Economics of a 4th Edition

Graf said:
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.

Sorry, but no Hasbro executive will try to directly control "Wizards" game division “D&D” sub-division directly, with a small business it might work that way, but Hasbro is a large corporation. That level of micromanagement is just not possible. Just look at the Hasbro financial reports for the last 5 years and you can tell what level of sales Wizards “RPGs” contribute to Hasbro's "game" division.

Until last year RPG games of Wizards was barely commented on. Early on, most of their focus was on the $20+ millions that Wizard's retail outlets (Game Keeper and one other shop) bled out over the years before Wizard's eventually closed. There primary focus has been on Wizard's sales of CCG, which until late last year and thru this year had been doing great. This year DDM products got a mention on how great the sales have been.

Having worked for mid-size and large-size corporations, I wouldn't be surprised if each of their $50 - $100 million product review brief was merely a 1 page slide in a presentation to the senior executives of Hasbro.

The only "Hasbro" executive that "might" have direct influence would be the VP of Hasbro's Game Division; he is responsible for overseeing Milton Bradley, Parker Brothers, Avalon Hill and Wizard's of the Coast. Yet if he is like most senior executive, with "all" the products and services those sub-divisions put on the market every year, his primary concern is watching the overall capital coming in and out of his division at the macro level. As long as each division is getting a good return (sales) on the capital invested by Hasbro for product development, he leaves them alone. If sales decline, well then he replaces the management staff of that group to put fresh ideas to turn the group around.

Therefore IMO it is totally in the hands of the senior staff within WOTC, “RPG D&D” group that will determine "when" 4th edition will be released. Also most importantly it will be to their determent if they wait until sales start declining for them to move on R&D of 4th D&D.

If they wait until sales start declining and don’t rush out 4th edition, then they will be in a bind as capital flowing will be decreasing to pay salaries and other costs for 2+ years. I doubt any of their senior staff would have jobs if Wizard’s RPG group starts bleeding out money for 2+ years. If Wizards wants to do a good job and through testing of “4th Edition D&D”, and release it before sales start to decline in general, then they should start development soon if they haven’t already – if they are aiming for a 2008-2009 release.

Also they have said (I believe it was Charles Ryan) that they would give us at least 1 year of warning before 4th edition was released. That’s one year of sales assuredly dropping as many players will save their money for the forthcoming 4th edition products.
 

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From strictly a mercenary business viewpoint, they would be better off not giving a warning. That would continue the stream of income from purchases of current edition material while preparation for the new edition is done, then bring the new edition out with perhaps 3 months warning, enough time for interviews and such.

People will scream and hate them.....but they will still buy. :(

-KenSeg
gaming since 1978
 

The point about Hasbro being too big to micromanage is valid, so you should probably just change 'Hasbro Exec' to 'WotC Exec'. I'm sure Wizards is thinking about the same issues as they try to figure out how best to make money (and avoid having their budget from Hasbro being cut further).
 

Imruphel said:
Perhaps your analysis needs to take into account a third revenue stream, and supposedly the most important one, sales of the Player's Handbook. This should be separated out from other "back catalogue" sales.
While sales from the PhB are large you don’t really break out revenue streams based on their size… you break them out based on their characteristics. For the purposes of discussing a new edition the 3.5 PhB revenue stream is (except for its size) virtually identical to the stream from the DMG, the MM, the Complete Books, and so on.
(Its not the same in all cases, releasing the Complete Mage is probably positive/neutral for the PhB but could have any number of different effects on the Complete Arcane depending on how complementary/substitutional it’s material is.)
Ok. Substitutional isn’t a word, but it’s the internet… I can just make up new words… right?

glass said:
Why are 'we' going to assume that. All the evidence that we have is that Hasbro is content to leave WotC alone...

You (or ‘one’ if you find my use of pronouns confusing) make an assumption in an economic argument because you have to to get started.
I overtly stated the assumption because it’s the way you go about making a rigorous argument. You’re assumption, that Hasbro isn’t involved in any decisions about DnD at all, isn’t inherently more correct because you want to present it as fact, instead of as an assumption.

I'm unaware of "all this evidence"... the fall of the CCG revenue stream post-Pokemon did, in fact, impact Hasbro's bottom line. And, as I said before, we're talking about an edition change, not selecting the next Eberron book. And edition change has the potential, I think most reasonable people would agree, to change the revenue stream from the Roleplaying R&D division significantly (including the possibility, however remote, of turning the unit unprofitable)

When a division is going to make a sweeping product change that will have an effect it’s the profitability of its entire product line it goes and talks to the people above them in the organizational structure. Those people, by definition, don’t work in the WotC division.

Troll Wizard said:
Having worked for mid-size and large-size corporations, I wouldn't be surprised if each of their $50 - $100 million product review brief was merely a 1 page slide in a presentation to the senior executives of Hasbro.
I don’t recall saying senior executive. Thank you for tossing that straw man up there though.

Troll Wizard said:
The only "Hasbro" executive that "might" have direct influence would be the VP of Hasbro's Game Division; he is responsible for overseeing Milton Bradley, Parker Brothers, Avalon Hill and Wizard's of the Coast. Yet if he is like most senior executive, with "all" the products and services those sub-divisions put on the market every year, his primary concern is watching the overall capital coming in and out of his division at the macro level.

I assure you that when a division wants to make a sweeping change to its product line that may turn handsome profits or could disrupt cash flows and show a loss that would be precisely when the head of the game division (or maybe somebody they’ve designated) would get involved.

This kind of macro-management of product lines and cash flows is a fact of life at most corporations. Since this VP will be responsible for a division that was once profitable becoming unprofitable I assure you that 1) they care 2) if they’re competent they’re involved in the decision and, unless someone more senior is involved, they will be the person who pulls the trigger/greenlights the project/insert-your-favorite-fancy-management-phrase-here.

You may very well have worked at a mid-sized or large-size company and felt like you or your group had a lot of leeway and could do whatever you wanted but I can only suggest that you think of that as being outside the norm. The fate of an entire division’s last 6 weeks (or sometimes 6 months) of work really can depend upon a 30 minute meeting with an executive (read: key decision maker like your VP).

You’re statements about people being fired are almost certainly true, but they aren’t germane to the discussion. You may have experienced situations where somebody just randomly arrived at your office and hired or fired people on a whim, but generally personnel decisions are made by managers who’ve been watching the division.

Troll Wizard said:
If they wait until sales start declining and don’t rush out 4th edition, then they will be in a bind as capital flowing will be decreasing to pay salaries and other costs for 2+ years.
You do realize you’re agreeing with the section entitled Market Saturation, above right?
(I realize it’s a bit long, sorry about that).
 

Graf said:
You (or ‘one’ if you find my use of pronouns confusing) make an assumption in an economic argument because you have to to get started.
One has to make an assumption to get started, but the one in this case was you. The correct pronoun would have been 'I', since you were the one making the assumption. Unless you have royal blood, I suppose, them the 'we' was correct. :p
I overtly stated the assumption because it’s the way you go about making a rigorous argument.
Quite so. You state it because it is part of your argument, and just like any other part of your argument it is subject to criticism.
You’re assumption, that Hasbro isn’t involved in any decisions about DnD at all, isn’t inherently more correct because you want to present it as fact, instead of as an assumption.
I never said it was incontravertable fact, I said there was some evidence: specifically statement from various WotC employees and ex-employees. Conversly there is no evidence that Hasbro management has ever interefered in the running of WotC beyond buying the company in the first place.

I'm not assuming anything. I don't know if WotC or Hasbro will make the decission on future editions, but if I had to pick one on which to base an argument ATM I would pick WotC, as it seems the more likely.


glass.
 
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Graf said:
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.]

Interesting Post with a well thought out hypothetical arguments. However, you give too much credit to intuition and tea-leaf reading in your analysis. A company the size of Hasbro (or even Wizards) will almost certainly engage in substantive (and, unfortuantley for us, propietary) market research that, when done professionally, can identify factors as variable as the the discretionary income in their market sector, or tghe brand loyalty of their existing player base. This is particularly true for an established brand line like D&D where brand reputation is an important incredient in their overall value-mix.

I'd be shocked if such a piece of research does not already exist on Hasbro's shelf right now. Equally shocked if not a couple of people on these boards participated in such a piece of research, albeit unknowingly.

From what we know this is different from the TSR approach that many of us grew up with, where a bunch of (supposedly) smart people got together in a room and tried to divine what the market wanted. One thing about professional research is that it proves 'smart' people's intuition wrong with remarkably regularity. I doubt Hasbro will fall into this trap. The design arguments and the 'fairness' arguments around a new edition always be fair game. However from an economic point of view -- I'm sure that Hasbro's decisions regarding the future marketing of the D&D line will probably end up being correct.
 

glass said:
The correct pronoun would have been 'I', since you were the one making the assumption. Unless you have royal blood, I suppose, them the 'we' was correct.
Sorry my use of pronouns is so objectionable to you. In an attempt to help you get over your bias I hope you will enjoy my, excuse me, our following post.[/random smiley face]

nothing to see here said:
However, you give too much credit to intuition and tea-leaf reading in your analysis. A company the size of Hasbro (or even Wizards) will almost certainly engage in substantive (and, unfortuantley for us, propietary) market research that, when done professionally, can identify factors as variable as the the discretionary income in their market sector, or tghe brand loyalty of their existing player base. This is particularly true for an established brand line like D&D where brand reputation is an important incredient in their overall value-mix.

<snip>

One thing about professional research is that it proves 'smart' people's intuition wrong with remarkably regularity. I doubt Hasbro will fall into this trap.
When WotC was developing 3e they first began to use marketing surveys (at least according to an article by Charles Ryan talking about that time period)… we might assume they continue to use these surveys now.

To our mind marketing surveys are tricky creatures. In the ideal world they would allow us to perfectly map the psyche of a given group of people. We feel that the reality is a bit more complex.

For example one could reasonably create a marketing survey about the need for a PHB II, basically you could talk about the kinds of things people want in a book (more base classes, more feats) as well as ask marketing topics (“If you had to evaluate the attractiveness of a new DnD book based only on the title what would you think of: a) Players Handbook Reloaded, b) Players Handbook Advanced, c) Players Handbook: Total Pwnage, etc.

(The following underlined sections constitute an assumption; if reading other people’s assumptions cause you to well up with bile and hatred we suggest you skip those bits)
If we assume that DnD will have a new edition put out at some point then I think it would be very difficult to create an effective marketing survey about when and how to release the new edition. With 3e there –was- going to be a new edition. It was a fact. So the research could be targeted at very specific areas: what parts of DnD do you like the most, when you play a game how much time do you spend on combat (and do you think it is a) too much b) too little c)just right).
Most of the “tea leaf reading” that I think would be involved in that isn’t really going to be reduced by having a marketing study done. Asking about problem areas (i.e. grappling rules, etc) or areas of frustration would, of course, greatly help in development of said book but the broader marketing reaction would be a lot more difficult to grasp.

If you ask people point blank “would you buy a new edition of DnD” would provide a Yes/No kind of answer but you’ll run into trouble with preconceived notions about what a “new edition” means. Asking indirectly would get you a very interesting and complex can of worms; far more so than when WotC used marketing surveys to assist in the development of 3e.
The biggest one is that a lot of DnD consumers are concerned that an edition change has caused their books to be outdated (as it has in the past… I recently junked my 3.0 phb for example).
I, sorry, we think that you’d have a very difficult time working up a marketing survey that could get the DnD consuming population to give you quantifiable answers about their need for a new edition relative to an old edition.

Hypothetically if there was a new grapple rule where [improved grapple was touch attack -> strength save (fortitude save mortified by your strength bonus) OR an Escape Artist Check vs DC = to 10 + the creatures HD/2 + str bonus + racial grapple bonus] and you wanted to find out whether that rule would encourage someone to buy a new edition (its simpler than the current system) or not (its not like DnD, its hard to understand, etc) how would you execute that as a marketing survey?
You can’t cold call people (too few people play DnD), write-in and internet servys are unrealable.
As a lot of people buy books from Amazon now having survey people stake out rpg shops would be difficult; even if you could corner “DnD players” to do a face to face or paper survey the number of people who could understand the difference between the new rule and the old rule and give you an-on-the-spot-answer is very low.
You can get around that by asking “would you like the grapple rules to be simpler and easier to understand?” but that’s just going to generate a bunch of “Yes” answers without answering the “when/how should we create a new edition?” question.

It’s always tea leaf reading; the difference is how you’re looking at the leaves.

nothing to see here said:
The design arguments and the 'fairness' arguments around a new edition always be fair game. However from an economic point of view -- I'm sure that Hasbro's decisions regarding the future marketing of the D&D line will probably end up being correct.
Almost impossible to prove, since, unless things go tremendously well or tremendously poorly it won’t be clear what the lost opportunity cost was.

Personally I do agree that WotC’s current pattern of behavior seems economically sound.
The current behavior being: hint about an extra edition, release news articles aggressively attacking “damaged” parts of the rules, and prep a new edition while continuing to release materials for the current one is correct because it allows them to do both. Once sales fall they can launch a new edition relatively quickly, but still enjoy much of the revenue stream from prolonging the game now with new supplements as well as “compellation books” (Spell Compendium, etc)
 

The point of the prior post is basically just to say that at the end some exec at Hasbro (someone has suggested VP of their Game decision) will greenlight or postpone a new edition based on staring at the tea leaves (sales numbers, marketing surveys, R&D recommendations) and making a decision.
 

Some random thoughts. I think Wizards is a little gun-shy after 3.5e. I don't think they anticipated what happened.

I think they expected it to work like Magic, where even when they release a new edition, people still use and play with material from the old edition, incorporating new rules and errata. Instead, I think the wholesale switchover from 3.0 to 3.5, rendering all 3.0 material essentially worthless, caught them by surprise.

So I think they'll be a bit more cautious when it comes to 4.0, perhaps erring on the side of later, rather than earlier.
 

Whisper72 said:
A new and improved PHB, including all the new feats, new spells etc. New classes and prestige classes, which makes it such that a player needs only one massive book in which they can find all they'd ever need (sorta...), could be such a product. Tweaking some rules a bit here and there, but not massively changing things.

You know, that's about the first sane thing I've heard anyone say about '4E' in a long time. GURPS did this to good effect, with the Compedium 1 and 2 collections. The collected all the new skills, powers, advantages, disadvantages from all the sourcebooks and put them in one book. Now, that would be a bit more prolematic for D&D because there is so much of it, but you could easily do such a thing and it really would not hurt the sales of the other (GM-oriented) books very much at all - or so it seems to me, at least. I would actually think about buying such a book, because it would put all the stuff I'd need as a player in one place.

You know what else I'd put in such a book (and was surprised was not in the PHB2)? The erratta and a condensed FAQ.
 

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