How profitable is DDI to WotC?

[BryonD]

Unusual things get mentioned in financial reports, even if they're not that much in dollar value.

Can you provide an example of what you are talking about?


Are you saying that they put financially irrelevant items in financial reports? Or are you saying that it was financially relevant but just didn't have a big existing dollar value? (for example, they spent little so far, but had anticipated big revenue in the future, now they are no longer anticipating that value.)

Just as with the whole "what do 4E sales look like?" conversations, there seems to be a desperate attempt to insist that just because there are remote alternatives, the overwhelmingly likely explanation is not only not "likely" but is not more reasonable an expectation than the long shots.

Now, it is certainly possible that, as Morrus suggests, it may have been outsourced with the financial risk on the vendor. (Just to be picky, that doesn't mean it cost any less, that just means someone other than WotC got burned.) But 1) if that was the case we are back to it being highly unlikely that it would be mentioned in the financial report and (probably more importantly) 2) the vendor would still own all the code because WotC never bought it. It would be worthless because of the IP associated with it. But it would be very out of character for WotC to leave that kind of information under the ownership of a third party.

 

[Fifth Element]

Are you saying that they put financially irrelevant items in financial reports?

Not at all; my comments are very specific to the post I was responding to. That post said that since this cost was mentioned in a financial report and D&D revenues (which should be the largest dollar amount related to the line) aren't even normally mentioned, then the cost must have been very large indeed. That's not necessarily true.

Ultimately it's a conjecture about numbers which we don't have and will never have. I'd love to do some financial analysis on D&D, but we'll never have access to that information.

Can anyone have a link to the mention we're talking about in the first place? I've been taking it as a given but wouldn't mind seeing the context.

 

[Fifth Element]

Something has to be both unusual and material in size to get mentioned. It is extraordinarily unlikely something less than say 1% of total profit for the business unit would be mentioned as a factor in performance. In fact, the threshold is usually higher than that.

Indeed; so what was the profit from the D&D line so we can take 1% of it (or 5% or 10% which are more usual materiality numbers related to profit)? We don't know. The profit could have been exceptionally low for the year in question for all we know. Maybe they even lost money (possibly due to the cost we're talking about). We don't know. Materiality is relative, and we have nothing to relate it to.

 

[Nagol]

Indeed; so what was the profit from the D&D line so we can take 1% of it (or 5% or 10% which are more usual materiality numbers related to profit)? We don't know. The profit could have been exceptionally low for the year in question for all we know. Maybe they even lost money (possibly due to the cost we're talking about). We don't know. Materiality is relative, and we have nothing to relate it to.

It wouldn't be for the D&D line; it would be for the business unit -- U.S. and Canada.

Here's a link to the HASBRO annual report. Page 24 and 25 mention the online initiaitve.

 

[Fifth Element]

Thanks for the link.

So the actual quotes are (unless I'm missing something):

"The increase in gross profit in dollars was more than offset by increased product development and sales and marketing expenses related to investments the Company is making in both core brands and its digital initiative related to its Wizards of the Coast subsidiary; increased amortization as a result of the acquisition of Cranium and the purchase of intellectual property rights related to TRIVIAL PURSUIT; increased royalty expense; and increased shipping and distribution costs, reflecting higher sales volume and higher transportation costs."

This includes increased spending on WotC core brands and digitial initiaves as one of many things that offset the dollar increase in gross profit. So not only does this not separate the digital investment from the print one, and doesn't separate marketing expenses from development expenses, and doesn't even give us a dollar amount, it only reflects an increase in spending over the prior year (the context of the discussion), not necessarily an increase over the expected spending for the current year.

"Operating profit was also negatively impacted by higher advertising expense as well as higher selling and distribution costs related to the increased sales volume. In addition, U.S. and Canada operating profit included increased investment spending in an online initiative of the Company’s Wizards of the Coast operation."

This one at least singles out the online stuff, but again lists it as one of many factors that impact net income for the year, doesn't give a dollar amount and again only shows an increased spending over the year before, not necessarily spending in excess of expectations.

There's really nothing here we can use to draw any sort of conclusions from. They simply don't break the numbers down in enough detail, because for Hasbro as a whole it's a small amount. Basing conjectures on passing references such as these is as valid as just making things up. They give us nothing to go on.

 

[BryonD]

There's really nothing here we can use to draw any sort of conclusions from. They simply don't break the numbers down in enough detail, because for Hasbro as a whole it's a small amount. Basing conjectures on passing references such as these is as valid as just making things up. They give us nothing to go on.

You specifically use the word "nothing" twice. And yet there IS something, there is the fact that of all the financial transactions, great and small, which Hasbro manages this one was deemed worthy of calling out.

There is "nothing quantitative". But you are trying to mutter that last word under your breath and leave the false impression that there is "nothing".

You suggested it was entirely reasonable to suspect that the issue may be "not that much in dollar value". "Not that much" is a qualitative assessment, not a quantitative assessment. We know that whoever wrote and reviewed this document deemed it worthy of calling out.

I honestly think you have a degree of truth to your point. But you are way way overplaying your hand on it.

 

[Fifth Element]

They do tell us something: that spending on WotC core brands and digital initiatives was higher than the year before. They don't tell us how much more, or whether it matched what they had budgeted, just that it was more.

What can we infer from this, as it applies to D&D? Nothing. Not "nothing quantitative", just nothing. They don't even mention D&D specifically, so for all we know nearly all the spending was for Magic or another WotC brand. That seems unlikely, but we just don't know.

There are no reasonable inferences that can be made from the passing comments in the reports. What inference do you think can be drawn from them about D&D, considering that D&D wasn't even mentioned in the comments?

 

[Matt James]

Taking the rare opportunity to answer the OP's question.

How profitable is DDI to WotC?

No one on EN World (that replies to this thread) knows.

 

[Fifth Element]

No one on EN World (that replies to this thread) knows.

That's what I'm saying, but you're much more succinct.

 

[Dannager]

They don't even mention D&D specifically, so for all we know nearly all the spending was for Magic or another WotC brand. That seems unlikely, but we just don't know.

Good point. M:tG has had its own digital projects over the last few years. It's easy to forget that WotC has other brands evolving into the digital frontier.