Working in another niche industry as a model railroading manufacturer, I can tell you that the vast majority of the consumers have no idea how the business behind the scenes of their hobby works.
RPGs, like model railroading, is a cash-poor business. Each project is paid largely by the success of earlier projects. One or two poor performing projects can bankrupt a company. This is vastly different when you have a marketable brand, because the licensing fees generate cash-flow to help fund the projects.
Look at say, the 5th Ed PHB. As a company you have to pay for your staff, your utilities, on a daily basis producing this product. No money is being generated by that product right now, and in most industries the vast majority of your sales of any given product (usually 60-90%) are in the first year of that product's release. The core rule books probably are on the low end of that, but the prior projects that are paying the bills have that trajectory.
So, after the years of development, you're ready to go to press. You've already paid out tens, if not hundreds of thousands of dollars in development (a % of your payroll, real estate, utilities, insurance, not to mention advertising, etc.). Now you have to pay for publishing. I don't know if it's an exact match to production of a model train, but usually you're paying part up front, and part on delivery. How much does it cost to print a PHB?
Back in the day books had a 40% margin for the book store, perhaps it's 20% for a large store now (like B&N) and 10% for a gaming store. Amazon probably pays distributor price and still wants to make a small profit on the book, and $30 is 40% off so that's a reasonable assumption. WotC needs to make some money on their investment, so we'll say they simply double their cost, making the cost to WotC $15/book.
How many books in a print run? 100,000? That's a nice $1.5 million in printing costs paid out with no revenue for the project yet. Not including all of those other costs associated with the project up to this point. Once they start getting paid by their dealers and distributors they stand to make $1.5 million at that sort of markup, minus all of the prior costs, continuing advertising and marketing, etc.
The bigger the company, the bigger the bucket of money at the end, but it's also a huge amount to risk on a single project. Publishing more books can produce more cash-flow, or it can tie up your money (and lose cash-flow) just, if not more, easily. WotC owns D&D because TSR landed on the other end of that equation.
For TSR projects were often losing money before they even hit the market, and the return of unsold products pretty much sealed their fate, made worse by the number of unique products they had. A 10%+ return on a single product is really tough on your cash-flow and budget. But 10%+ each on several dozen products ends a company. And from what I've read, returns were extremely high at the time.
RPGs are a niche market, but over the long run are most likely to be non- to moderately profitable for a small company focused on a small market (Paizo), to break even on 'core product' for a large company with profitability achieved through licensing deals (WotC/Hasbro).
Development and funding for a video game (Neverwinter Nights) pays off because the audience is much larger, and it's a product you can monetize in many ways. Digital tools, which will be a niche product within a niche product, is very hard to make profitable.
Doing it in-house is expensive. Not only are you going through the same sort of development, you probably can't charge much for the end product. Plus there's the endless development and support cycle as new content and features are added. The online approach helps because you don't have to develop for multiple (changing) platforms, but there are still multiple browsers to contend with and they continue to evolve as well.
For WotC, outsourcing is a much better option. They don't have to cover as many, if any, of the costs. But it's much harder for the developer. Being able to meet deadlines, and usually licensing fee payments (because they are often paid up front, at least in part) can be a big challenge.
I do agree that pdf's are an option that's helpful. I think the big thing here is trying to find your price point and feature set so you don't cannibalize your hard copy sales. Would people be happy with a $15 pdf? If you're SRP on a hard copy is $50, how many sales will you lose to a $10 or $15 pdf? Yes, printing is a big chunk of your production costs, but it's not the only one.
So the T-shirts, video games, posters, or whatever other licensed product they can sell are a huge help. And many of those generate much bigger profits than the game itself. I also wonder how much of those profits come back to WotC itself for more development. I think that in this case, for the brand to flourish, the game itself is very important. But that's not always the case. Star Wars generates way more profits on merchandising than the movies ever did. And while they get a big bump when a new movie comes out, they'd be making millions whether another movie was ever made or not.
To me, WotC exists very much in the same manner as any given retail store of a large retail company. Pick one - Staples, Best Buy, Wal Mart, whatever. Each store has to be self-sufficient in terms of sales. A portion of those sales goes to the corporate umbrella. As long as WotC is not only generating income for Hasbro, but is also generating enough to remain self-sufficient, it's a viable product. That can be a very good place to be - you have the backing of a huge corporation for advertising, merchandising, and distribution channels, but a small company in charge of the actual research, development, and product design. But each year you have to be able to generate an increase. Sales should be on an upwards trajectory, and costs should remain fixed or be dropping. Those are tough orders in today's economy. And established brands and products tend to plateau. That's good for projections, not great for growth.
As much as I'd like to see some high quality digital tools, it's an extremely hard niche for WotC to find a way to justify the cost in time and money. Ideally it would make some money, but I think that something that truly breaks even would work too if it doesn't put a drain on people resources from other projects.
Ilbranteloth
