Update: FMI Down for the Count: FM International owner Wayne Markley confirmed to the Journal that the distributor was officially out of business as of Feb. 28, though it has not filed for bankruptcy. Asked about the extent of FMI's debts, he declined to answer on advice of his attorneys. "But it was a great 22 years," he said, referring to a career that also spanned his days as product manager and buyer for Capital City Distribution. "I met some great people, and read a ton of fantastic books."

Note: The second paragraph of this online excerpt has been corrected; see below for details.

Many industry observers have had their black suits picked out in anticipation of comics distributor FM International's funeral for some time. Scarcely a month has gone by during the past year without a couple of reports on the Internet that owner Wayne Markley was about to shut the company down. In fact, as the Journal was going to press, pretty much everybody agreed FMI was dead or on its last legs except the corpse itself.

At 6:29 Pacific Standard Time the morning of Jan. 5, comics writer Warren Ellis told members of his Bad Signal e-mail list, "The first email I opened today told me that comics distributor FM is closing; selling off their backstock and boarding up their doors." At 8:21 that same morning, under the heading "The Corpse in the Corner of the Room," Tom Spurgeon reported on his Comics Reporter website that FMI was closing its doors. Comics news sites all over the Web jumped on the story of FMI's demise. But instead of the silence of the grave that attends most newly bankrupt companies or the flat-line sound of a disconnected phone, reporters found Markley right where he'd always been, still insisting, as he had for the last several months, that FMI had no intention of folding. At 11:45 a.m., Spurgeon followed up his own report with an update noting that "Like some strange horror film, various people in comics seem to have come to the conclusion that the distributor FM International is more than likely dead, even though no one seems to be able to properly locate the body and kick it several times to see that it won't get up."

What had inspired the latest flurry of rumors? Markley, in an effort to reduce debts FMI owed to some accounts, had returned undistributed backstock to those publishers. Someone somewhere apparently interpreted the returns as a sign that Markley had given up and was clearing the decks in preparation for bankruptcy.

On Jan. 27, as the Journal was going to press, it heard from a source at Diamond Comic Distributors that Markley had begun negotiating to sell all of FMI's retailer accounts to the the vastly larger distributor. According to this source, FMI was no longer able to collect on its accounts receivable because retailers believed that it was going out of business. Reportedly, Diamond made an offer but Markley failed to follow up. Based on this information, every indication was that FMI was shutting down and selling out to Diamond, and the Journal called Markley once again to ask if the company was dead yet.

Not dead, he said, just negotiating in hope of selling back debt owed to FMI. "We realized we were never going to get those guys to pay us, because we don't have the leverage to put pressure on them," he told the Journal. "Diamond does have the leverage, so we'd like to sell those accounts to Diamond the way you would to a collection agency." In its proposal to Diamond, FMI was asking for 75 cents on the dollar to be paid up front in exchange for the accounts receivable. Diamond had made a counter-proposal, but no agreement had been reached. In the meantime, Markley said, FMI was still in business.

The Journal asked how the distributor could remain in business if its accounts weren't paying it. Markley explained, "This is only for older accounts whom we have not sold to for some time but still owe us money and are not active with us but are still active Diamond customers. All of our active accounts pay their bills on time and are very good. Diamond offered to buy all our accounts, including open orders for new product, but we didn't want to do that, because we're still in business." As for FMI's relationships with its publisher clients, he said, "We are working on payments to everyone we owe money to. Each supplier is different and we are doing the best we can to satisfy everybody."

Madison, Wis., comics retailer Bruce Ayers, who has maintained close ties with Markley and whose shop -- Capital City Comics -- has been a loyal customer of FMI since the distributor's inception, had little doubt that FMI had ceased operations for good. The previous week, the store had received a single comic from the distributor and a long list of orders that FMI had not been able to fill. "If we thought FM would still be in business," Ayers said, "we'd wait and place the orders again, but I know for a fact it's not, so I placed those orders with Diamond. I know that Wayne has met with lawyers about settling up accounts and going out of business. They may be in business to disburse their remaining stock, but to the best of my knowledge, they're not in business as a distributor."

Ayers, who said he had heard that Markley had recently "applied for positions elsewhere," appeared to be in mourning for the distributor. "We've been getting comics from them since day one, and we've been very pleased with their prices and their service," he told the Journal. "In all fairness to Diamond, they do a good job, but their ability to supply us with supplies is dreadful. The quality of FM's supplies, its boxes and Mylar sleeves, were much better than anyone else's."

In a mood of wistful reminiscence, Ayers recalled that Markley was a much better friend to independent and alternative comics than Diamond had been. "FM always pushed us to buy more independent titles," he said. "They got me to buy titles I wouldn't have gotten otherwise and I was glad I got them."

Of course, FMI has no choice but to push independent comics, since all of the major publishers have signed exclusive contracts with Diamond and are off-limits to the smaller distributor. Markley has certainly exhibited phenomenal business skills in juggling the demands of the marketplace under these decidedly difficult conditions for the more than eight years of FMI's existence, but short of pulling a miracle out of his hat, the odds of the company still being in business even by the time this issue of the Journal hits the shelves would seem to be slim. Reports of FMI's death have more than once proven to be wrong, but, ironically, those reports have exerted a self-fulfilling pressure, contributing to the very atmosphere that has encouraged some retailer accounts to dismiss FMI as not long for this world. Confronted with the news that his oldest and closest customer believed the distributor was no longer in business, Markley said, "I didn't realize they thought that. I'll have to give him a call and straighten him out."

Normally, the survival or failure of a distribution company as small as FMI would not be expected to draw so much media attention. But the deathwatch around FMI is really about a deathwatch for the last shreds of competition in the distribution of products to comics shops. At one time, the comics industry was served by more than a dozen distributors, and as recently as 1995, shops could choose from Capital City Distribution, Friendly Frank's Distribution, Diamond Comic Distributors, Comics Hawaii, Heroes World, Styx International, Andromeda Publications, Multi-Book and Periodical and Hobby Game. At the end of 2005, FMI was the last company besides Diamond that was still distributing new comics to the comics-shop Direct Market, and it was hanging on by its fingertips.

And even if FMI survived into the new year, competition among new-comics distributors did not. Markley cut back to a total of two employees and discontinued shipping new comics, allowing him to forego the cost of a monthly catalog. His back-up plan was to concentrate on filling orders for back issues, a strategy that put FMI squarely in competition with back-issue distributor Cold Cut, but not with Diamond's new-comics business. Markley told the Journal, "Selling backstock does bring down our cash flow as we are selling less volume, but we are hoping that will turn around with time as people start to use us for backstock, something we have not been known for. We may return to new releases if the marketplace changes."

Asked if FMI owes money to clients, Markley said, "We do owe a few publishers money, but we are working on getting them paid in full." Asked if FMI can continue indefinitely at its current level of operation, he said, "That we will have to wait and see, I am afraid."

Does Diamond have a monopoly on comics distribution, then? Retailer Brian Hibbs of the San Francisco-based Comix Experience, told the Journal, "Absolutely. No question about it. Now that FMI has cut back to reorders only, Diamond has zero competition. It's a really bad situation. I'm a longtime proponent of Diamond, but I strongly believe the Justice Department needs to come in and slice them up. I think this is probably the biggest issue of 2006."

The years between 1995 and 2005 had seen a severe retraction and slow, partial recovery in the comics industry. But the whittling away of comics distributors was not a gradual reduction corresponding to shrinking business. It was essentially a clean sweep that occurred in 1995, when Diamond snared exclusive contracts with the industry's most indispensable publishers. Diamond didn't set out to make itself the only distribution game in town; that was something the comics publishers did to themselves. Marvel started the boulder that started the avalanche rolling, when it decided to eliminate the middleman and distribute its own comics directly to comics shops. To do that, it purchased the warehouse facilities and staff of Heroes World.

Fearing that Marvel would undercut the competition by offering higher discounts to comics shops, DC immediately looked for a way to set itself up with a privileged relationship with a distributor. At that time, Diamond and Capital City Distribution were the largest distributors in the Direct Market. DC chose to go with Diamond, which controlled a 50 percent market share compared to Capital's 30 percent. Under the terms of its exclusive agreement with DC, Diamond was paid a fee to act as a broker for the publisher -- warehousing, selling, promoting and distributing DC products to comics shops. DC was given a privileged position in front of Diamond's Previews solicitation catalog and promised regular catalog covers. It also was granted the option of buying Diamond outright at the end of seven years.

Diamond was highly motivated to offer DC whatever would make the publisher happy, not only because of the advantages of gaining DC's exclusive business, but also because of the extreme financial hazards Diamond would face if DC chose Capital as its exclusive broker.

Even then, publishers could have averted the freefall that cleared the industry of all but one distributor, if other major producers like Dark Horse and Image had restored some degree of balance to the marketplace by signing with any distributor but Diamond -- or if they had refused to sign an exclusive contract with anyone. Instead, after a few tense days of indecision that were the comics-industry equivalent of the Cuban Missile Crisis, virtually every major publisher got in line to sign exclusive deals with what was then the largest and would soon be the only new-comic distributor in the United States. Andromeda declared bankruptcy immediately, Comics Hawaii changed its name and focus to Hobbies Hawaii, and Capital, after acquiring Friendly Frank's, was itself swallowed by Diamond.

In the meantime, Heroes World, previously a relatively small-scale distributor with a 10 percent market share serving mostly shops in the Northeast, suffered a bumpy expansion in an effort to fill Marvel's coast-to-coast needs. Within a year, it was abandoned by the publisher, which returned to Diamond to sign its own exclusive contract. By that time, no comics shop could remain in business without dealing with Diamond.

Not only did Diamond win the Distributor Wars, but 10 years later, it still seems to be patrolling the battlefield, kicking bodies to make sure there are no survivors, no matter how feeble. While Diamond had wrapped up all the reliably strong-selling publishers, Markley, formerly Capital's product manager and buyer, was able to establish a small business by distributing comics from the remaining nonexclusive publishers and handling the demand for extra copies of occasional surprise successes. At first, FMI was able to fill back-issue orders for titles from exclusively signed publishers like Marvel and DC, but the major publishers soon cracked down, cutting the non-Diamond distributors off from even back-issue business. But even restricted to non-exclusive publishers, small distributors like FMI and Cold Cut have filled retailers' need for reorders, which are penalized by Diamond with an additional charge. A fourth distributor, Last Gasp, is more oriented to bookstores than comics shops and has an even smaller presence in the Direct Market, focusing entirely on a handful of alternative titles.

FMI was able to eke out a living by capitalizing on the unexpected demand for titles from manga publishers like Viz and Tokyopop and upcoming new publishers like Idea + Design Works (IDW). But almost as soon as a popular new publisher would arise, Diamond seemed to show up with a pen and contract in hand. In 2002, Viz was acquired by the Japan-based Shueisha, which promptly eliminated all sales to comics shops except through Diamond. In 2004, Tokyopop, which at that time represented 20 percent of FMI's business, also signed an exclusive distribution deal with Diamond. According to Markley, he only learned that Sirius Comics and Blue Line had signed exclusive contracts with Diamond when their shipments failed to show up at the FMI warehouse. As of January, IDW, FMI's largest client, announced it would be distributed exclusively to comics shops and the book trade by Diamond. And each new signing has prompted a new round of rumors lamenting the death of FMI.

The rise of graphic novels and manga in bookstores has opened a new battlefront to Diamond, which, in 2002 launched Diamond Book Distributors to compete in that market. Holding none of the advantages Diamond had in the Direct Market, Diamond Book Distributors began modestly, with a handful of mostly small comics publishers. Since then it has grown to distribute more than 90 publishers to the book trade, including Dark Horse, Marvel, Abiogenesis Press, Archie, AIT/Planetlar, Alias Enterprises, About Comics, Top Shelf, Cartoon Books, Devil's Due Publishing, Abstract Studios, Image, Alternative Comics, Gutsoon Entertainment, Adhouse Books, IDW, Metaphrog, Avatar Press, Adventure House, Oni Press, Moonstone, Antarctic Press, Checker, Slave Labor Graphics, Speakeasy, El Capitan Books, Astonish Comics, Seven Seas Entertainment, Studio Ironcat, Sirius Entertainment, Eros Comix, King Hell, Girl Twirl, Radio Comix, Insight Studios Group, Stickman Graphics, Now Comics, Yaoi Press, Red Eye Press and Studio Foglio, not to mention Diamond's own publishing arm, Gemstone Publishing.

Exclusive distribution contracts are the norm in the book trade, because, unlike in the Direct Market, unsold books are returnable and require a clear chain of delivery so that bookstores know what distributor to return a book to. But Diamond's push into this marketplace has occasioned a new strategy that has had the effect of cementing its already unshakeable position in the Direct Market. Over the past year at least, Diamond has been approaching small comics publishers with an offer of exclusive distribution in both the book trade and the Direct Market -- and as evidenced by the distributor's burgeoning client list, many have been signing on the dotted line.

What exactly is the appeal of an exclusive Diamond contract now that virtually every major comics publisher already has an exclusive Diamond contract? Getting to go in the front of the solicitation catalog, after all, isn't much of an advantage if everyone else is up there with you - and Diamond's exclusive small-fish clients haven't been getting that perk anyway. The day is fast approaching -- if it hasn't already arrived -- when publishers who haven't signed an exclusive contract with Diamond will belong to a more exclusive club than those who have.

Not all of the publishers that Diamond distributes to the book trade are exclusive to Diamond in the Direct Market. Alternative Comics, for example, is exclusive with Diamond for the bookstore market but not in the Direct Market. Alternative Publisher Jeff Mason told the Journal, "Alternative has an exception in our distribution with Diamond -- in our contract we grandfathered in Last Gasp, FM International and Cold Cut as additional companies Alternative may use to distribute. That all being said, we sell most of our books through Diamond."

Larry Young at AIT/PlanetLar told of a similar arrangement: "We had grandfathered in our previous Direct Market distribution relationships. So Diamond Book Distributors offer our books to the book trade, exclusively, but our books are available to the Direct Market from Diamond Comics Distributors, as well as select other distributors."

Publisher Chris Staros confirmed that Top Shelf is also nonexclusive in the Direct Market despite its exclusive contract with DBD.

But while the veteran independent publishers have tended to keep their options open in the Direct Market, the newly signed smaller publishers have by and large agreed to exclusivity in both markets. The question of why they agreed seemed to have no simple answer, and in some cases, no answer at all. The answer that was most often off the record was that publishers had lost patience with FMI's erratic payment. More than one publisher said it was owed money by FMI (including Fantagraphics, FMI's largest remaining client and the publisher of The Comics Journal).

Publishers apparently didn't always realize they were signing an exclusive distribution contract for the Direct Market when they signed with Diamond for distribution to the book trade. Chris Pitzer of Adhouse Books told the Journal, "When I first signed with Diamond, the fine print did make AdHouse exclusive to Diamond in both the direct and book store markets. This was after I had built up a relationship with other venues like FMI and Cold Cut. However, since the contract was signed, there was nothing that could be done. So, when it came time to renew the contract, those other vendors were added back into the Direct Market. So, at present, I am exclusive with Diamond in the book market and a 'little' more open in the Direct Market."

Asked why he had decided to go exclusive with Diamond in both the book trade and the Direct Market, Alias Comics Enterprises Publisher Brett Burner told the Journal, "That's simply how Diamond offered it to us. It's like, you either get a Big Mac or a Quarter-pounder. You don't get it the way you want it."

Nevertheless, Burner identified aspects of the Diamond deal that were attractive to a small publisher like Alias, which has recently reorganized after finding itself overextended. "We don't have to do our own billing," he said. "Diamond takes our books on a consignment basis, and they pay for what they sell." As Alias' exclusive distributor in both markets, Diamond keeps a supply of Alias' books and comics in stock. "If we'd gone with a different book distributor," Burner said, "I'd have to keep everything here, which would mean more storage cost and more shipping fees to fill reorders." Between accounting and order fulfillment, Burner said, "we're cutting hours of labor."

Alias signed its exclusive distribution deal with Diamond shortly after Diamond announced a new policy under which it would cancel orders for titles that do not meet a set sales threshold. Asked if the threat of having orders for low-selling titles canceled exerted additional pressure on him to sign with Diamond, Burner told the Journal, "I was not told that signing this consignment contract would get us any extra favors. For me, it was simply the fact that I had one company to work with for both bookstores and comics shops. It turned into a huge no-brainer."

Paige Braddock, who expressed concern to the Journal that her Girl Twirl title Jane's World might be endangered by Diamond's new threshold policy, is another small publisher who signed an exclusive contract with the distributor shortly after the policy was announced. Asked if she felt Diamond was using the threshold policy to push small publishers into signing exclusive contracts, she told the Journal, "I don't think so. I actually had a hard time getting into their book distribution. My theory is [the rationale for the threshold] is all based on income. I think it's as simple as they don't want to spend their resources on books that don't meet a certain benchmark. I think it's not enough that they make a profit, but it has to be a higher profit."

Braddock's contract with Diamond allows her to continue using Cold Cut for back-issue orders, but forbids her from using any other distributor for new comics or books. Asked about her motivation for going exclusive with Diamond, she said, "Sadly, it's another money issue. FM and Last Gasp are terrible about paying invoices. And if you're a small publisher, every check counts. I've been chasing down checks from Last Gasp for three years. I like them... But they're just kinda slack."

Markley told the Journal, "I know a couple of reasons publishers have signed exclusive deals have been to get Diamond to offer their books to bookstores, (where people seem to think it is a magical way to save them and suddenly they will sell thousands more books, but that is another discussion), and I know another publisher who signed exclusive so they could get one free ad in Previews every month. I know of a different publisher who owed Diamond so much money for ads that they were forced into a deal. Plus, there are always the cases where Steve Geppi or Diamond lends the publisher money, like with CrossGen."

Hibbs offered the following theory: "Just because Diamond carries something doesn't mean it will fill back orders for it. There are hundreds of things that Diamond will order for a retailer, but if Diamond doesn't have it in stock, it adds two to eight weeks to the wait and the retailer is losing all the sales that they would have had week after week. If they're stocking 10 percent of work from a nonexclusive publisher, they might stock 100 percent of the stock from a publisher with an exclusive contract."

Graham told the Journal, "A retailer will back-order, say six copies of something. Diamond will say they have six or seven copies, but they don't. They can't reorder just three [from the publisher, due to shipping costs] so they'll hold the order until they get other orders from other retailers. In the meantime, the book just sits there and dies. In a case like that, we try to order directly from publishers, but some publishers don't want to sell directly to you, because they don't want to get Diamond mad at them."

But none of the publishers with whom the Journal spoke indicated that they were guaranteed additional free storage, ad space or other perks by Diamond in return for exclusive business. In fact, more than one publisher told the Journal they weren't sure why they signed an exclusive contract with Diamond. For many, it just seemed to be the thing to do. Speakeasy Executive Editor and writer Chris Stone at first told the Journal, "It's a lot easier to get things moving down the right track if you're with Diamond exclusively," but later, not wanting to give the wrong impression, he added, "They don't pressure you to sign or promise special treatment." Asked if there was a general feeling that Speakeasy would be better off it were "buddies" with Diamond, Stone said, with a note of frustration, "They don't want to say what we get."

Pressed by the Journal, Stone said, "Basically, it's easier. It's one less thing to worry about." Like what? "We don't have to ship books to different distributors," he said.

But of course, there's no law that says nonexclusive publishers have to ship to multiple distributors, and in fact, Speakeasy was more or less exclusive with Diamond even before it signed an exclusive contract. "We would use other distributors if it was still like the way it was [before Capital was swallowed by Diamond] when it was worth trying to go through other guys," Stone said. "Not now."

Essentially, Speakeasy was happy to sign an exclusive contract with Diamond because it didn't perceive that it was giving anything up -- even if it wasn't entirely clear what, if anything, it would be gaining.

Correction: In response to Tom Spurgeon's very legitimate objections, a single sentence in this posted excerpt has been changed. The edit reflects the fact that Spurgeon on his The Comics Reporter website did not report "that FMI was closing its doors"; he merely reported other people's reports that FMI was closing its doors and chose his words carefully to avoid endorsing those reports. If only the Journal had chosen its words as carefully. Because technical glitches at The Comics Reporter made the page containing that report inaccessible at press time, the Journal relied on author Michael Dean's faulty memory of the report. The article's point that the Internet tended to relay rumors of FMI's demise before calling FMI to determine their accuracy still stands, but the Journal regrets the inaccuracy of its own report. A correction will appear in issue #275. The full text of Spurgeon's original 8:21 a.m. Jan. 5 posting can be found here. [Michael Dean]

[To read the rest of this story, please see The Comics Journal #274.]

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