The Invisible Price Hike

Wed, July 11th, 2007 at 12:00am PDT

Comic Books
John Mayo, Staff Writer

target="PopUp">One thing that influences how well a comic book sells is how much it costs. But this is a more complicated than the simple higher cost yields lower sales that it appears to be at first glance. Past experiments with cheaper priced titles like "Untold Tales of Spider-Man" have shown that while a higher price usually does lower sales, a lower price doesn't increase them. The only thing that is certain about raising prices is that readers don't like it and usually make that known.

But Marvel recently managed to sneak in a price hike with almost nobody noticing. I'll admit that it slipped past me. I only noticed it because someone posted about it online. One person. And the reaction he got was disbelief. I was puzzled by why this guy not only was charged a dollar more for an issue of "New Avengers" but how and why that higher price was printed on the cover of his copy and not mine. Normally the fan base gets understandably vocal about even a hint of a price increase. So how did this go so unnoticed by the comic book community? The answer is simple and very interesting.

For starters, this price increase hasn't impacted most titles. The price hike seems to be isolated to a few specific titles like "Ultimate Fantastic Four" and "New Avengers." To find out if a Marvel title you are reading is in this group, check the indicia on the first page of the comic book. This indicia for "Ultimate Fantastic Four #43" states that the price is "$2.99 per copy in the U.S and $3.75 in Canada (GST #R127032852) in the direct market and $3.99 per copy in the U.S. and $5.75 in Canada (GST #R127032852) through the newsstands; Canadian Agreement #40668537."

That one sentence in the indicia explains why this went virtually unnoticed. This price increase doesn't impact most readers of those titles. The only two groups that are going to feel this price hike are newsstand shoppers and Canadians. Now is not the best time to be a Canadian that buys comic books at newsstands.

It's amusing that with all of the variant covers that are so popular these days that these "variant covers" went unnoticed. Sure, the art was the same so it isn't really what we could typically consider to be a variant cover. The only differences are the cover price and the words "direct edition" in the UPC box on the direct edition.

When asked about the newsstand price hike, Marvel's Senior Vice President of Sales & Circulation Publishing David Gabriel told CBR News , "Newsstand business is a totally different business model from the direct market. Basically we are testing these prices on various titles."

Normally I limit my analysis and comments to the direct market. I do this because I only have data on the direct market and, well, the newsstand business model is very different from the direct market. It would be presumptuous of me to make claims on sales trends in the newsstand channel without data to back up those claims. But, in this situation, we aren't taking about sales trends but the impact of pricing on sales.

One of the key differences between the direct market and the newsstands is that items on the newsstands are returnable. Based on everything I've seen in places like the Statement of Ownership article published once a year in Marvel comic books and other such sources, the direct market seems to account for the overwhelming majority of the comic book sales. Certainly the exact percentage will vary from title to title but the overall average seems to be somewhere around 90% of the overall sales of comic books happen in the direct market. Statistically speaking, this price increase on the newsstands could impact less than 10% of the units sold.

Even so, 10% is a decent amount of sales. "Ultimate Fantastic Four #42" sold around 52,824 units, so the price hike on "Ultimate Fantastic Four #43" would have impacted 5,282 units and an extra dollar for each of those adds up. For "New Avengers #30" 10% of the sales works out to around 12,638 units. This is assuming the conventional wisdom of 90% of the sales are in the direct market holds true for these specific titles. But it doesn't really matter in this context if that percentage holds true or not. Clearly at least some of the comic books on newsstands are selling or else they wouldn't still be there. The people buying those comic books now have to pay an additional dollar simply because of where they are buying it. One implication of this is that the profit per unit sold is lower in the newsstand channel than in the direct market.

One of the possible reasons for Marvel implementing this price increase in the newsstands but not in the direct market is that the newsstands are a returnable market. Not all of the copies that go out to that sales channel are sold and Marvel has to eat the cost of printing those extra copies. In the direct market, Marvel can print to order if they so choose. But given the level of reorder activity we've seen over the last year Marvel is clearly over printing at least on some titles. More importantly, any items that go unsold to readers in the direct market don't cost Marvel anything as Marvel sold them to the retailers on a nonreturnable basis. This is one of the key aspects of the how direct market works.

Back in the late 1970s and early 1980s when the newsstands were still a major sales channel for comic books, it was not unusual for more copies to get returned than sold. Sometimes returns were nearly double the number of units sold. As the direct market took over and the returnable sales from the newsstands became a smaller and smaller percentage of the overall sales, publishers like Marvel were able to reduce the number of units printed and never sold significantly. In some cases, this unsold portion accounts for less than 3% of the total print run for an issue. The bottom line is that the non returnable sales in the direct market are a much safer business model for the publishers. Keeping the titles on the newsstands involves a bigger risk for the publisher and raising the prices in that channel can help them mitigate that risk. It makes sense for Marvel to experiment with the price points in the newsstand channel.

As for the other group hit by this, the Canadians, I'm not really sure what to say about this. The exchange rate of $1 US to $1.25 Canadian for the direct market is a bit high. Yahoo.com has the current exchange rate $1 USD equaling $1.06 Canadian. But these things tend to get set and then ignored for a while which can result in people paying in currencies other than US Dollars getting penalized. This is particularly bad for Canadians since the Canadian price is printed on the cover, but I've heard similar complaints from people in other countries. Where it gets confusion is when you ask why a different exchange rate is used for the newsstand channel. That rate is $1 USD equaling $1.43 Canadian. That is an 18 cent difference per US dollar. That copy of "Ultimate Fantastic #43" that can be bought for $2.99 in a direct market comic book store in the USA would cost $3.99 at a newsstand in the USA. In Canada, that same comic book would cost $3.75 Canadian at a direct market comic book store and $5.75 Canadian at a newsstand. That is an increase of $2 Canadian for copies sold through Canadian newsstands. This penalty for Canadians is highly ironic since most comic books are printed in Canada.

On the Canadian price increase, Gabriel said, "Canadian prices are different based on feedback from the different retailers and buyers for comics...newsstand buyers look for different pricing from direct market retailers in Canada. Those could become the same very soon."

One of the things that resulted in comic books having a lower presence in the newsstand market over the past few decades was the low price point. Cheaper items like comic books require the same overhead costs for the newsstands as high priced magazines, but are less profitable. It would seem that in Canada this is a more significant factor.

The decision to raise prices on the newsstands wasn't made in a vacuum. Marvel has made these pricing changes as a result of feedback from the people they sell comic books too: the comic book store retailers and newsstand buyers. These are the people that buy the comic books from Marvel to sell to the comic book fans. While lower prices benefit the readers, they don't benefit the retailers. Retailers get a percentage of the cover price. The higher the cover price, the more profitable the item is for the retailer. Comic books are competing for space on the newsstands with magazines that typically cost about twice as much. While comic book prices may seem high to readers, they may seem low to the newsstand buyers. This puts publishers like Marvel in a difficult position in which they have to balance the needs of the retailers and the end consumers. Experimenting with the cover price on selected titles and measuring the results may be unpopular, but it isn't bad business.

One could assume this newsstand price increase will result in a decrease in the newsstands sales in both the USA and Canada. However, given how this price hike has gone virtually unnoticed and uncommented on, I also have to believe that the loss in sales will be minimal. It is the sales to casual comic book readers that will be lost and these people aren't the core readership of Marvel comic books. While I don't want to suggest that losing any reader is a good thing (because it isn't), losing a casual reader in the newsstands channel is a much lower financial hit than losing a dedicated customer in the direct market.

The net loss in newsstand sales will probably be less than 25% and the profitability of the newsstand sales might increase slightly as a result of this. But since sales estimates for the newsstand channel aren't available we may never know how these pricing changes impacted sales. Since these price hikes are outside of the direct market, I doubt that we'll see much of a change in the monthly sales information released by Diamond. It is possible that some people that had been getting comic books at newsstands will stop doing so. The question is if enough of them will switch to the direct market to be apparent in the numbers there. Newsstand readers are most likely to see the higher price and assume that it is a price hike across the board and not just at the newsstands. That assumption is what will cost Marvel sales that could have been redirected either to local comic book stores or online comic book stores.

It is extremely unlikely that the people at Marvel made this decision out of greed. The price hike was likely done in response to declining sales in the newsstands and as an attempt to keep comic books on the newsstand. And while lower comic book prices on the newsstand might seem better, it is clearly better to have comic books on the newsstands even at a higher cover price than to vanish from that sales channel altogether.

When I started reading comics you could measure the cost of a comic book in terms of pages per penny. We're long past the point of pennies per page and are into the nickels or dimes per page. Every time I've thought that comic book prices couldn't go any higher and still sell I've been proven wrong. But sooner or later the standard 32 page monthly comic book format will price itself out of existence.

Now before people get up in arms about this being the sign of a future price hike in the direct market and that the monthly comic book is dead, there are a few things to consider. The first is that this isn't the first time that Marvel has charged more for a comic book in the newsstand arena than in the direct market. The last time that Marvel did this was back in late 2003. It has happened before and might well happen again. This price hike on the newsstands seems to be a reflection of how that sales channel is doing. Any potential price hike in the direct market would be a reflection of how comic books are selling in that channel. The other thing to keep in mind is that prices will eventually go up in the direct market. There is no avoiding that. The question isn't if but when, why and by how much.

But what is probably the most important thing to most readers of Marvel comic books, the majority of which get their comic books through the direct market system, is the other thing that Gabrield said when we spoke with him, "There are no plans to increase prices in direct market."

Obviously that could change at any time, but it is reassuring to know that for the moment the price increases on newsstands aren't a precursor to price increases for the rest of us.

Now discuss this story in CBR's Marvel Comics forum.

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