Image Comics, Simon & Schuster and the Perils of Private Equity Firms

In the end, Diamond is going to be fine.

On August 4th, Image Comics did the ol’ “Friday drop” and told the world that they were moving their book market distribution away from Diamond Comics, and aligning with Simon & Schuster (in North America) as of January 2024. This announcement was a follow-up of sorts to the company moving their main point of distribution for single issues away from Diamond to Lunar, effective as of September.¹

This seems like another big blow to Diamond as an entity. Outside of the somewhat surprising announcement that Boom! Studios would be sticking with Diamond for the foreseeable future in late 2022, Diamond hasn’t had a lot of visual wins lately. Some might suggest that the company might be in trouble. I know I certainly have in the past. But recent developments have me thinking that Diamond might be in a better position than most people think. We’re going to get to the why of it all in a bit, but before we get to that, we have to talk about the Simon & Schuster of it all.

Off the top, Image moving their graphic novel business to S&S was a bit of a surprise - but then again, so was the announcement that they’d be running with Lunar. A little over a year ago, the noise regarding a potential move for Image to Penguin Random House (alongside Marvel, IDW and Dark Horse) was almost deafening. Reps were whispering that the whole thing would be a done deal as of the fall of 2022. That was clearly not the case, for one reason or another.

The first domino to fall involved Image’s direct market distribution officially moving to Lunar. This was met with a bit of vitriol from the usual batch of retailers upset about Lunar being a sister company to Discount Comic Book Service. That noise dissipated into nothingness when said voices realized they’d be getting a better deal in the process of this move.² Diamond would be able to continue carrying Image product on a wholesale basis with lesser discounts, and their trademark “worst shipping costs in the business”. Diamond was still contracted to provide Image graphic novels to the general book store market, where they are truly, one of the worst in the distribution game. Some took this as a baffling sign of loyalty. The reality seemed to be a waiting game, with Image waiting out a contract already in play. Simon & Schuster got the nod, and the comics industry shifted once again. Then, three days later, came the news that the private equity firm KKR were purchasing S&S.

The company KKR and the term “private equity firm” might not mean much to you, but they are both (in my opinion) a sinister force in capitalism. To oversimplify, private equity firms are companies built to manage and accrue wealth by purchasing assets, and juicing them for profit. A recent episode of The Daily Zeitgeist featured an in depth talk with author and expert Brendan Ballou where he detailed many of the ills these companies are responsible for, including the death of the free ambulance. If you have an hour free to listen to it, I highly recommend it as a somewhat quick study on just how pervasive these companies are, and how much they’ve done to destroy any sense of affordable living in this world.³

Simon & Schuster falling under KKR’s umbrella is worrisome. This is the company that purchased and gutted Toys R Us in the states (though you can still visit the shops in Canada). It also spent a solid 15 years trying to shell game some profits out of their purchase of food and tobacco giant RJR Nabisco before the whole thing ended in failure. That article is paywalled⁴, so I’ll include some important bits here for those who don’t want to bother with:

When Kohlberg Kravis [Roberts] first bought RJR Nabisco, the expectation was that it would hold on to it for a few years, improve the operations and then sell it back to the public. The magic of leverage would mean that a small growth in the overall business value would translate into a large profit for the equity holders.

Sure enough, in 1991 there was a public offering of RJR Nabisco shares, which were snapped up and performed well, for a time. But the interest was not enough to let Kohlberg Kravis get out of most of its investment, and the value of the shares soon declined.

This, in turn, lead KKR to try and offload the company four years later by trading its stake of ownership for Borden Inc., an over-leveraged, publicly traded dairy and chemical conglomerate, the idea being there would be more money to be made restructuring the debt of a struggling company, than what they could make from continuing to operate RJR Nabisco - a company that had been doing relatively better than Borden Inc.

To do this, nearly everything Borden Inc. had control over was sold off until only Borden Chemical remained. This was in turn sold off to another private equity firm named Apollo. I tried to look at what happened to Borden after this, and was met with this gem from Wikipedia:

In 2005, Apollo formed Hexion Specialty Chemicals through the merger of Borden, Inc., Resolution Performance Products LLC, and Resolution Specialty Materials, LLC, and the acquisition of Bakelite AG. Hexion announced in July 2007 that it was acquiring Huntsman Corporation, a major specialty-chemicals company, in a $6.5 billion leveraged buyout. Hexion announced in June 2008 it would refuse to close the deal, prompting a series of legal actions. The transaction was terminated on December 14 after a settlement between Hexion and Huntsman, wherein they were required to pay Huntsman $1 billion to drop fraud charges that would have potentially sent the CEO of Apollo to prison.

Good, solid companies, the private equity firms.

Anyway, the whole RJR Nabisco thing ended up losing KKR a cool $730 million dollars - which, at the end of the day, is all any of this is about. KKR could make what they wanted from squeezing a perfectly fine company, so they kept shifting around money and debts like chess pieces. In this case, they lost the game, but even if they “won”, there were so many pieces and people that were sacrificed along the way.

This, is who is in charge of Simon & Schuster today.

That said, as sad as it is, this sounds like it might have been the company’s best option in the long run. Heidi MacDonald has a good rundown of things over at The Beat where it is noted that there were several other options that had been on the table, with KKR providing the best looking future for S&S. And who knows. Maybe this will end well. I personally don’t trust it.

So, what does this all have to do with Diamond being in a pretty good position? It takes a bit of squinting to see, but the various bits floating around this story give a glowing look at Diamond’s future, even if things aren’t likely to get any better.

The purchase of Simon & Schuster by KKR takes place after an attempted buy-out by Penguin Random House, which would have greatly reduced publishing options within the industry. Here’s a great article that goes over how the noise from authors, agents and sellers was deafening during that potential acquisition, in contrast to cautious optimism for this one. Both of these situations involve already large companies doing everything and anything they can to just consume and become a larger, more profitable blob. While I’m sure Diamond aspires to be more, their actions have led them to this place, where there isn’t much of a way forward, but the place their in remains pretty sweet.

In pursuit of becoming larger and slimming things down, Simon & Schuster has been somewhat quietly dropping several publishers of graphic novels from their distribution lines. Over the past year, I’ve seen Ahoy, Black Mask, TKO Studios, and Z2 all disappear from the S&S distribution channel. And while the company remains one of the largest distributors of graphic novels in the business, having Viz, Boom!, Oni and Mad Cave under their umbrella, it doesn’t look like it will be a good home for smaller publishers. The same goes for Penguin Random House.

[Update - Aug 18th, 2023: A fellow retailer had pointed out that Simon & Schuster still had all these companies listed under their distribution banner, and asked if this might be a disconnect between the company’s American and Canadian operations instead. I started digging into this, and contacted Bookmanager (the system upcoming books from these companies had been missing from) and my rep at Simon & Schuster Canada (who was out at a big Canadian trade fair, and could not get back to me.

[My current investigation shows that TKO Studios is no longer listing their upcoming titles in the book market, let alone at Simong & Schuster, and their e-mails implore retailers to nab through them directly, or through Diamond currently. A representative from Ahoy noted in the comment section that they are, in fact, still with Simon & Schuster, which suggests that Bookmanager’s potential answer for all this - improper meta data of some kind that is in need of correction - might be the culprit. Similar situations might be in play for Black Mask and Z2 - at Black Mask, most of the company’s upcoming books aren’t listed for the book market, and Z2… well, they have some listed, some not, and fistfuls of long past release dates that vary from source to source. They are extremely frustrating.

[As I know more, this article, and subsequent posts will be updated.]

So the question becomes, “where do these publishers go”? Currently, for all, the answer is Diamond (as well as Ingram, which is mostly a wholesaler), and sometimes Lunar.

Despite all their ills, Diamond still remains one of the only ways you can get product into the hands of the people if you’re a small publisher. Heck, TKO tried to buck this system early on selling directly to retailers (which they still do, but their shipping to Canada has always been inconsistent in terms of cost-efficiency). Now, they send out e-mails touting Diamond as their primary distributor. Oh, and Bad Idea? They have a deal with Diamond as well to get the majority of their product to retailers. A lot of folks don’t realize that the books ship to stores through Diamond, outside of when they’re pulling another one of their wild shenanigans.

Diamond isn’t great, but they are still a viable way to get your product out into the market. They still have their place in this system, if they can work through this time.

Plus, they seem to be more than happy with being a wholesaler of titles to retailers hell bent on sabotaging their bottom line for one reason or another. Rumour has it, they now make a significantly better percentage on distributing Marvel than they used to in the past, and they’re still reaping the rewards of overcharging for shipping.⁵ They will never be what they were before, but they can still be something and serve this industry. If I were them, I’d be making strong efforts to help grow the smaller publishers who are looking to call them home, and to foster an environment to help them thrive. It won’t result in huge gains, but it will make the whole industry more sustainable - thus, making their business more sustainable as well.

This, I believe, is the same operating principle that has seen Lunar find success, and grow their distribution business. They have gone on record as recognizing distribution as a terrible way to make money⁶ - but that the existence of a distributor like themselves and Diamond is currently a part of how the comic industry functions today. While I think there is a need to move the industry and our businesses away from the current system, I can not argue the point that removing these blocks in a sudden way would cause much of what exists to blip out of existence - and that wouldn’t be great for anyone.

Anyway.

The comic industry remains a weird and fascinating place, and I doubt things are going to get any easier. We all need to keep an eye on the good, and the bad, and prepare ourselves for what’s to come. That’s much of the work that I try and do both in my shop, and with these articles. Identify problems so we can all help build solutions, instead of just identifying problems. A little more of that all around, and I think we’d all be amazed at what this industry can be.

But that should do it for today. I have some swimming to do, and a few things to prepare for later in this week, and month.

Talk with you all soon.

-B.

1. In fact, this week was the first big week to place final orders with Lunar. Or, in my case, Universal.

2. Because they have principles, you see. The kind that are absolutely against giving money to their perceived “competition”, unless that “competition” sweetens the deal.

3. I’ve also placed his book Plunder on order for myself. If you’re local and want in on that order (or if you just want to look up the synopsis), the book is up on our website.

4. I got around the paywall by pasting the url into Google, as many paywalled sites have a standing deal with Google to let folks read the things they find through the search engine.

5. I have yet to see my shipping charges drop since their announced intent to do so.

6. To quote co-owner Christina Merkler from when Lunar first took over DC’s distribution: “To be honest, it’s a lot of work for very little payoff. And we were just trying to keep people in business. I mean that genuinely, we were worried and we want the comic industry to be healthy. If it’s not healthy, then we’re not healthy either, like publishers aren’t healthy. Publishers can turn around and say, ‘okay, maybe we just shouldn’t print comics anymore.’ That was our main concern was, how long can we not have new print comics out in the marketplace before a Marvel and a DC say, ‘let’s just do it all digitally’, and that that was a genuine concern for us. So we were willing to help in any way shape or form.”