The relationship between the comics industry and the bookstore market resembles a bitter joke that fell flat some time ago but keeps getting repeated. The good news is the graphic-novel form is approaching full flower and bookstores have finally begun taking it seriously as an art form and as a moneymaker. The bad news is graphic-novel publishers can't seem to find a reliable conduit to get the books into stores.

Of the handful of book distributors that represent graphic novels to the bookstore market, the largest, LPC, declared Chapter 11 bankruptcy April 2. And just as LPC's publisher clients began looking frantically around for an alternative distributor like Seven Hills Distribution, Seven Hills suddenly stopped answering the phone and paying its bills.

Seven Hills distributed for Fantagraphics Books until August 2001, when the publisher switched to WW Norton. According to Fantagraphics publisher (and TCJ Editor in Chief) Gary Groth, the alternative graphic-novel publisher did not change distributors because of dissatisfaction with Seven Hills. "This was before Seven Hills showed any sign of being in financial trouble," he said. "Norton was a distributor that we thought had more affinity with our editorial content. We felt Norton could do a better job of penetrating the book market for us."

But not many graphic-novel publishers have the sort of upscale but popular editorial mix that would make them a good fit for an established distributor like Norton. For small independent publishers -- as well as for larger, superhero-oriented publishers -- distribution options are extremely limited. When LPC announced that it was going out of business, Seven Hills, one of the few distributors that had experience with graphic novels, was high on graphic-novel publishers' lists of alternatives. Batton Lash and Jackie Estrada's Exhibit A Press (publisher of Wolff & Byrd) had the bad timing to sign with Seven Hills and ship its first batch of books through the distributor just before the lights went out. Estrada told the Journal Seven Hills had swallowed "a couple hundred" Exhibit A books before it stopped returning calls. "We knew it was too good to be true," she said, "because their sales rep knew our books and was a fan of Wolff and Byrd."

Children's book publisher Ruth Lutnick of Four Corners Publishing signed on with Seven Hills in 1999. At first, she said, Seven Hills seemed like the ideal distributor to help her new children's travel series get its feet wet in the book market. "I think that Seven Hills was more reasonable in terms than other distributors," she told the Journal. "They only took 30 percent of net sales and there were no other fees that I could determine. The advertisements they placed for me were meticulously reported and cleared with me. Since I jumped into this without really knowing anything about publishing or business, they helped me along, getting my book reviewed in Foreword and School Library Journal and some other good places. They were always available to talk and make suggestions that were, for the most part, good."

By 2001, however, it was clear Lutnick's relationship with Seven Hills had begun to go sour. In the three years since she had signed with the distributor, she said she had received only two payments for sold books. "I also had to beg for monthly reports, which became four monthly reports then stopped altogether this past January," she told the Journal. "Initially, all seemed well, but last year, things took a rapid decline."

By the time Fantagraphics transferred its books from Seven Hills to Norton in August, its ex-distributor was three months late with payments from book sales. Groth said Seven Hills had occasionally been late in the past, but for the most part kept up monthly payments. "I understand a small company having cash-flow troubles," he said. "Everybody has complaints about their distributor, but I think Seven Hills did as good a job as they could, given their size. I was happy when they took us on."

In fact, Eros Comics, Fantagraphics' companion comics line for adults, continued to be distributed through Seven Hills, though Fantagraphics/Eros Marketing Director Eric Reynolds said there was little demand for the adult-oriented trade paperbacks in the mainstream book trade. "We tossed a few books their way and if the books sold, fine," he said. "If they didn't, it was no big deal."

As was explained to Groth, the Ohio-based distributor was experiencing cash-flow problems as a result of having been abruptly forced out of its warehouse when the county government took over the land the warehouse was on. It was a major blow from which the company apparently never entirely recovered. As per a 36-month agreement between Seven Hills and the departing Fantagraphics, the distributor made about four monthly payments of approximately $2,000, then stopped altogether, leaving it in debt to Fantagraphics to the tune of more than $60,000.

In 2002, Seven Hills reportedly began laying off its sales representatives, continuing to operate with a skeleton-crew staff until July, when the company abruptly shut down, cutting publisher-clients off from both their sales revenue and their unsold inventory. Lutnick reported her entire stock of 28,000 soft-covered novels is tied up in the Seven Hills warehouse.

Greycore Press is another publisher that found a degree of initial success through Seven Hills before being left in the lurch. Greycore has been with Seven Hills for about a year, during which it released two hardcover fiction titles. According to Greycore publisher Joan Schweighardt, "Both books garnered a lot of good press and reviews and as a result we sold about 2,000 of the October 2001 release (Conjuring Maud by Phil Danze) and about 3,000 of the June 2002 release (Done In by Innocent Things by William Eisner). So, after deducting money for BEA [Book Expo America] booth space, catalog pages, erasers and whatever else they were deducting for, Seven Hills owes me a minimum of $30,000. I started my publishing business with my own money in 1999. I keep it going by working freelance for all sorts of companies and feeding my checks into it. Had Seven Hills not screwed me, this would have been the year that I was actually going to be able to back off on the freelance work and move to the next level, doing maybe five books a year with money generated from previous titles. But the worst of what they did was closing their doors with no warning whatsoever. I have two very hot titles coming out in October, one of which (One Man's Leg by Paul Martin) I'm doing a first run of 10,000 on. And here at this moment in time I have no distributor. I've talked to several and everyone is impressed with my sales and my authors, but most are also afraid to work with a publisher who needs immediate representation. Most have already sent their reps out to the chains for fall releases. So Seven Hills got me front and back."

Groth agreed that keeping clients in the dark was the worst of Seven Hills' crimes. "[Seven Hills President] Ion [Itescu] should have gotten on the phone to all the publishers and told them what was going on," he said, "instead of installing a voicemail system one month before shutting down so he wouldn't have to talk to people. The publishers want to at least be able to talk to him and get the straight story."

Since Seven Hills and LPC both specialize in distributing small independent publishers, neither distributor can sink without threatening to capsize its struggling clients. But graphic-novel publishers are wondering, quite understandably, why this should be happening in what ought to be a boom period. Bookstores are hungry for graphic-novel product and graphic-novel publishers are equally eager to find a place on bookstore shelves. Distributors catering to graphic novels would seem to be ideally positioned. So why did LPC and Seven Hills crash and burn even as the market for graphic novels was opening up?

It may be a while before this question can be definitively answered about Seven Hills. Its owners are keeping silent, ignoring calls from not only the media but also its own frantic clients. Schweighardt told the Journal, "I have no insights into what went wrong with Seven Hills. When I called in April to see why I hadn't received my March statement, I was told they were sooooo busy getting ready for the BEA. That sounded reasonable to me. I was busy with pre-BEA, too. When I called in May, they said the bookkeeper quit and left the paperwork in disarray and that they were interviewing for a new bookkeeper. Well, that happens.... When I asked in June -- now getting panicky and explaining that I had a bank loan due and really needed the money ASAP -- they said they were having a bit of a cash-flow problem, but it was only temporary and would straighten itself out, that I might not get everything I was due but that I would get something. And I said 'OK, please get me something by June 25, because I leave for vacation June 27, and the bank loan is due June 30.' but nothing came and I had to leave for vacation. And when I checked my voice mail and e-mail, I had all kinds of messages from the other publishers saying, 'Do you know what's happened to Seven Hills; no one is answering there.'"

When the Journal asked this question of Seven Hills attorney Norman Slutzky, he warned, "You won't get much from me." He said Seven Hills has not filed for bankruptcy. Nor have any legal actions been filed in court against Seven Hills. He did confirm that he and Seven Hills had been contacted by concerned publishers, as well as a lawyer representing one of the publishers. He expressed the opinion that the Journal was pursuing "a nonstory."

When the Journal suggested that the publisher clients who were profoundly affected by Seven Hills' failure would not regard it as a "nonstory," Slutzky replied, "I didn't say 'failure.' That's your word, not mine."

The origins of LPC's troubles are also murky. LPC CEO David Wilk has also dodged questions from the media, but in e-mail statements to clients, he has indicated that LPC's debts preceded his tenure at the company. Court documents show that the distributor had borrowed startup capital from American National Bank (BankOne) in 1990, first indirectly through Login Brothers Book Company and later directly from the bank. LPC grew to become the third-largest American book distributor but continued to struggle with cash-flow problems. Wilk became managing director of LPC in 1996, after his previous company, Inland Book Company, declared Chapter 11 bankruptcy and was swallowed by LPC. In 2001, Wilk and fellow principal LPC stockholder Susan Shaw tried to attract investors willing to provide needed capital in exchange for equity in the company but found no takers. Failing to lure investment capital, LPC went to Plan B: It cut operating expenses by outsourcing its warehousing and billing functions to Client Distribution Services in August 2001.

According to Wilk, with the help of CDS, LPC was in a "cash-positive" condition, and was successfully making payments on its loans, but the bank was unconvinced. American National Bank first demanded that the distributor place all its operating funds, including money collected from book sales on behalf of its publisher clients, in an account at ANB. As soon as CDS deposited book sales receipts in the LPC account, the bank seized all the funds in the account March 28 and 29, including about $900,000 earmarked for publishers and another $200,000 in LPC operating capital. The bank announced it was calling in the entire amount of its outstanding loan to LPC -- about $4.2 million. The seizure was so sudden and without warning that LPC checks to publishers bounced, wreaking havoc with the cash flow of the publishers. Top Shelf Productions was rescued from extinction only by an immediate influx of e-mail and phone orders from supportive customers.

Wilk filed for reorganization under Chapter 11, assuring publishers that the bank had no right to seize money collected from consignment book sales on behalf of the publishers. By the end of June, however, Wilk was no longer calling for return of the seized consignment money to publishers or even making plans for reorganization. His new Chapter 11 plan was for liquidation of LPC, with publishers to receive 47 percent of the money owed them, while the bank was to be repaid at the rate of approximately 80 cents on the dollar. Attorney Tracy Saxe, representing many of LPC's publisher clients, has filed an objection to Wilk's liquidation plan on the grounds that it treats the publishers' consignment money as if it were part of the pool of LPC assets from which the distributor proposes to pay its creditors. Saxe told the Journal a class action suit against the bank is being considered by the publishers.

On Aug. 2, the courts ruled that unsold book inventory in the CDS warehouse belongs to LPC's publisher clients and should be returned to them.

Enter CDS and Diamond

For every distributor that has taken a fatal tumble, however, another has entered the race. Wilk's liquidation plan calls for a transition of client accounts from LPC to CDS, which would take over sales services for the accounts along with the billing and warehousing services it already provides. Whether or not Wilk's plan is approved, CDS has offered itself as a full-service distributor for any publisher in need of such. In the eyes of former LPC clients, one advantage CDS has over any other potential distributors is the fact that it already has inventory from many of the publishers in its Jackson, Tenn., warehouse. LPC sales representatives have been moving from LPC to CDS, so CDS will have staff that are already familiar with LPC's accounts. The Journal has learned that Wilk himself is expected to make the jump from the sinking LPC to CDS, though he will probably not oversee graphic-novel accounts.

On the other hand, CDS' close connections to LPC have a down side for publishers who have been badly hit -- some nearly forced out of business -- by LPC's financial troubles. American National Bank was suspicious of the relationship between CDS and LPC and had demanded unsuccessfully to see an accounting of transactions between the two companies. Asked by the Journal if there were any shared corporate officers between CDS and LPC, CDS Vice President of Sales Stanley Cohen said, "Not at the current time." Noting the qualifier, the Journal asked about past and future times, but Cohen declined to expand on his comment, saying only, "Anything can happen."

[To read the rest of this article, please see The Comics Journal #246.]

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