OnyxPharaoh
First Post
I certainly agree.
And selling investors on a small roleplaying company would require an incredibly slick seller.
Gaming industry economics, essay discussion, HELP!
- Thread starter Longtooth Studios
- Start date
I certainly agree.
And selling investors on a small roleplaying company would require an incredibly slick seller.
OnyxPharaoh
First Post
I agree on both counts. Which is why I think the marketing models most companies in the industry currently use are flawed. Rather than attempting to capture the existing limited market, they should focus their efforts on expanding the market and draw in more consumers.
The industry needs to stop hunting and gathering and start farming.
Your conclusion is absolutly on the money. In fact we can only assume it because investors aren't lining up to throw money at it.
But without being able to examine those private companies' financial records, it is hard to determine why they aren't providing a decent return.
It could be that the market is so small and heavily saturated that profits are constantly dwindling. But it could just as easily be that the money isn't being used efficiently. Maybe the companies are borrowing more than they can pay back in a reasonable amount of time. It might just be poor management and an inability to manage the costs of publication and distribution. Who knows. It's a total mystery right now because private companies do not have to publicly disclose financial documents...making analysis nearly impossible.
The largest benefit is retention of control. If the company goes public then there is no control over who your shareholders are. Even if you have a large company with thousands of shareholders, they still elect the board of directors, and the directors are going to set the policies and the goals for the company. These goals may conflict with the creative developers goals and designs for a particluar product line.
So I think the reason most companies don't go public is because they might be forced to sacrafice creative license for financial stability. It can be a very emotionally expensive tradeoff.
But WOTC wasn't public. But the private company was bought by a publicly traded company to the tune of millions. They would have been foolish not to sell. But they became public in the process.
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Yes, but that is more a problem of marketing than game design and development. Marketing on the required scale typically requires large amounts of money.
It would be hard, if we considered them in a vacuum. In the context of a world where print publishing has been problematic for the past decade, with one of the major retailers in the business (Borders) shuffling off this mortal coil, it should be fairly obvious.
Profit margins on print products have been small for quite some time - print costs keep rising, and distribution eats a large chunk of your gross income. Add on top of that the known issues of niche markets, and it seems more than sufficient to explain the observed behaviors.
OnyxPharaoh
First Post
Absolutely. But it is an industry wide concern. So why there aren't any trade or industry organizations focusing resources on this problem is beyond me. I would think GAMA or GENCON would be in a strong position to support these initiatives.
Print publishing has not been problematic at all. In fact, the cost of print publishing has been falling over the last decade. Where once you would require hundreds of thousands of dollars in capital equipment to produce a large run of books, you can now accomplish this same feat with tens of thousands of dollars.
The spread of print-on-demand publishing has only made this cheaper. By not requiring publishers to maintain large quantities of idle inventory they can now customize their production to their existing sales and use that idle cash to grow.
These are just two of the advances that have increased the profit margins of publishers and distributors of print material.
But you do make a good point. Some print retailers have been having significant problems. But the only ones who are hurting are those who have failed to adapt to new methods of distribution. Borders has indeed fallen fast. But this fall is a result of poor management and corporate direction. Barnes and Nobles is still in the game, and Amazon is of course the industry's shining star.
Again, just to reiterate, print costs have been dropping as have inventory costs. And the only profit margins that have ever been small are those of the print retailers. Publishers and even most distributors have maintained healthy margins.
They're only in a strong position if they have extra funds to throw at the problem. GAMA's for games in general, not RPG's in specific, so they're only in a position to throw money at the problem proportional to the RPG representation in the organization. And GenCon makes money off.. a convention, in an era when travel, hotel, and space costs are ever-rising. Note how the expansion of GenCon failed a couple years ago? I don't expect either has $$ to spare.
Publishing is more than printing. As I understand it, cost of the printing (speaking about books very broadly) is typically about 10% of the cover price of a book. The Retailer takes bout 45% (which pays the salaries of the retailer's employees, etc). The wholesaler about 10%, and paying the content creator about 15%. That's 80% of the cover price right there. The remaining 20% has to cover all the pre-production work, the marketing, and whatever profit the publisher's going to make on the deal.
And that's for real mass-market stuff, where the print runs are large. Costs per copy go up as the print run size drops - and gaming's a niche market, so print runs are relatively small.
In theory. Everyone says how Print-On-Demand has revolutionized things. But that sounds more like marketing spin trying to sell PoD than reality. I haven't seen anyone ponying up specific success stories around it, much less breakdowns of how overall costs have actually dropped.
Borders has been known to be on the rocks for years. That's not "fast" in my book. When they are one of the only two major chains out there, that's not something you can toss aside with a shrug of "bad business".
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A few secondary concerns:
1) I think your analysis should include a discussion of non-TTRPG competition. Many people compare D&D to WoW and I imagine the cross-elasticity of TTRPGs and Digital RPGS is fairly high. Not a lot of industries (outside of entertainment) face the same issue of ready substitutes.
2) The best point buried deep upthread is that you have to have a line of products to be financially successful. Or, more generally, you have to be able to produce something "far" into the future. The upfront costs of both time and money are too large for there not to be a long-run payoff even for the most dedicated hobbyists.
I imagine this was the issue for many of the d20 companies in the early 2000s; they started with their best idea (highest value product) but didn't continue to produce good products after that.
3) Regarding advertising, the most valuable thing WotC owns is the brand. Yes, the intellectual property is valuable over the mid-term (10 years), but D&D is where the value is at. This affects advertising since people don't have to have D&D explained to them--instead, they have to have what D&D is doing now explained to them. This also creates a significant barrier to entry.
4) Someone mentioned the *new* industry spawning idea and the point was made that it would have to be entirely new type of product. I think the TTRPG industry only faces incremental changes. The *new* industry is now all grown up and now overshadows D&D: MMORPGs. The person on the street recognizes WoW far more readily than D&D, specifically for the target audience of middle class 18-35 year olds.
1) I think your analysis should include a discussion of non-TTRPG competition. Many people compare D&D to WoW and I imagine the cross-elasticity of TTRPGs and Digital RPGS is fairly high. Not a lot of industries (outside of entertainment) face the same issue of ready substitutes.
2) The best point buried deep upthread is that you have to have a line of products to be financially successful. Or, more generally, you have to be able to produce something "far" into the future. The upfront costs of both time and money are too large for there not to be a long-run payoff even for the most dedicated hobbyists.
I imagine this was the issue for many of the d20 companies in the early 2000s; they started with their best idea (highest value product) but didn't continue to produce good products after that.
3) Regarding advertising, the most valuable thing WotC owns is the brand. Yes, the intellectual property is valuable over the mid-term (10 years), but D&D is where the value is at. This affects advertising since people don't have to have D&D explained to them--instead, they have to have what D&D is doing now explained to them. This also creates a significant barrier to entry.
4) Someone mentioned the *new* industry spawning idea and the point was made that it would have to be entirely new type of product. I think the TTRPG industry only faces incremental changes. The *new* industry is now all grown up and now overshadows D&D: MMORPGs. The person on the street recognizes WoW far more readily than D&D, specifically for the target audience of middle class 18-35 year olds.
Is this cross-elasticity symmetrical or highly asymmetrical?
In the highly asymmetrical case, it could be highly inelastic in one direction while being highly elastic in the reverse direction.
OnyxPharaoh
First Post
I was refering more to the qualitative advantages these two organizations possess by straddeling the line between producers and consumers. Their combined reach in terms of driving market growing initiatives would be an advantage that individual producers of games cannot achieve alone.
Bringing me back to my original point that current business models are not condusive to a healthy gaming company. If you can't achieve economies of scale then don't attempt it. If your margin is low, you have to reorganize your company in a way that will increase them.
When it comes to economies of scale, print on demand is still lacking. If you are running millions of books then POD doesn't compare to offset printing. But if you are a small publisher looking to do thousands of books, then POD is hands down the way to go. Your biggest money saving feature in POD is shallow inventory.
When a company has their book printed they have to invest a certain amount of cash ahead of time to print a contracted number of books. This money is now gone and can't be recovered until the books are sold. But if the books don't sell then you are just
out of luck. You sell the books at a loss or use them for furnitureWith POD you never have this idle cash sitting around in the form of invetory. So now you're money can be invested in assets that are going to produce an actual return for your company like marketing or another product line. Costs for the development of the project are recovered quicker because you don't have the added costs of idle inventory. For small companies this is an incredibly powerful advantage.
In one quarter Border's stock managed to drop 94.7%. That's fast in my book. And actually Borders is one of four major book retailers in the United States joined by Amazon, Barnes and Nobles, and Books-a-Million.
Okay, yes, then I'd say it was a fair statement. But they'd still need money to back the activity, and some folks with serious heads for marketing.
The only place where the only thing between you and better profit margin is organization is in financial derivatives. If you produce real products, you face real physical limitations, so that there's a limit to how much you can do with reorganization.
That's the difference between being "on the ropes" and being "down for the count". In this last quarter, Borders finally found itself in a financial position it could no longer dodge with respect to its debt. Until then, there was still hope, but the trouble was still quite evident.
Amazon is not in the same category ("chain"), as they don't have brick-and-mortar stores. Books-a-million looks to be small by comparison: B&N has over 700 locations and 600+ college bookstores, and some 40,000 employees. Borders had at the beginning of 2010 some 500+ locations, and nearly 20,000 employees. Books-a-Million has 200 or so locations, and more like 5500 employees.
Books-a-Million may be a great company, but it doesn't appear to be in the same league at this time.
OnyxPharaoh
First Post
Absolutely. And a charismatic leader who could convince rpg companies to increase their dues and fees to fund these projects wouldn't hurt either.
This is absolutely not the case. Derivatives are designed to hedge against variable future outcomes, but as for turning a profit, it's highly speculative and exceptionally risky.
Manufacturers have a variety of means at their disposal in terms of generating their returns. A key measurement is their return on assets. How much profit are they generating with the assets they have. This is typically the first area of improvement. And again, there are a variety of ways in which this can be done, first and foremost is inventory management.
But as with limitations on reorganization, I'm sure there is a theoretical limitations on the number of ways these profits can be maximized within this industry. But we can't assume that all businessmen are created equal. Companies are rarely victims of circumstance. More often companies are victims of the people controlling the operations. The question is, are the people running these RPG companies the best people for the job, or are most of them excellent game designers without any real practical business education? It's hard to say, because as we all know, few are public. Without a sound financial analysis we may never know the answers.
This is just irrelevant. If you are selling spark plugs in a store and I am selling them online, we are competing with each other. There is no business law that states the nature of distribution will dictate whether or not two companies are competing. Borders and Amazon are both in the business of media retail.
Books-a-Million may not be a household name like Barnes and Nobles or Amazon, but at the moment their performance is putting B&N to shame. Their net income exceeded B&N by nearly $50 Million at the close of 2010 and their OM beat B&N by nearly 4.5%. What B&N is showing is that for all it's assets and thousands of employees they can't turn a profit as well as this smaller outfit.
B&N's biggest problem seems to be its inabillity to manage its recievables. (Yet another place a company can reorganize its policies and better manage its assets.)
I'm getting off topic though. The point I was going to make was that while BAMM may not be in the same 'league', they are in the same industry. Which means if B&N doesn't put their house in order it will only be a matter of time before investors start looking at alternatives like BAMM.
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