Diamond Distributors Asks Bankruptcy Court For Ownership of Publishers' Consignment Inventory [UPDATED]

Diamond Comic Distributors--which filed for bankruptcy in January--has asked the bankruptcy court to allow it to sell its consignment inventory in order to pay off its creditors.

Consignment inventory is stock which the distributor stores but does not own (as opposed to stock which the distributor has purchased from the manufacturer). The distributor then sells the books via retail stores. The manufacturer or publisher does not get paid until the stock is sold at retail--typically receiving 30%-50% of the retail price (the rest going to the retail store and the distributor itself).

Diamond has listed 128 companies [see below] for which it currently holds consignment stock. Some of these are tabletop game companies, as well as many comic-book publishers, and include Goodman Games, Green Ronin, and Paizo Publishing. Others include comic-book publishers like Marvel and DC, along with a number of toy companies. Some publishers are saying that they are owed payments for retail sales from late 2024, just prior to Diamond's bankruptcy filing in January 2025, in addition to having stock currently in Diamond's possession.

Normally, unsold stock, which still belongs to the publishers, would be returned to them. Diamond has asked the bankruptcy court to allow it to take ownership of that stock and sell it for the benefit of its creditors.

One of Diamond's biggest creditors is Chase Bank, which will likely be at the top of the priority list of creditors to be reimbursed.

In its filing, Diamond says it is in possession of "significant inventory that was shipped… on a consignment basis" and that "consignors have not satisfied the requirements under applicable law to perfect their interests in this consigned inventory". Diamond claims that this gives them the right to "transfer title to this inventory free and clear of the consignor's interests". Essentially, some important paperwork (a 'U.C.C.-1 financing statement') was not filed by consignment vendors like Marvel, DC, and the tabletop gaming companies mentioned earlier prior to the bankruptcy in January, and this means that they forfeit their rights to the stock in question. Diamond's filing says "None of the vendors that provided consigned inventory to any of the Debtors filed a U.C.C.-1 financing statement against any of the Debtors prior to the Petition Date."

Following the closing of the sales of a substantial majority of their assets, the Debtors are in possession of significant inventory that was shipped to the Debtors on a consignment basis.

1. The consignors have not satisfied the requirements under applicable law to perfect their interests in this consigned inventory. As further explained below, this give the Debtors the right to transfer title to this inventory free and clear of the consignor’s interests.
2. The Debtors accordingly seek to sell or otherwise dispose of the consigned inventory free and clear of the interests, if any, of the consignors.
3. To that end, the Debtors seek approval of Consignment Sale Procedures (as described and defined herein) to permit them to market, sell, and/or otherwise dispose of consigned inventory expeditiously, minimizing costs and maximizing recoveries in order to generate the best result for the estates.

UPDATE -- Paizo Publishing has announced that its upcoming releases will not be available at major bookstores or at Amazon because the company has stopped shipping products to Diamond. This includes 12 August releases and 10 September releases, such as Starfinder Player Core, Starfinder GM Core, Pathfinder Battlecry, and more.

The court has scheduled a hearing on July 21 to hear objections from the affected vendors. The full list of vendors can be seen below.

List of Consignment Vendors

1. 12 Gauge Comics LLC
2. 801 Media Inc
3. A Wave Blue World Inc
4. Ablaze
5. Abstract Studios
6. Ack Comics (Amar Chitra Katha)
7. Action Lab Entertainment
8. Aftershock Comics
9. Ahoy Comics
10. Ait/Planetlar
11. Albatross Funnybooks
12. Alien Books
13. American Mythology Productions
14. Antarctic Press
15. Ape Entertainment
16. Apex Publishing LLC
17. Archaia Studios Press
18. Archie Comic Publications
19. Artists Writers & Artisans Inc
20. Aspen Mlt Inc
21. Avatar Press Inc
22. Bad Egg LLC
23. Bandai Entertainment Inc
24. Battle Quest Comics
25. Bedside Press
26. Behemoth Entertainment LLC
27. Benitez Productions
28. Black Mask Comics
29. Black Panel Press
30. Blind Ferret Entertainment Inc
31. Boom Entertainment
32. Bundoran Press Publishing House
33. Chizine Publications
34. Clover Press LLC
35. Cryptozoic Entertainment
36. Dark Horse Comics
37. DC Comics
38. Desperado Publishing
39. Diamond Comic Dist.-Stock
40. Difference Engine Pte LTD
41. Digital Manga Distribution
42. Drawn & Quarterly
43. Dstlry Media
44. Dynamic Forces
45. Eros Comix
46. Eureka Productions
47. Fairsquare Graphics
48. Fantagraphics Books
49. Fiery Studios Inc
50. Frank Miller Presents LLC
51. G T Labs
52. Gemstone Publishing
53. Gen Manga Entertainment
54. Gold Key Entertainment
55. Good Trouble Productions LLC
56. Goodman Games LLC
57. Graphic Mundi – Psu Press
58. Graphitti Designs
59. Green Ronin Publishing
60. Gungnir Entertainment
61. Heavy Metal Magazine
62. Hermes Press
63. Humanoids Inc
64. Idw – Top Shelf
65. Idw Publishing
66. Image
67. Image Comics
68. Joe Books Inc.
69. Laguna Studios
70. Les Editions Pix’N Love
71. Lev Gleason
72. Lion Forge
73. Lionwing Publishing LTD
74. Living The Line
75. Locust Moon Press
76. Mad Cave Studios
77. Magma Comix
78. Magnetic Press Inc.
79. Manga Classics Inc.
80. Marvel Comics
81. Marvel Prh
82. Massive
83. Moonstone
84. Nbm
85. Netcomics
86. Night Shade Books
87. Norma Editorial S.A.
88. Oni Press Inc.
89. Opus Comics LTD
90. Paizo Inc
91. Panini UK LTD
92. Papercutz Inc
93. Pegamoose Press
94. Prime Books LLC
95. Rabbit Publishers
96. Radical Publishing
97. Red Giant Entertainment
98. Renaissance Press
99. Roll For Combat
100. S7 Games
101. Scout Comics
102. Sea Lion Books
103. Seven Seas Ghost Ship
104. Slave Labor Graphics
105. Soaring Penguin Press
106. Source Point Press
107. Starburns Industries Press
108. Storm King Productions Inc
109. Sumerian Comics
110. T Pub
111. Th3Rd World Studios
112. Titan Comics
113. Tokyopop
114. Toonhound Studios LLC
115. Twomorrows Publishing
116. Ubiworkshop
117. Udon Entertainment Inc
118. Valiant Entertainment LLC
119. Vault Comics
120. Wicked Cow Studios LLC
121. Wildside Press LLC
122. William M Gaines, Via Gemstone
123. William M. Gaines Agent, Inc.
124. Wyrm Publishing
125. Yaoi Press LLC
126. Z2 Comics
127. Zenescope Entertainment Inc
128. Zombie Love Studios

 

[Sacrosanct]

The damage is far more direct. The publishers all paid for these specific products to be printed, and the money that went into printing and shipping and warehousing the copies held hostage is possibly lost, with no hope of recovery. They are also directly losing out on money to be made when these specific products sell. If Diamond blows out these products to a remainder house, they will then be available at discount rates and will undermine sales of other copies of the work (if the publisher does not have all their stock held hostage at Diamond). The same if the publisher is tempted to go back to print (a very expensive proposition) in hopes of recovering some of the money they invested in creating the products in the first place. The discount products will undermine those new sales, too.

This direct damage will spread throughout the publishing ecosystem. For products where the creators receive royalties for sales, for example, they will likely receive nothing, since contracts generally specify payment is only owed after money is received for the sales. The publisher gets stiffed, they may not owe anything to the creators. Even if they want to pay creators, they may not have the funds to do so.

This also chokes off cash flow the publishers are counting on to pay for the next books they have on the schedule. Those projects may be delayed or cancelled, and freelancer rates lowered, and on and on.

Between the debt accrued by old Diamond and the smash-and-grab being run by new Diamond, I expect some publishers to close shop. The mid-tier places are the most vulnerable, as they have larger print runs and tend to invest more in creators when making their products. Tabletop has seen this before when other distributors in the market (Wizards Attic, Osseum, etc) failed. The tabletop market has been hollowing out in the middle for decades, and this will only accelerate that change.

When I first saw this, my initial thought was there is going to be a large and noticeable void in gaming availability to the public for the next several months or year or years. Maybe I'm completely wrong, but that's a lot of publishers who aren't getting their immediate product out, and won't have funds to put out newer product any time soon. Many will collapse.

I think WoTC has their own distribution channel, so they won't be affected (in fact, they should benefit due to lower alternatives for consumers to spend $ on). And small Indie companies who largely do POD won't be affected. Everyone else in the middle will be. And that's a decent sized chunk.

 

[JLowder]

UPDATE -- Paizo Publishing has announced that its upcoming releases will not be available at major bookstores or at Amazon because the company has stopped shipping products to Diamond. This includes 12 August releases and 10 September releases, such as Starfinder Player Core, Starfinder GM Core, Pathfinder Battlecry, and more.

They have to stop the bleeding, even if doing so means more short-term damage to them by limiting access to their new releases.

 

[doctorhook]

I’m honestly shocked by this, as I’m guessing lots of other layfolk (non-lawyers, non-publishers) here are too.

What kind of backward, broken legal system can possibly even entertain the idea of allowing a company under contract to claim ownership of others’ property to pay its own debts??? If this isn’t rejected by the court, then I have no words.

And I strongly doubt that companies as big as DC Comics and Marvel, who’ve been publishing huge quantities of material for decades, somehow didn’t fill out the right paperwork. This has to be pure shenanigans by Diamond, is it not?

I’m baffled about this.

 

[Whizbang Dustyboots]

Some of these comic publishers are very tiny -- not significantly larger than many small RPG companies. Losing a bunch of inventory and revenue like this could definitely sink some of the smallest ones.

But hey, at least the largest bank in the US won't have to make an insurance claim to write off all of the bad debt connected to Diamond.

Gross.

 

[Wofano Wotanto]

They have to stop the bleeding, even if doing so means more short-term damage to them by limiting access to their new releases.

In search of a silver lining, it does mean your FLGS and Paizo themselves should see somewhat better sales numbers on those products - assuming the game stores were smart enough to have multiple distributors and didn't over-depend on Diamond/Alliance. I don't know of any stores that survived 2020 who were still married to a single distributor, but there must still be a few of them.

Whether Paizo can eke out enough extra inline direct-to-customer sales to compensate for overall reduced exposure I can't guess, but the difference in margin between direct and distributed sales is considerable.

 

[lynnfredricks]

Is there anyone here with sufficient legal knowledge and sufficient patience to explain what is going on? Why can Diamond just confiscate those goods? If they liquidate them are the previous owners among the creditors to be refunded?

Not a lawyer.

But I saw first hand a number of tech companies get screwed out of inventory when some tech distributors and retailers imploded. You have to muster significant legal help to go to bat for you to protect your consignment goods, and it may well be you don't want to spend several thousands of dollars attempting to do just that - and still just get a fraction back.

I am curious though, why Paizo is making claims about not having products in Amazon related to this. They do not need a distributor to sell their goods on Amazon.

 

[Thagdal]

As the roll for combat video mentioned, that extra whammy of printing costs going up since most of that stock being taken was printed, is just awful.
Tough stuff.

 

[Spida]

Looking at that list of Consignment Vendors, there are quite a few small, vulnerable companies there. It's a shame they have get hurt in this by losing product that is sitting on Diamond's shelves. From a lay perspective, it would seem more fair for the court to order Diamond to sell the consigned product and use only their share of the profits to pay creditors. But so it goes.

They don't just lose the product. They have to replace the product at higher cost, and are then going to be in competition with whoever buys their stock at some horribly reduced rate. If for arguments sake, I buy the stock at 50%, I can sell for a lot lower than the small publishers can likely afford, so they lose out twice over.

 

[Mongoose_Matt]

Unfortunately, that’s not really an option. Most publishers do offer that option, but it’s only a tiny percentage of their retail sales. The stores aren’t interested in managing their inventory on a per-publisher ordering basis. They just want a single point of contact to put periodical orders in. That’s a distributor.

Times have been changing for a while (a good many years).

Back in the early (D20) days, over 90% of all our sales went via distribution for the reasons you state here. However, over time there has been a switch, to the extent that this is now single digits for us, with the vast majority of sales now being direct (be that to gamers or retailers).

And we are not alone in this, not by a long chalk. Chatting to other similar-sized publishers, they have seen the exact same thing with numbers not dis-similar to ours. For RPGs, this seems to be The Way.

Distribution overall all (there are exceptions) has not been... completely awesome for RPGs for some time for... well, reasons.

 

[Stormonu]

What a horrible gut-punch for the publishers. If Diamond is legally able to get away with this, I hope the publisher's lawyers would be able to force Diamond to offer the publishers first-buy rights (at pennies on the dollar) to get their stock back to attempt to resell through other avenues. That would at least give them a chance to recoup some of the loss.