The D&D Business Model

[Valdur]

D&D is currently run like a movie theatre: They make some profit on ticket sales (core rulebooks) which get you into the theatre. However, most of the profit is in the popcorn, drinks, etc. (supplements) that you buy once you're captive to the theatre (system). Even if most people don't buy the popcorn, the theatre still makes a killing because the profit margin is so high.

The core rulebooks and supplements are complentary--players can be attracted by either the core rules or the supplements. In either case there are a lot of crossover sales, so the supplements helps the core rules sell and vice versa. The core rules make money through quantity, the supplements make money through high proft margins.

This model works well for a lot of businesses. I'm not sure whether this works for RPGs or not. I see two problems: (1) the players (players & GMs) can be overwhelmed by all the optional rules. It becomes cumbersome to play and it splits the market, which is what WoTC has always tried to avoid with CS. (2) it makes players resistent to change. They invested too much time learning all the rules and spent too much $ on the current edition to be willing to change. Even if a better way of doing things has been found.

An alternative is to concentrate on core rules and update them every couple of years. Sell a limited number of high quality supplements that have lots of fluff and coolness but not a lot of crunch. These supplements could be used over multiple editions but of course would be updated with each new edition. That way customers are enticed to buy the latest but don't feel cheated or forced into upgrading.

Not sure which is better.

Re: Random minis --- Random is the way to go. As someone pointed out, it makes inventory easier and prevents people from cherry picking the ones they want. If you try and sell individual minis, you take on a lot of risk as to which ones will be popular and which ones won't. Packaging them eliminates that risk. Baseball cards were very successful with this model and tanked once they started selling specific cards. Magic is another great example of this approach being successful.

Edit: A well designed RPG is not going to have a lot of long term profit potential. Therefore, (as others have said) it's best to diversify and use your good name to get into other toys and hobbies.

 

[mmadsen]

D&D is currently run like a movie theatre: They make some profit on ticket sales (core rulebooks) which get you into the theatre. However, most of the profit is in the popcorn, drinks, etc. (supplements) that you buy once you're captive to the theatre (system). Even if most people don't buy the popcorn, the theatre still makes a killing because the profit margin is so high.

I don't think your analogy holds. The core books are both higher volume and higher margin than the supplements. Their costs are almost entirely fixed -- labor for writing, editing, art, layout, prepping the presses, etc. -- with comparatively small variable costs for printing.

They get most of their revenues through high-volume core products -- and they make even more of their profits through those high-volume products.

 

[Victim]

Yeah, most of the comments we've gotten suggest that corebooks make the most money. But people expect a whole product line, not just corebooks; game lines without supplements are "dead."

 

[Staffan]

Yeah, most of the comments we've gotten suggest that corebooks make the most money. But people expect a whole product line, not just corebooks; game lines without supplements are "dead."

I recall Ryan Dancey describing the entire D&D product line as "advertising for the PHB that pays for itself and hopefully makes a profit too".

 

[Valdur]

I don't think your analogy holds. The core books are both higher volume and higher margin than the supplements. Their costs are almost entirely fixed -- labor for writing, editing, art, layout, prepping the presses, etc. -- with comparatively small variable costs for printing.

They get most of their revenues through high-volume core products -- and they make even more of their profits through those high-volume products.

I think what you meant to say was the costs are sunk costs not fixed costs. Fixed costs are things that remain the same no matter how much you produce. They would apply to everything--core and supplement alike. Sunk costs are costs that you can't get back--like design work on book--the money is gone whether you produce the product or not.

I think you may be right that my analogy is a little extreme, however, I don't think the core rulebooks are as profitable as people seem to think. Creating a new edition takes a lot of work. But give me 24 hours and I can write Monster Manual V and The Completest book of Elves, sans the artwork---- Aquatic Elves-Identical to elves in MM but have webbed feet, live in water. Get +2 swim and spot checks underwater. Wood Elves-identical to elves in MM, but live in woods. Get +2 to spot and move silently in woods. etc. Even Monty Cook wrote a column about how silly the Monster books are. They simply add a slightly different description to an existing creature make a minor change to stats and you have a whole "new" race/monster.

If WoTC is going to maintain a staff of game designers, then it needs to put them to work--either designing supplements, a 4e or a non-D&D product, because after all they are fixed costs--the company has to pay them whether they produce something or not.

 

[mmadsen]

I think what you meant to say was the costs are sunk costs not fixed costs. Fixed costs are things that remain the same no matter how much you produce. They would apply to everything--core and supplement alike. Sunk costs are costs that you can't get back--like design work on book--the money is gone whether you produce the product or not.

No, I meant fixed costs. No matter how many copies they sell, whether one thousand or one million, they need to spend quite a bit up front on fixed costs -- labor for writing, editing, art, layout, prepping the presses, etc. -- with comparatively small variable costs for printing.

Thus, low-volume products might not break even, while high-volume products can make a tremendous profit.

Creating a new edition takes a lot of work. But give me 24 hours and I can write Monster Manual V and The Completest book of Elves, sans the artwork.

That is a valid point. Not all products require comparable investments.

If WoTC is going to maintain a staff of game designers, then it needs to put them to work--either designing supplements, a 4e or a non-D&D product, because after all they are fixed costs--the company has to pay them whether they produce something or not.

The question is, should WoTC should maintain a staff of game designers? Can it justify that kind of overhead?

 

[Valdur]

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[Valdur]

To avoid getting sidetracked into a debate on accounting theory few people here care about, I will go with your interpretation since it's a moot point, for our purposes, how you classify the writing and editing costs.

You contradict yourself on points 1 and point 2. "Not all products require comparable investments". That means that your upfront costs (fixed costs) are not as high for some products, namely supplements. If you keep your fixed costs/investment low and sell the books for more than the core books (as just about all supplements do) then you can make quite a bit of money. It doesn't matter if you sell 10 books at a $5/book profit or 5 books at a $10/book profit, the result is the same. It's possible to up the profit in either scenario but cutting costs or increasing price. Without access to internal numbers, we can only guess at how well WoTC does at this for either the high volume (core) or low volume (supplement) books.

I would take any statement made by Ryan with a grain of salt. He is expressing his own personal view and not the company's.

"The question is, should WoTC should maintain a staff of game designers? Can it justify that kind of overhead?" - mmadsen

Excellent question. I really don't think so. There really is no justification for an RPG company to maintain a large staff of designers unless it is constantly pumping out new and profitable products. If not, then an RPG company should maintain a small number of talented designers on staff to advise management and serve as a nucleus for a larger design team (made up of independent contracters) when the time comes for a major new project. The only potential downside I see is not being able to hire the designers when you need them. In the case of WoTC that shouldn't be a problem given the prestige and financial muscle of the D&D brand.

 

[Anson Caralya]

First, if I ran Wotc as a business, I would minimize resources spent on D&D and increase them on developing other breakthrough games in partnership with Hasbro. I'd be trying to hit the next Pokemon every 3 - 5 years.

Makes sense. I think I'd also throw resources at CRPGs. There have been some big D&D hits over the years, but I think we've barely scratched the surface of the potential.

Second, if I were a D&D shareholder (Greenbay Grognard), I would refocus the energy of my development staff to provide mass-appeal products, almost exclusively. Today, mostly DM focused products are produced. I would provide core rulebooks, and I would be very clear about doing it on a six year cycle. Two years of buzz, two years of development, and two years of exploration.

What do ALL players need to play this game? PC's require the standard rules (PH), Character Sheets, Character Development Options, Miniatures, Campaign Information, and Dice. In the two years of buzz, I would spread out the development and distribution of products such as the three to six core rulebooks, and three to six character development books. During the two years of development, I would launch a COMPLETELY fleshed out campaign. It should include dozens of pregen characters, with different tailored options, personalized minis, color-coded dice. I would market this product set completely differently, providing it essentially for free to DM's. I would include pdf's for download that would detail the what, why, and how behind all design decisions for the adventure path, for the different characters, etc. The primary marketing material would be through providing all the options to the players, with extra cool stuff including character pictures, campaign maps, specific campaign notes, that would all tie in together to the adventure path). I would put time and energy into developing a "fan site" to create and nurture shared experiences, and I would pull people in with "exclusive" events that would be played at conventions. The Adventure Path would be a simultaneous launch with cross-pollenation including books, comic books, computer based games, card games, and a board game (you could play with your kids). I would go to great lengths to tie these products together and offer rewards for brand loyalty. You could obtain information, maps, minis, customized dice, "power ups" for spells and abilities, and one-shot items by doing the "other things". Finally, during the two years of exploration, I would produce a ton of material that pushes the boundaries of the game, and really challenges everyone to think...essentially an extended playtest for the next edition of the game. I would sell of the rights to sub-license all the "existing" core products such as Eberron, FR, Dark Sun, Planescape, Ravenloft, etc. These would be great opportunities for other smaller d20 publishers to grow and develop terrific product and to leverage some of the best brands.

Does this approach have a continuity problem in releasing the campaign world in years 3-4? Where are your adventures in years 1 and 2 set? Hmmm. I suppose the buzz books could be with the last edition's world, then the new world keeps up the interest in years 3-4, so that you stagger the rules and setting resets (not unlike 3E and Eberron, although I don't know if that was intentional).

But my biggest question is what convinces gamers that it's worth living with your 6 year cycle? What's the payoff for making that switch every 6 years?