Graf
Explorer
Ok. In honor of my lost Warforged economics thread (don’t suppose anybody has a copy somewhere?) I’m going to start talking about a 4th edition.
As before this will be very basic since I’ve got only a simple knowledge of economics & game theory (and won’t involve any numbers which is what a proper economic argument would use).
[This whole thread assumes that WotC is a monopoly and doesn’t talk about OGL or 3rd parties. It also uses a simplified mechanism for distribution (i.e. the customer is buying directly from WotC) since this was long enough already. I've also assumed its a bit like the movie industry, but I dropped most of the analogies 'cause for length as well.]
Decision makers: We’re going to assume the final decision is made by Hasbro executives who aren’t DnD players. This doesn’t mean they hate DnD, or their soulless evil beings, it just means that they won’t be moved by an argument like “there needs to be a new edition because Attacks of Opportunity are too confusing to new players!”
This system is different than the system by which the normal schedule for books is developed… Rich Baker & co. pick different books to develop but I have assumed they don't decide when to do a new edition.
So how do you look at this tiny little segment of your empire? You allocate resources ($) and you look for return. You have basically two areas of your business you can allocate to:
1. Library (A.K.A. a back catalogue of already created and distributed books). You have an existing library of titles (that generate a stream of revenue (i.e. money). The stream itself is small but it’s very profitable (there are no creative costs, just printing, so a PhB printing is by definition cheaper than a new book).
This is like having a library of classic movies; every month X number of people will walk into a movie store (or got to Amazon) and get a version of the movie ‘The Man Who Knew Too Much’. No marketing, no media plan; you put it out in the market and they buy it. This revenue stream requires little maintenance but allocating more than a certain amount of resources is counter productive because it won’t be reflected in higher sales.
2. New titles. New titles are produced by a team of full and contract staff; there are lots of little fiddly bits inside the group (art, developers, designers, editors, etc) but you just call them R&D. They produce books, little boxes of plastic figures, and other stuff in a bewildering array using a process that is completely opaque to you. Somebody (Rich Baker?) briefs you regularly on what they’re doing but, like the movie business, you really can’t predict what you’re going to get. There are only a few hits, some solid performers and the constant thread of duds. A successful new book can provide a nice kicker to the bottom line and cost controls will keep any given dud from making you bleed too much.
Aside: There are a few areas that your market research staff and R&D have identified as value enhancing (books with good art do uniformly better, so you’ve got the best art team in the industry) and a few that you can skimp on without affective sales (editing) but you’ve already developed, or cut, those areas to optimal levels so you’re not getting any more juice out of there. If I were an executive at a big company I would totally use words like ‘juice’ and ‘bleed’.
So its been a few years, you’re running low on your massive print run of some version of this property… its time to “gin up the R&D machine” and blast out a new edition of your hit franchise right?
Uhhh, not quite that simple.
Look again at revenue streams: 1 (the library) and 2 (new products). You’re basically taking all your eggs and putting them into the second category. Sales from the library will dry up and you’ll have no revenue till the new edition comes out. So you’ll have taken what was once a profitable group and made them unprofitable short term for the –chance- of higher profits in the future.
The chance itself is highly debatable but from the executive’s standpoint it’s a unknown.
The rest of this article is going to talk about that -chance-. There are several factors that come into play.
Demand In addition to being finicky and unpredictable consumers many of your customers have finite budgets they can spend on your products. If a given consumer will spend 175-350 USD a year (around 15-30 USD a month) on product then you’re unlikely to capture any more revenue than that, no matter what you do. This is a psychological barrier for most of them (they could skimp on Starbucks latte’s and easily double the amount of money they’re spending) but you haven’t got an idea about how to get them to do that. So it’s a fixed constraint for you.
Ancillary Products R&D doesn’t just make DnD it also handles your other ancillary products, including things like Dungeons and Dragons Miniatures (hereafter DDM). DDM and the core DnD line have a relationship in two ways a) the R&D group makes both b) the brands are strongly linked together in the minds of the consumers c) they are vying for a lot of the same customer dollars. So if you roll out a new edition you have revenue that could be lost (also called lost opportunity cost) as the R&D team stops making DDM (and/or does collateral damage to the DDM franchise if the new edition is a dud) to focus on the new edition; likewise a new line of DnD products could cannibalize your DDM line. (Novels aren’t really ancillary to DnD like DDM is IMHO; but you can just think of DDM in this article as any-DnD-related-product-that-is-not-a-core-product).
Market Saturation Over time sales of your entire line falls. It probably won’t fall to zero but you’re selling less Players Handbooks than you were three years ago and you will be selling less in three years time. A particularly exciting product may goose the sales numbers of your library a bit but over time the market becomes saturated as a second hand marketplace (Amazon) develops and the limited attraction of the hobby prevents much growth.
So you have a demand constraint (the maximum amount of money a given customer is going to spend in a year), Ancillary product lines that could be harmed but also Market Saturation; eventually you need to make a new edition to revitalize your flagging sales but you need to avoid doing it before it’s necessary.
The thing to remember about R&D (from Hasbro’s standpoint) is that they just sit there making money for you. Every 4 to 6 weeks they go through some kind of artistic spasm of creativity and spit out some product (book/figure set/whatever) that is consumed by the market place and lines your pockets with dough. Sure the PhBII sells a bit less than the first PhB but it cost a lot less to make (lower number of staff producing it) and was a much lower risk proposition since it doesn’t threaten your existing library (and, in fact, may complement it). Any losses on the PhB II (or more aptly Races of the Dragon) will be cushioned by the revenue from your existing library.
By the same token it doesn’t matter if the core DnD line’s revenue falls if people are going out to buy the new line of DDM miniatures (carefully constructed to tie in with the monster book you have coming out, and the adventures series you have coming out and so forth). From your suite on the executive level it the spreadsheets tell you all you need to know: R&D team is making you money.
Basically you’re going to want to kill the golden goose and give it to R&D so they can raise up a new goose for you right after its late the last golden egg.
So to alllll the people who want to know when the fourth edition is coming out the answer is as soon as it looks like sales of the new books has fallen so low that the lost opportunity cost of revenue from future new books and future new sales of the existing library is less than the risk adjusted return from sales of a new edition.
More precisely
If R&D wants to release a new edition: When the Hasbro exec, who doesn’t really get the whole DnD thing anyway, is convinced by R&D that the lost opportunity cost of revenue from future new books and future new sales of the existing library is less than the risk adjusted return from releasing a new edition.
OR if R&D doesn’t want to release a new edition: When the sales of the new books has fallen so low that R&D can not convince the Hasbro exec that the lost opportunity cost of revenue from future new books and future new sales of the existing library is more than the risk adjusted return from releasing a new edition.
Sorry this was long but the whole “there’s nothing new to do for DnD now so Hasbro is going to make a new DnD edition” stuff was making me a bit batty. Unlike decisions about which books are going to be made or not (which is internal R&D decisions by people who know a lot more about DnD than your average player) these sorts of major decisions are made by people who don’t know what “base character class” means… let alone have an opinion about whether there are too many of them in the game right now or not.
Thanks for your time.
PS I don’t, haven’t, and never will work for a game company (WotC or otherwise*). I don’t know anyone who does or has. I have no special information on the 4th edition, who assassinated JFK or what really happened on the Apollo 13.
*=Ok. I got some monsters into the CCIII but that’s it.
As before this will be very basic since I’ve got only a simple knowledge of economics & game theory (and won’t involve any numbers which is what a proper economic argument would use).
[This whole thread assumes that WotC is a monopoly and doesn’t talk about OGL or 3rd parties. It also uses a simplified mechanism for distribution (i.e. the customer is buying directly from WotC) since this was long enough already. I've also assumed its a bit like the movie industry, but I dropped most of the analogies 'cause for length as well.]
Decision makers: We’re going to assume the final decision is made by Hasbro executives who aren’t DnD players. This doesn’t mean they hate DnD, or their soulless evil beings, it just means that they won’t be moved by an argument like “there needs to be a new edition because Attacks of Opportunity are too confusing to new players!”
This system is different than the system by which the normal schedule for books is developed… Rich Baker & co. pick different books to develop but I have assumed they don't decide when to do a new edition.
So how do you look at this tiny little segment of your empire? You allocate resources ($) and you look for return. You have basically two areas of your business you can allocate to:
1. Library (A.K.A. a back catalogue of already created and distributed books). You have an existing library of titles (that generate a stream of revenue (i.e. money). The stream itself is small but it’s very profitable (there are no creative costs, just printing, so a PhB printing is by definition cheaper than a new book).
This is like having a library of classic movies; every month X number of people will walk into a movie store (or got to Amazon) and get a version of the movie ‘The Man Who Knew Too Much’. No marketing, no media plan; you put it out in the market and they buy it. This revenue stream requires little maintenance but allocating more than a certain amount of resources is counter productive because it won’t be reflected in higher sales.
2. New titles. New titles are produced by a team of full and contract staff; there are lots of little fiddly bits inside the group (art, developers, designers, editors, etc) but you just call them R&D. They produce books, little boxes of plastic figures, and other stuff in a bewildering array using a process that is completely opaque to you. Somebody (Rich Baker?) briefs you regularly on what they’re doing but, like the movie business, you really can’t predict what you’re going to get. There are only a few hits, some solid performers and the constant thread of duds. A successful new book can provide a nice kicker to the bottom line and cost controls will keep any given dud from making you bleed too much.
Aside: There are a few areas that your market research staff and R&D have identified as value enhancing (books with good art do uniformly better, so you’ve got the best art team in the industry) and a few that you can skimp on without affective sales (editing) but you’ve already developed, or cut, those areas to optimal levels so you’re not getting any more juice out of there. If I were an executive at a big company I would totally use words like ‘juice’ and ‘bleed’.
So its been a few years, you’re running low on your massive print run of some version of this property… its time to “gin up the R&D machine” and blast out a new edition of your hit franchise right?
Uhhh, not quite that simple.
Look again at revenue streams: 1 (the library) and 2 (new products). You’re basically taking all your eggs and putting them into the second category. Sales from the library will dry up and you’ll have no revenue till the new edition comes out. So you’ll have taken what was once a profitable group and made them unprofitable short term for the –chance- of higher profits in the future.
The chance itself is highly debatable but from the executive’s standpoint it’s a unknown.
The rest of this article is going to talk about that -chance-. There are several factors that come into play.
Demand In addition to being finicky and unpredictable consumers many of your customers have finite budgets they can spend on your products. If a given consumer will spend 175-350 USD a year (around 15-30 USD a month) on product then you’re unlikely to capture any more revenue than that, no matter what you do. This is a psychological barrier for most of them (they could skimp on Starbucks latte’s and easily double the amount of money they’re spending) but you haven’t got an idea about how to get them to do that. So it’s a fixed constraint for you.
Ancillary Products R&D doesn’t just make DnD it also handles your other ancillary products, including things like Dungeons and Dragons Miniatures (hereafter DDM). DDM and the core DnD line have a relationship in two ways a) the R&D group makes both b) the brands are strongly linked together in the minds of the consumers c) they are vying for a lot of the same customer dollars. So if you roll out a new edition you have revenue that could be lost (also called lost opportunity cost) as the R&D team stops making DDM (and/or does collateral damage to the DDM franchise if the new edition is a dud) to focus on the new edition; likewise a new line of DnD products could cannibalize your DDM line. (Novels aren’t really ancillary to DnD like DDM is IMHO; but you can just think of DDM in this article as any-DnD-related-product-that-is-not-a-core-product).
Market Saturation Over time sales of your entire line falls. It probably won’t fall to zero but you’re selling less Players Handbooks than you were three years ago and you will be selling less in three years time. A particularly exciting product may goose the sales numbers of your library a bit but over time the market becomes saturated as a second hand marketplace (Amazon) develops and the limited attraction of the hobby prevents much growth.
So you have a demand constraint (the maximum amount of money a given customer is going to spend in a year), Ancillary product lines that could be harmed but also Market Saturation; eventually you need to make a new edition to revitalize your flagging sales but you need to avoid doing it before it’s necessary.
The thing to remember about R&D (from Hasbro’s standpoint) is that they just sit there making money for you. Every 4 to 6 weeks they go through some kind of artistic spasm of creativity and spit out some product (book/figure set/whatever) that is consumed by the market place and lines your pockets with dough. Sure the PhBII sells a bit less than the first PhB but it cost a lot less to make (lower number of staff producing it) and was a much lower risk proposition since it doesn’t threaten your existing library (and, in fact, may complement it). Any losses on the PhB II (or more aptly Races of the Dragon) will be cushioned by the revenue from your existing library.
By the same token it doesn’t matter if the core DnD line’s revenue falls if people are going out to buy the new line of DDM miniatures (carefully constructed to tie in with the monster book you have coming out, and the adventures series you have coming out and so forth). From your suite on the executive level it the spreadsheets tell you all you need to know: R&D team is making you money.
Basically you’re going to want to kill the golden goose and give it to R&D so they can raise up a new goose for you right after its late the last golden egg.
So to alllll the people who want to know when the fourth edition is coming out the answer is as soon as it looks like sales of the new books has fallen so low that the lost opportunity cost of revenue from future new books and future new sales of the existing library is less than the risk adjusted return from sales of a new edition.
More precisely
If R&D wants to release a new edition: When the Hasbro exec, who doesn’t really get the whole DnD thing anyway, is convinced by R&D that the lost opportunity cost of revenue from future new books and future new sales of the existing library is less than the risk adjusted return from releasing a new edition.
OR if R&D doesn’t want to release a new edition: When the sales of the new books has fallen so low that R&D can not convince the Hasbro exec that the lost opportunity cost of revenue from future new books and future new sales of the existing library is more than the risk adjusted return from releasing a new edition.
Sorry this was long but the whole “there’s nothing new to do for DnD now so Hasbro is going to make a new DnD edition” stuff was making me a bit batty. Unlike decisions about which books are going to be made or not (which is internal R&D decisions by people who know a lot more about DnD than your average player) these sorts of major decisions are made by people who don’t know what “base character class” means… let alone have an opinion about whether there are too many of them in the game right now or not.
Thanks for your time.
PS I don’t, haven’t, and never will work for a game company (WotC or otherwise*). I don’t know anyone who does or has. I have no special information on the 4th edition, who assassinated JFK or what really happened on the Apollo 13.
*=Ok. I got some monsters into the CCIII but that’s it.
