A BUSINESS MAN, A BUSINESS PLAN
By S. Craig Taylor, Jr.
Lost Battalion Games
July 9, 2003
In the seven weeks since we opened our electronic doors, we have received numerous inquiries regarding what stores carry our (only product to date) BATTLELINES™ game. The honest answer is: not very many. So far, we have failed to seal a deal with far more retailers than those to whom we have actually sold games. This is not because our marketing guru, John Caskey, is a bad salesman; far from it, this is merely a reflection of our unusual business model. There is a method to our madness. In our years in the gaming business, we have learned a number of lessons that we applied when we established LOST BATTALION GAMES. These lessons have been hard earned and are incorporated into our business philosophy.
First, quality sells. We want our games to be attractive and have high quality components and we want them to be good games. Every publisher wants these things but all these qualities require extra time, care, effort and expense. Make no mistake about this. If a game “works,” no matter what its topic, minor flaws or lack of component quality, somebody somewhere will think that it is the best thing since sliced bread. If a game “works” and is a fun, quality game, this is even better and sales can be good. On the other hand, if there is any demand for incomplete or unworkable games, we’ve never seen it. This is a simple idea but there are an amazing number of game executives who can’t understand it, especially in the electronics games industry. Imperfect game after unfinished game gets released to meet arbitrary budgets and time frames or to match the appearance of pre-placed print advertising.
Second, once the concept of quality is grasped, price is what sells. If the price is lower, more of a given game can be sold than if it is offered at a higher price. Unfortunately, with a traditional business model, a game’s price is established by the cost of its components multiplied times a markup. A game’s markup has to be large enough not only to pay for expenses like warehousing, salaries, royalties, taxes, etc., but has to be large enough to pay for those things after discounting the game to distributors and retailers, who have their own legitimate expenses. The discount structure in the manual game business was set decades ago by mass market game companies such as Parker Brothers and Milton Bradley and, for electronic games, by electronic companies selling mass market software. Publishers wishing to release their games through stores sell their product for 40 to 60 percent of the suggested retail price.
Now, consider this financial nightmare. You spend the time and money designing, play testing and developing a game. Then you pay to print it, buy print advertising (necessary to convince the stores that you are publicizing the game), pay for booths at trade shows to contact the distributors and retailers, pay to ship it and then, typically, wait months to be paid. What’s that, you say; can’t you charge more if payments are tardy? On paper, you do, but, when someone sends a payment three months late and takes the full discount for payment in ten days, your only possible response is to ignore it or stop doing business with what may be your only outlet (we’re a small business, remember) in a whole city. Worse, if a place goes out of business before you are paid, the bank, which typically has a lien on the establishment, takes over the games and undersells you to unload the stock they acquired—well, happy days, you just lost twice! In this business model, which, as I have pointed out, is distressingly universal, a publisher often serves as a private lender who receives no interest on loans and, thanks to a lack of lobbyists at every state and foreign legislature, can’t even secure a lien on what has been “loaned.” No wonder games cost what they do.
The game publishing business can be a cash-flow nightmare. Several months back, I pulled some forgotten notes out of a file box about a meeting we had at Yaquinto Publications over 20 years ago. The figures showed that we were owed about twice the amount that we owed and that we had games in inventory in our warehouse of approximately the same value as the money we owed, all of these figures in amounts of hundreds of thousands of dollars. These figures look promising until the “cash in the bank” figure of under $20,000 is viewed. Think about it.
Companies that were far more mass market oriented than hobby publishers like us established the whole discount apparatus. Mass-market games can survive on a small profit per unit because so many units are sold. I might point out that the stores need the big titles more than they do most hobby titles, so the big guys get paid first, although the traditional marketplace is no bed of roses for them, either. Games for hobbyists constitute a “niche” market where, with a few exceptions that prove the rule, a big “hit” sells in the tens of thousands, not in quantities of hundreds of thousands or millions of units. To use a sports analogy, hobby publishers are singles hitters playing in a park that was designed for Babe Ruth.
So, you’re thinking, “Craig, you’re rambling; what is the point of all this?” Our mark up is less than if our primary end user was a retail outlet and keeps our prices more reasonable. The point is that we are determined to behave like singles hitters and not to swing for the fence. LOST BATTALION GAMES may be viewed as an experiment in marketing strategy. Even a company with unlimited resources (which we certainly are not) finds that some expenses are more cost-effective and others are almost counterproductive. We are essentially making only limited use of the retail marketplace and print advertising, and very little is going out the door to retailers without cash up front for a smaller than normal discount. This ensures that most retailers are not interested, but selling through retail outlets will not convert hobby products into mass-market sellers, nor will issuing free loans to stores and distributors. This web site is our primary advertising outlet and much of our time and treasure goes to making this an interesting and informative place to visit. All of this enables us to use a smaller mark up and pass the savings on to you, which will, hopefully, increase our direct sales to consumers. We realize that this is more trouble for you than popping by the local store but we are trying to maximize limited assets to produce the products needed and to reach their ultimate consumers. Watch this space five years from now to see if our experiment succeeds.
