Thursday, March 31, 2016

Parasitic Business Models (Tradecraft)

There's a lot of talk about the devaluation of the game trade. Yesterday I was quoted in an article on ICV2 about how Privateer Press wishes to remove those using a parasitic business model to devalue their games. Pretty harsh words, but I agree.

The premise is when a game system becomes too devalued, it gets dropped by brick and mortar, which is the driver of new players of these games. When B&M drops the game, the line loses viability. You have to accept B&M is the driver for this to make any sense to you, and many don't (hint: they're wrong, according to those in the trade).

Here's a Q&A I recently did via email with Forrest from Two Bats Gaming. This applies to Asmodee specifically, but also works for a discussion of Privateer Press or anyone else trying to protect their IP.

Christian Petersen (CEO) and Anton Torres (Marketing Manager of FFG) recently discussed the desire to ward off a potential bubble in board gaming. Do you believe there is a potential bubble, and if so, do you feel that Asmodee's policies will help combat it?

It's interesting they describe the situation as a bubble, but I can see it from that perspective. The problem with board games is a problem with how the game trade operates in general. As retailers, we are rewarded when we order a LOT of product. We get better margins if we do this and by doing so, we're guaranteed the in-store sale while being able to dump product online if we over buy. All up side, no down side, right? When only a few retailers do this, it's not a problem, but when a bunch of retailers do this, usually new retailers, but not always, we have a devaluation problem.

Amazon's algorithms are set not to be outdone by these private sellers (AKA brick and mortar game stores). As retailers dump product, there is a digital race to the bottom, resulting in a lot of product selling for 30-40% off on Amazon, almost all the time. Nobody makes money in this situation, although the retailers who are doing this aren't really losing money either, so it's a win for them and a win for the consumer. The retailer gets rid of overstock. The consumer gets a deal. This works for a while and then the system crashes.

The market becomes saturated with product with retailers attempting to undercut each other. The Amazon pricing algorithm won't be undercut, so it reduces its price. Most brick and mortar stores can't compete against 30-40% off pricing, especially on higher priced items. Sales stall. Discussions are had. Product is moved to ghetto shelves and events are cancelled. That's where X-wing was with us for a while.

That's not even touching on the self inflicted harm many publishers do to themselves, which is a topic for another post.

When these deep discounts become the baseline price in the market, the entire system begins to break down. Those stores who bought too much, selling a bunch locally and dumping the rest online, can no longer sell locally anymore because the price has become too devalued to make the full MSRP sale. Even more stuff ends up being dumped at an even lower price. Eventually, all stores stop buying these products. Because they can't sell it in store, they stop promoting the game or running organized play. Nobody has a chance to make any money on it in-store, including retailers like myself who don't sell online.

You can't talk about online retailers as if they're a separate breed of retailer. Online retailers are mostly brick and mortar retailers who sell online, and they're basically crashing the market for everyone. Restricting who can sell online is stopping this bad behavior, forcing retailers to order appropriately, and allowing brick and mortar stores to once again drive the hobby game industry by introducing games to new consumers. Yes, you might not believe this, but it's acknowledged at all tiers of this industry that brick and mortar stores play a key role in bringing in new customers. So fixing this problem allows stores like mine to continue to run events, sell product, promote the hobby and generally work with Asmodee to achieve our joint goals.

Does this hurt the consumer? Those who buy online will continue to buy online and they'll continue to get a nice discount. But they should understand that this 30-40% off MSRP is not a sustainable model. This is the sign of an industry that is dying. You should instinctively smell blood in the water when you see this. Something is wrong.

A number of shop owners I've spoken to are against Asmodee's decision to force retailers to decide between being a online or a brick & mortar retailer. They state that it is removing their ability to sell slow-moving Asmodee/FFG/DOW product online if it's not leaving the shelves in their shop. Given that you are a supporter of Asmodee's policy changes (as inferred from your blog posts), how would you respond to those owners who are now having a distribution channel shut down? (I understand you're not speaking for Asmodee, just interested in the idea between shop owners).

How do I respond to brick and mortar stores complaining they can't dump slow moving Asmodee product? Retail better. You're doing it wrong. You're hurting the industry. Learn how to run a store properly. Order using forecasting. Stop chasing discount tiers. Use in-store sales to dump what you can't sell. That's how professional stores have operated for over a hundred years. I have no sympathy for these folks, who I consider clowns. There are some prominent retailer clowns who are angry about this. They need to stop being clowns. Step up.

Anton Torres also stated that (paraphrasing) he'd rather see consumers buy one or two games at a higher cost than purchasing a glut of games at a lower price point. Do you agree with his sentiment?

As for buying one or two at a higher cost versus lower, I don't have much of an opinion on this. I think the natural tendency is to maximize your budget to get as much value as possible. I think there's a middle ground where everyone can get what they want. It's not how it has been though. Understand that this is industry death as you see it now.

A large contingency of gamers state they do not have the availability of (or choose not to visit) local game stores. They say their preferred method of deciding what games to buy relies on online reviewers/media. Simply put, from my research I can conclude that a sizable group of gamers are not interacting with FLGS's, and yet the hobby continues to grow. Given that Asmodee's policies will restrict and/or raise the price of a large amount of games (specifically Asmodee/FFG/Days of Wonders products), do you believe that Asmodee's policies are in the best interest of expanding the hobby, with regards to the concept that many new gamers are not entering the hobby through the traditional game store events/promotions/etc?

There is no "raising the price," by attempting to stop gross devaluation of their product. The truth of this issue is those who buy their games online are a minority. They are not capable of sustaining the hobby or acting as gateways for a significant number of new players. Everyone in the industry believes this to be true. I know online only buyers don't like to hear that they're outliers in the community, but sorry, they are. I wish I could give you numbers on this, but what most online only consumers don't understand is they are often buying from brick and mortar stores when they buy online. The true online only stores are an insignificant slice of the pie in the game trade. However, when you add in the brick and mortar stores selling online, the data gets muddled.

Finally, I just want to make it clear that this is not about the end consumer getting things. This is about sustaining an industry that has gotten itself into a nasty mess based on perverse incentives to over consume. The end consumer needs to understand there is a baseline price point that needs to be maintained or the train comes off the rails. The system crashes and nobody gets what they want. The stores stop selling the product. The publisher stops making it and nobody gets cool games.

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