Tuesday, December 22, 2015

Pray I Don't Alter the Deal Any Further

This week's article was going to be a reflection on the holiday season at the store.  But then some tremendous discussions came up, so I'm going to pivot to those.

One thing that happened was that many days after after last week's article went live, the greater Magic competitive player community noticed it and has had some discussion, at times heated, both on Facebook and on Reddit.  Some players took the article pretty hard in some cases, even though the main body of the post was directed at store owners, not players.   Though everybody is welcome to read these articles, this is a business blog first and foremost.   However, in respect to some genuine perspectives I have heard from players on the topic, I will revisit that in next week's post and perhaps improve on some areas where my message fell short because of poor execution on my part.

But this week I've written about the other big deal that came up in the meanwhile: The Asmodee Group, owners of subsidiaries Days of Wonder and Fantasy Flight Games, dropped a pretty big news bomb on the hobby game trade with an announcement late Thursday, just as most store owners were sitting down for vigil showings of Star Wars: The Force Awakens.  I'll get to the particulars in a moment.

The board game player community pretty much worldwide rose up in furious rancor over the implications of the big news.  I was ready to look at that perspective, addressing why it is going to be better for the players in the long run that Asmodee ripped the band-aid now and fixed the online market.  But then Monday afternoon Asmodee issued a "clarification" that was anything but, that seemed to backpedal on some of the original announcement, and left all parties shaking our heads.

So now for this week's article, I'm just going to try to untangle the mess a bit.

The announcement, first and foremost.  Here is a link to the letter Asmodee sent to distributors and stores (this one linked from GTS Distribution).  Asmodee Group, a subsidiary of Eurazeo (basically the European analogue of Hasbro), is merging its domestic operations with those of subsidiaries Days of Wonder and Fantasy Flight Games, into a new entity called Asmodee North America (ANA).  ANA will headquarter in Minnesota at Fantasy Flight's office, uff da.  And with that consolidation there are some changes coming to the product market:
  • As of 1/1/2016, only five of the thirteen U.S. distributors will be able to resell ANA product;
  • As of 1/1/2016, the Fab Five can only resell ANA product to ANA-authorized retailers;
  • As of 4/1/2016, ANA-authorized retailers cannot sell ANA product online;
  • As of 4/1/2016, ANA will authorize a separate class of authorized online resellers; and
  • The mass-market channel gets handled differently.
Significant changes right there.  A side-effect of the first bullet point is that Days of Wonder will no longer be Alliance-exclusive.  I have a great working relationship with Alliance, but I know some retailers are not fond of them, and they will doubtless cheer this news, where I am largely indifferent to it.

Let's also dispose of one thing right away: It's completely legal for ANA to impose these restrictions, and they could have gone much further, up to and including price-fixing, had they wanted.  This was made possible by the 2006 Supreme Court holding in Leegin v. PSKS, which established that the rule of reason could permit extensive contractual controls in a vertical distribution agreement.  It's not an accident that you pay the same price for an iPhone or a set of PING blue dots regardless of where or how you buy them.  Hadn't you noticed everyone charges the same price for a Playstation/4?  So yes, they can do this.

In case anyone doesn't immediately associate publishers with products, the ANA portfolio is worth about a third of the board game category in the hobby trade.  It includes all games with the Star Wars license, for starters.  It also includes all the Living Card Games such as Android Netrunner and A Game of Thrones.  Fantasy Flight publishes under license all Warhammer products other than the Games Workshop miniatures, from board games to role-playing material.  Days of Wonder is responsible for megahits Ticket to Ride, Five Tribes, and Small World.  Asmodee proper owns a smattering of game studios and has a pretty great signal-to-noise ratio, counting among their offerings the 7 Wonders series, Splendor, Formula D, Mille Bornes, Timeline, and so on.

Some of you may recall in this space not long ago how I stridently called out Fantasy Flight for failing to manage their distribution in order to prevent the gross devaluation of their product.  I am not so arrogant as to think their move was in response to my blandishments, particularly given that this was clearly in the works for much longer and was essentially already done and preparing to launch by the time my article went up.  But it happened, and depending how it is executed, it may have happened just the way I clamored for.  So I am pretty delighted about that possibility.

One of the points I made was that Games Workshop, for example, protects the value of its products by highly restricting online sales.  You can find Warhammer 40K miniatures online any day of the week, including straight from the manufacturer.  But GW sells online at MSRP (and, I'm discovering, offers downright legendary customer service as their value-add to that).  The smattering of small retailers who sell GW product via Amazon and eBay are typically getting it via third-party arrangements and thus can't profit on deep-discounting it.  This keeps the average discount percentage somewhere in the teens, depending when you look and at what product.   That's manageable.  That's parity with small brick-and-mortar retail.  Yeah, everyone knows it's a little cheaper online, but if it's not a big deal, a lot of people will shop local.  Beyond getting the item immediately, there's still a general market preference toward shopping in person; as of 2014, despite the online juggernaut, brick-and-mortar still accounts for more than 90% of all retail sales.  There are the social factors also, which as I've said before is a lever I do not like to tug because I think the value proposition doesn't improve enough from it.  But for some consumers those factors do matter a lot, and I'll gladly deliver on them as best I may.

Contrast the Games Workshop status quo with Fantasy Flight products regularly being chopped 40% or more every day online, from small stores dumping overstock to Amazon all the way up to behemoths like Cool Stuff Inc and Miniature Market running on a razor margin.  Amazon itself doesn't crank the price down until third-party merchants do so first; usually it is content to be the lowest price by mere pennies.

The question, of course, is whether the new ANA policy is going to allow the Cool Stuffs and the Miniature Markets of the trade to continue what they are doing.  It's the whole ballgame, really.  Most of the retailers I've discussed it with aren't confident at all.  And ANA released a clarification email on Monday reassuring players that they'd still be able to buy online, but being vague beyond that.  Great, so are the deep-discounters being cut out of the action or not?  We don't get to know yet.

I give the ANA top brass a little more credit than that, some benefit of the doubt.  It is literally their job to think about these things and figure out the best approach.  If I take them at their word, they intend that small retailers who create community should be able to resell ANA products in-store at list price.  That cannot occur if Star Wars Rebellion debuts in the spring at $99 list and appears online for $54.

As I said before in articles right here, I completely respect that a majority of players shop primarily on price, secondarily on selection, and only after that do other factors come into play.  I'm a married father of three, you gotta I know I grocery shop at Costco and Fry's/Kroger, not Whole Foods.  Price is an extremely strong argument.  Price is often the final word for a commodity item.

So are ANA games commodity items?  A game you take home and play with your family, and never again interact with the greater public or your vendor of choice, certainly behaves in a commodity fashion to some extent.  A miniatures game or living card game (or trading card game, of course) is a different animal.  If there is no playing community, the game sputters out.

I want to emphasize that last point because it has been consistently missed throughout all the gnashing of teeth over the ANA announcement:

If there is no playing community for a miniatures game, LCG, or TCG, the game sputters out.

It doesn't matter how cheaply you got it at that point.  It is now worth zero.  Just ask anyone who owns a bunch of Spellfire cards or Dot Hack Enemy cards or Rivet Wars minis.  Nice bargain.  By the way, CSI gets to keep your money.  Enjoy your worthless stuff.

Wizards of the Coast faced this problem in the late 1990s and early 2000s with Magic.  With game stores struggling to keep up the pace against online deep-discounters, WOTC saw attendance drop, and engagement drop, and sales overall, in the aggregate, decreased.  The gradual implementation and strengthening of the Wizards Play Network system limiting access to product to brick-and-mortar stores and requiring event participation to secure allocations helped address this.  There are many parties gaming this system today, running bare-bones storefronts just sufficient to get product and doing most of their business online in a race to the bottom for razor-thin margins.  Magic runs on pure adrenaline right now, it's so hot... give it a downturn, which by regression to the mean must inevitably occur, and you'll see the Gaming Goats of the world run out of room for error.  Some may survive, others won't.  But the plan to implement controls so that online deep discounting didn't dump the entire value out of a Magic card has largely worked, despite the best efforts of an entire industry to ruin it for ourselves.

A game that requires community to play, needs to be profitable to some extent for retailers to carry, or they just won't carry it.  Where Magic is concerned, players rightly scoff at such an empty threat.  Stores will at least carry Magic for the foreseeable, it just sells too well not to carry.  But with ANA's games, it's another story.  Prominent retailers around the trade were starting to make noise about dropping support for those lines, with players lining up to play X-Wing in the store with ships they all bought online.  Games that had huge money put behind them for store-sale initiatives, like Elysium, stumbled out of the gate and appeared at 45% off list online.  Fantasy Flight's lines in particular were failing to meet minimum turn until we price-matched Amazon starting in November, and only now are they moving at an acceptable rate -- and if our metrics show the net isn't good enough because of the discount, we were prepared to move on to other products.  But now we'll wait and see how this new arrangement works out.

The big complaint on the player side, of course, is that they're angry they won't get product at 47% off anymore.  It's just about money.  Most of the rest of what's being written in those Board Game Geek threads and Reddit comments is just window dressing; it's about money, it's always about money.  And like I said, I understand price-sensitivity.  So I fully respect that a player's concerns may start and end there.

But here's the thing: The 47% off was never the right price.  It was never sustainable, it was never part of the manufacturer's plans for the product or the commercial channels' expectations for the product.  That discount level put that company on a trajectory to come and go and not become evergreen long-term in the hobby.  A lesser discount online, on the other hand, is okay.  It is possible for a healthy ecosystem to exist.  Stores still provide a value proposition that measures up against that for a segment of the player base.  Immediacy, community, tactile value, and so on.  Heck, I'm price-matching larger discounts now, I'd obviously price-match a lesser discount if it made sense for the product line.

Those players who bought online discount every time still aren't going to pay list price.  They never did before, they aren't about to start now.  Store owners must recognize and accept this.  What will happen is going to depend a lot on what ANA does and how they clarify which outlets may sell online.  However, if the net result is that this ends up like the Games Workshop online restrictions, ANA games online will have that average discount percentage somewhere in the teens.  Let's even be generous and say it will be about 20%.

A discount of 20% is not a discount of 40%+ and the customers for that channel are going to be unhappy and vocal about it.  But, and this is a big if... if ANA is right, just like with Games Workshop, they are not going to lose much in the way of sales, and the smaller, sustainable discount will become the "new normal."

Perception goes a long way.  There are typically small or no discounts on toys and games by the likes of LEGO and American Girl.  It's just an accepted part of what those product brands are about.  And that's something ANA wants people to perceive about Asmodee, Days of Wonder, and Fantasy Flight.  ANA doesn't want people thinking their product is worth cost and not a dime more.  They want people thinking their product is of tremendous worth, because of the high production value and the great amount of entertainment it can deliver.  Time will tell if they succeed in this effort.

Well, I guess next week may still not be my holiday retrospective, but wherever you go or whomever you visit this weekend, have a safe and joyous time and be healthy and prosperous.


  1. Very well written article with good accurate info. Thanks for taking the time to do this!

  2. Fabulous article, best on the subject that I've seen so far!

  3. It's been tried before, in some fashion or another, and hasn't worked out. BUT, Asmodee North America has the size, the resources, the catalog breadth, the ability to monitor/enforce, and the sheer market share of hobby games to pull this off successfully, and I am certain we'll all look back on this and agree that it truly did protect the overall sustained growth of this industry. And also, thank you for taking the time to write this article!