alternative distribution channels for this kind of stuff, but many stores that were getting at least some of their comics and trade books from Diamond Comic Distributors were also getting a bunch of other stuff from Diamond, including products from Diamond Select Toys & Collectibles, which is also part of the bankruptcy.
Diamond creditors on the merchandise side include Hasbro and Wizards of the Coast, Pokemon, Bandai and Funko, which can presumably manage the cash flow crunch caused by bankruptcy proceedings (though are probably none too happy about it). But there are also a bunch of smaller toy and collectible companies likely to lose access to retail channels who may not survive it.
So, stores that diversified may be in the weird position of being more easily able to maintain the majority of their (less profitable) periodical comics business thanks to already doing business with PRH and Lunar, but seeing the other side of their business at risk if Diamond can’t continue.
Light at the end of the tunnel or oncoming train? The good news here is that Chapter 11 is not a death sentence. It's an opportunity for Diamond to restructure, including selling off its non-core businesses (something that’s already well underway) and being forced into some of the tough decisions that its previous position had allowed it to defer.
There's reason to believe that the team responsible for the restructuring is serious and professional, and the company may be able to raise enough to pay off creditors at something close to 100 cents on the dollar. That's… less bad.
The bigger question that was already pressing before the bankruptcy is how Diamond Comics Distribution can continue without any of its larger accounts to offset the high structural costs of doing what it does. You can't have economies of scale without scale, and you don’t get to scale with at most one or two of the top ten publishers in the market.
If PRH won't take on small accounts and Lunar can't, how long can Diamond hold out even with the best intentions if there is no money to keep the lights on?
The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.
Rob Salkowitz (@robsalk) is the author of Comic-Con and the Business of Pop Culture and an Eisner Award nominee.
