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D&D 4E WotC, DDI, 4E, and Hasbro: Some History

After Vince Calouri was pushed out of Wizards of the Coast he was replaced by Chuck Heubner. Chuck basically had to manage Wizards on the downslope from the Pokemon salad days. Hasbro has been through many boom & bust cycles in the toy business and they have a standard response when it happens: cut headcount and reduce overhead. Since Wizards was de facto the only part of the business that had...

After Vince Calouri was pushed out of Wizards of the Coast he was replaced by Chuck Heubner. Chuck basically had to manage Wizards on the downslope from the Pokemon salad days. Hasbro has been through many boom & bust cycles in the toy business and they have a standard response when it happens: cut headcount and reduce overhead. Since Wizards was de facto the only part of the business that had not been rolled up into Hasbro proper it was not insulated by the successes of other things at Hasbro like GI Joe or Transformers.

While this was happening there was a big internal fight for control over the CCG business within Hasbro. Brian Goldner who was at the time the head of the Boys Toys (i.e. half the company) division of Hasbro thought that the company was missing a huge window of opportunity to follow up Pokemon with a series of mass-market CCGs linked to Hasbro's core brands GI Joe and Transformers. These battles resulted in things being escalated all the way to the C-Suite and the Hasbro Board, where Brian lost the fight and Wizards retained the exclusive ability within Hasbro to make CCGs. The downside for Wizards is that they were forced to do things with the Duelmaster brand that they did not want to do, and it never got the traction in the US that Wizards thought it could achieve. (In Japan, by contrast, it became a huge best-seller).

Chuck left after two years and Loren Greenwood, who had been the long time VP of Sales, replaced him in 2004. He was also a visible proponent of the idea that Wizards, and not Boys Toys, should set Hasbro's CCG strategy. Thus when Brian was named COO of the whole company in 2006 and CEO in 2008, Loren had a big problem on his hands. Loren guided the company through the post 3.5e crash of the TRPG market, the loss of the Pokemon franchise, and the unwinding of the Wizards retail strategy. All of this was pretty bitter fruit for hm since he'd been instrumental in building up much of what had to then be torn down. The combination of all these things led to Loren's exit and his replacement by Greg Leeds, who is the current CEO of Wizards.

Sometime around 2005ish, Hasbro made an internal decision to divide its businesses into two categories. Core brands, which had more than $50 million in annual sales, and had a growth path towards $100 million annual sales, and Non-Core brands, which didn't.

Under Goldner, the Core Brands would be the tentpoles of the company. They would be exploited across a range of media with an eye towards major motion pictures, following the path Transformers had blazed. Goldner saw what happened to Marvel when they re-oriented their company from a publisher of comic books to a brand building factory (their market capitalization increased by something like 2 billion dollars). He wanted to replicate that at Hasbro.

Core Brands would get the financing they requested for development of their businesses (within reason). Non-Core brands would not. They would be allowed to rise & fall with the overall toy market on their own merits without a lot of marketing or development support. In fact, many Non-Core brands would simply be mothballed - allowed to go dormant for some number of years until the company was ready to take them down off the shelf and try to revive them for a new generation of kids.

At the point of the original Hasbro/Wizards merger a fateful decision was made that laid the groundwork for what happened once Greg took over. Instead of focusing Hasbro on the idea that Wizards of the Coast was a single brand, each of the lines of business in Wizards got broken out and reported to Hasbro as a separate entity. This was driven in large part by the fact that the acquisition agreement specified a substantial post-acquisition purchase price adjustment for Wizards' shareholders on the basis of the sales of non-Magic CCGs (i.e. Pokemon).

This came back to haunt Wizards when Hasbro's new Core/Non-Core strategy came into focus. Instead of being able to say "We're a $100+ million brand, keep funding us as we desire", each of the business units inside Wizards had to make that case separately. So the first thing that happened was the contraction you saw when Wizards dropped new game development and became the "D&D and Magic" company. Magic has no problem hitting the "Core" brand bar, but D&D does. It's really a $25-30 million business, especially since Wizards isn't given credit for the licensing revenue of the D&D computer games.

It would have been very easy for Goldner et al to tell Wizards "you're done with D&D, put it on a shelf and we'll bring it back 10 years from now as a multi-media property managed from Rhode Island". There's no way that the D&D business circa 2006 could have supported the kind of staff and overhead that it was used to. Best case would have been a very small staff dedicated to just managing the brand and maybe handling some freelance pool doing minimal adventure content. So this was an existential issue (like "do we exist or not") for the part of Wizards that was connected to D&D. That's something between 50 and 75 people.

Sometime around 2006, the D&D team made a big presentation to the Hasbro senior management on how they could take D&D up to the $50 million level and potentially keep growing it. The core of that plan was a synergistic relationship between the tabletop game and what came to be known as DDI. At the time Hasbro didn't have the rights to do an MMO for D&D, so DDI was the next best thing. The Wizards team produced figures showing that there were millions of people playing D&D and that if they could move a moderate fraction of those people to DDI, they would achieve their revenue goals. Then DDI could be expanded over time and if/when Hasbro recovered the video gaming rights, it could be used as a platform to launch a true D&D MMO, which could take them over $100 million/year.

The DDI pitch was that the 4th Edition would be designed so that it would work best when played with DDI. DDI had a big VTT component of its design that would be the driver of this move to get folks to hybridize their tabletop game with digital tools. Unfortunately, a tragedy struck the DDI team and it never really recovered. The VTT wasn't ready when 4e launched, and the explicit link between 4e and DDI that had been proposed to Hasbro's execs never materialized. The team did a yoeman's effort to make 4e work anyway while the VTT evolved, but they simply couldn't hit the numbers they'd promised selling books alone. The marketplace backlash to 4e didn't help either.

Greg wasn't in the hot seat long enough to really take the blame for the 4e/DDI plan, and Wizards just hired a new exec to be in charge of Sales & Marketing, and Bill Slavicsek who headed RPG R&D left last summer, so the team that committed those numbers to Hasbro are gone. The team that's there now probably doesn't have a blank sheet of paper and an open checkbook, but they also don't have to answer to Hasbro for the promises of the prior regime.

As to their next move? Only time will tell.

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Ryan S. Dancey

Ryan S. Dancey

OGL Architect

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First Post
WotC: Hi.

Developer: Hi.

WotC: We want X, Y & Z for A dollars to be delivered by B time. Can you do it?

Developer: Of course we can! GIMME GIMME GIMME! Yay! We're rich! Whooo!

WotC: Umm... B time has arrived... err... where's our stuff?

Developer: Erm... we spent all that money you gave us on whores and ale... they're very time-consuming activities!
Cheap, fast, good. Pick 2. If you are lucky.

And in case anyone thinks that I am being unfair to 4e about this... remember Fluid and e-Tools? :eek:

Code Monkey eventually got it working, but damn.... WotC does not have a good history there.

The Auld Grump


First Post
It is widely held that both the Red Box and Pathfinder intro set are sold below their cost, on purpose. is this good? It depends on who you ask. Some hold that attracting new players is vital. Others say they learn just fine with core rule books.

We can look at the decision to start a Pathfinder MMO as a separate entity, but with Paizo money, staff, and resources rather than licensing to a different company. For just $100,000 you too can be part of this. Genius or folly? Only time will tell.

Pathfinder beginner box is not a loss leader: [Poll] Are you interested in the Pathfinder Beginner Box as a seperate line? [Archive] - RPGnet Forums

Erik Mona
10-25-2011, 06:55 PM

We plan to make a profit on the Beginner Box. While we have a slightly lower profit margin on this product to keep the costs down and pack as much awesome stuff in there as possible, we are not intending to lose money on it, and are not treating it as a loss leader. Sure, we justified some of the margin we sacrificed by telling ourselves that this will bring more people to our game, but we emphatically do not make products we suspect will lose us money.

--Erik Mona
Paizo Publishing"

Likewise with the 'paizo money'. I don't think Lisa is going to kill the goose that laid golden eggs.


Lisa Stevens (CEO):

"One thing I do want to make clear. Goblinworks won't have any negative impact on Paizo. Separate company. Separate staffs. Paizo is going to stay focused on what we do best which is making awesome pen and paper RPG products. Goblinworks will focus on the MMO. This is just like our relationship with Reaper or WizKids or any other licensor. Now if this is successful, it will impact Paizo is a positive way, which is good. But we won't have a lot of skin in the game. Our money is going back into making awesome products for you guys."
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Eh. I think the best chance at really good electronic tools are an unrelated party that thinks they can produce a fully integrated product that works with today's technologies, which can be used for a large variety of games.

Maybe something that can be hooked up to the kinect and the surface for nearly-in-person games.

Very likely for the purposes of generic board games.

Rogue Agent

First Post
As pointed out in between here and your original post, because it is the gateway brand/drug.

While it's true that D&D continues to occupy that position by virtue of public awareness, I'm not sure we'd actually notice anything if it went away.

The products aren't available in mainstream markets. WotC isn't advertising to non-gamers. There's no value-add happening here in terms of picking up new customers: D&D is currently the game you're most likely to start with because (a) it has the most players and (b) because you might google the name.

D&D will probably maintain that position for a long time if it remains in print. Is Hasbro mothballs the brand, though? The player network will shift (probably in the direction it's already shifting) and the google searches will start pointing people at alternatives.

(Don't get me wrong: I'd love it if WotC was actually reaching out to new players in some meaningful and substantial way. But they aren't.)


First Post
I wonder where these money ended.

Can someone that has experience with this kind of business present us with a plausible scenario?

I mean, don't they exist some progress controlling methods regarding the development of software, especially for projects like that? What is usually happening in practice? It is this matter that puzzles me the most, yet this is not my field of knowledge, at all.

Still what we are talking about here is development of digital tools. Costs can vary so much. Is there some method to control the costs and the progress of the process? The production value of the effort and the actual costs of your investment?

This is my field. (Companies hire me to teach them how to organize and manage software development teams.)

The biggest issue is that software is intangible. It's like the proverbial iceberg; for the 10% of the software you can see, there's 90% more required to make that work. And software development is a huge amount of work. Polished, complete products typically take 5 or more people working for months (at least) or years. Big products take much more than that.

But nobody, not even programmers, are good at estimating how much work software development requires. Remember, it's an iceberg. In one study, 90% of projects took longer than the programmers estimated, even though they updated their estimates as work progressed*. Half of them took more than twice as long. These results are typical.

*http://www.toddlittleweb.com/Papers/Little Cone of Uncertainty.pdf

So even the best-meaning software team has a good chance of taking more than twice as long as their good-faith estimate.

Now for the second-biggest issue. The people hiring software teams don't understand how costly and risky software development is. When they get a schedule estimate, they think of the 10% they can see, and respond, "How it could possibly take so long?" (Remember, this is a reaction to an estimate that's almost certainly too optimistic already.) And then they put pressure on the team to go faster.

Programmers respond to the pressure by cutting corners. Here's the thing, though. The way you cut corners in software development is to be sloppy in the way you design and write source code. But sloppiness creates bugs and makes the source code harder to understand. This is called "technical debt." The net result is that if you do this for more than a handful of weeks, you actually end up taking longer than you would have if you had just tried to keep things clean.

They also respond to the pressure by focusing on the 10% of the code you can see (such as the 3D VTT demo shown when 4e was released) and not the 90% required to make it work for real. This shows progress to the business folks, but creates unrealistic expectations about how long things will actually take.

So here's how honest, well-meaning people create software debacles. This happens all the frikkin' time.

1. Company asks software team for some software, and asks how long it will take, so they can plan their budget, marketing, and so forth.

2. Software team creates an estimate that's 2-4x too low. They think they need 9 months and they actually need 2 years.

3. Company flips out and says 9 months is too long and too expensive. "My nephew could do this in two weeks in his spare time." Demands that the software be done cheaper and quicker.

4. Software team caves and says they'll be done sooner. After all, their estimate is just an educated guess; there's no proof, and maybe they actually will be done sooner.

5. Team works on the 10% people can see first, to establish good will and show progress. It's also the most fun part to write.

6. Company is overjoyed at rapid progress and happily signs checks. "I knew they were sandbagging us with that nine-month estimate."

7. Team starts working on the remaining 90%. Company starts pressuring for more results. "You've already shown us everything working, what's taking so long?" Checks signed less happily.

8. Team takes shortcuts, introduces bugs. Work slows down. Strings company along with increasingly desperate promises of progress.

9. Company gets more and more impatient and eventually demands to see the actual software, not the demo they got over a year ago.

10. Actual software fails in a big, spectacular way. It's riddled with bugs, doesn't work on the public Internet, and completely fails to protect company's IP. Furthermore, the source code is so badly written it's pretty much impossible to recover.

11. Product is cancelled, team fired, and work starts over.

There are ways of preventing this; the set of approaches I use are called "Agile software development," but it's by no means easy and most software teams don't even know they don't know enough.


How much does software teams cost (a usual normal-a usual high)? Are they paid by month?

Depends entiurely on the size of team and delivery contract. The two main methods of payment are time and materials basis (pay each month for the salaries and expenses -- customer eats cost overruns) and fixed price (developer eats costs overruns) with milestone payments (payments made upon reaching specific project delivery points).

For new development with limited requirements and no code basis is almost certainly going to be T&M. No development shop will commit to a confirmed price and milestone payments model because of uncertainties outside their control.

How much will T&M cost? This gets back to the size of the team. Typically, I see 20-30K per month on oversight (program/project management, architectural oversight, customer managment), plus development, documentation, and analysis salaries plus any internal salaries assigned to the project.

Typical bill-out rates are 2x-4x employee salary so a documentation specialist may be billed at $80/hr and receive $30/hr. Senior people especially in solution architecture and development get charged out at in the low thousands per day.

Depending on the engagement, spending over a million a month is notable, but not unheard of. Especially if the client wants it done fast; typically more bodies are thrown at the problem and paradoxically end up slowing the project down (everyone spends more communication and coordination).

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