Tuesday, July 29, 2014

GW Financials: The Rains Of Cash-Still-Here

by SandWyrm

Tom Kirby's wobbly-worded pre-ramble may have set us up to expect the worst from Games Workshop's full-year financial report, but what we actually see today is a slight improvement on the half-year numbers from January. Still bad, to be sure, especially from the standpoint of the institutional investors that they're beholden to (hence Kirby's panic), but nothing particularly catastrophic from the standpoint of the customer base.  Call it a slap in GW's face with a large Tuna, but not a shove over the side of the boat.

Bottom-line: The business is still profitable, and all but debt-free. This has been accomplished by hollowing out the fat and some of the company's muscle too. Leaving a very scrawny skeleton of a business that, without new leadership, shows every sign of continuing its current decline in sales/profits. But a good leader could still pull GW out of this downhill slide. The tools (credit and infrastructure) are still there, waiting to be used.

I won't go into detail on the numbers, as masterminis.net will do a better job of that than I possibly can.

What I'm most interested in is the tone and defensiveness of this report. Obviously GW is having problems connecting to their customer base and making things that customers want to buy. Which is affecting their bottom line significantly. The frankly stunning rate of releases this year speaks to the fact that only their die-hard fans/collectors are still buying. But the leadership of the company is steadfastly refusing to admit that they've done anything wrong. Or that they could do anything better.

Consider their statements about strategy and objectives:
"The first element is the high quality. We consciously and deliberately pursue a niche market model. Not everyone wants to collect miniatures, but those that do demand high quality. All niche market customers are like that. It is what defines the niche — quality above price. Our strategy is to make the best miniatures in the world."
'Quality' is a pretty subjective thing, and even in a manufacturing sense, the quality of GW's products varies widely. GW's plastics are well made (though not exceptionally so), with good sprue density and clean lines. But what about their metals? What about Finecast? How are these any better than what GW's competition offers?

Another aspect of quality is design. Is the (well-manufactured) plastic miniature appealing? Does it look cool? Is it inspiring? Does it delight and surprise us in some way? Does it spark our imaginations? Or was the concept obviously rushed through production as a lazy riff on something we've seen before?

Does it have decent rules? Does it play like the fluff in the Black Library novel I just read?

'Quality' is a pit that you can fall too deeply into. Does it matter if NEW_MARINE is X% better made than OLD_MARINE? Will more than 10% of your customers notice the diminished mold lines that come from a better mold fit during plastic injection? Would the difference affect their purchasing decision one bit if the older model has a cooler pose than the newer one?

Is the measure of a codex's quality the shininess of its cover, and the lovely color printing on its pages, or is it the clarity and immersive-ness of the rules the book contains? Isn't the communication of rules the whole reason the book exists in the first place?

This (selective) focus on 'Quality', a result of misunderstanding Apple's business model, obscures what GW should really be thinking about. Which is...


Value is a measure of a product's worth compared to the price you're asked to pay for it. If you think a product is more valuable than the money you pay for it, you buy it eagerly. But if you value the money more, you give that product a pass.

The question GW should be asking then, is this: "Are the product qualities we're focusing on adding value to them?"


"How does the overall value of our game and its miniatures compare to the overall value of our competitor's games and miniatures?"

Because if Privateer, Mantic, Battlefront, Fantasy Flight, or some other company offers better values, GW is going to bleed customers to them. Regardless of whether some particular quality of a GW product is seen as superior.

Or, put another way...

"Porches look really cool. But I know that they're very expensive, and that they constantly break down. So since I value reliability,  and the ability to drive around with more than one friend, why should I pay for a Porche when a I could buy a Ford Focus instead? The premium I'm willing to pay for the Porche's looks isn't anywhere near what they're asking for it."

So instead of looking for ways to add additional value to their products (as Apple constantly does), GW always looks to keep their perceived value just a tiny bit higher than the prices they charge. So as to wring every possible penny out of the transaction. Problem is, that leaves little margin for error, and GW is a company that makes a lot of errors, especially in its rules.
"The second element is that we will only ever make fantasy miniatures, and by that we mean those that are in our imaginary worlds. This gives us complete control over the imagery and styles we use and complete ownership of the intellectual property."
Translation: "We don't want to appeal to any market segments other than the one we currently dominate. We don't want to sell models to kids, young teens, girls, women, minorities, or old people. Just socially-isolated white boys between the ages of 16 and 20-ish."

Why not branch out? Why not license popular properties for short-run miniatures games? Lord of the Rings made a hell of a lot of money for GW. The problem wasn't the deal they made, it was GW's decision to keep milking LoTR long past its expiration date.

Where's the Avatar boardgame? Where's the "Walking Dead" zombie game? Where's the "Black Hawk Down" skirmish game? Why can't GW take its basic rules set and adapt it to popular movie and TV franchises? Last year at Gencon, Battlefront sidelined its Flames of War displays/products to push their Sparticus and Firefly board games. Do you think maybe it's because those games have a much higher sales potential than Flames of War does?

Don't want to share the profits with an IP holder? Then make GW-IP games with similar themes. That's the secret of GW's early success, after all. You couldn't play 'Star Wars' or 'Dune' on a tabletop, but GW's games stole their best themes and turned them into good games you could buy. Gorkamorka was just Mad Max with Orks. Space Hulk was just Aliens with power armor.
"The third element is the global nature of our business. Niche market customers are pretty thin on the ground and they need to be searched out all over the world. The main growth in our business will be as a result of this geographic spread."
Yep, gamers are spread kind of thin. That's why you have to nourish and support their communities wherever they pop up. Because 40K's traditional strength was in being the standard. Anywhere you went, you knew you could play.

Now? Games in my city (6 Stores) have to be scheduled on Facebook to be sure you'll have an opponent. Most of the stores have consolidated 40K/Fantasy into a single night, where maybe a few people will show up. Maybe not. A far cry from the 30+ hard-core 40K players that we had a few years back.

What's the go-anywhere game now? X-Wing.

So is it in GW's interest to divide and separate players with play-your-way (but not mine) rules? Or would it be a better idea to unite everyone under one clear system, and price the game such that larger communities of players can form?
"The fourth element is our desire to make money doing it. We want to be efficiently profitable, partly because we enjoy paying ourselves and our owners well but even more because it allows us to keep going. We want to be in business for as long as possible and that means we need to be profitable in both good times and bad."
"We measure our success by maintaining a high return on investments. (Efficiently profitable.)"
There's nothing wrong with making money. But you have to have some metric of success beyond money itself if you want to sustain and grow a business. Because how much money you make is of no importance to your customers. They care more about the number of players in their area, how fun the game is, whether they can afford to collect/play, etc. So their cares and values need to be reflected in your goals. Do that, and the money will flow to you.

Don't believe me? Listen to Apple's chief designer, Jony Ive (from a Wired interview):
"We are really pleased with our revenues but our goal isn't to make money. It sounds a little flippant, but it's the truth. Our goal and what makes us excited is to make great products. If we are successful people will like them and if we are operationally competent, we will make money," he said. 
He explained how, in the 90s, Apple was very close to bankruptcy and that "you learn a lot about vital corporations through non-vital corporations". When Steve Jobs returned to the company in 1997, his focus was not on making money -- "His observation was that the products weren't good enough. His resolve was to make better products." This was a different approach from other attempts to turn the company around, which had focused first and foremost on cost savings and revenue generation.
Tom Kirby likes to quote Steve Jobs, and drools over Apple's profit margins. But does he really understand the focus on product innovation that has made that margin possible? Apple is obsessive about the small details of its manufacturing, but it's equally obsessive about its user experience and value perception. A Mac or iPhone without the rest of Apple's software and services is just another shiny PC or smartphone. Apple knows that.
"The way we go about implementing this strategy is firstly to recruit the best staff we can by looking for the appropriate attitudes and behaviour each role requires, secondly by having flat, efficient management structures and thirdly by controlling costs tightly." 
Hiring based on 'attitude' is how you fill a company with yes-men that will never question your basic assumptions. This is why GW has such a problem connecting with its customers, who don't share those same assumptions. As a leader, Tom Kirby doesn't seek out contrary opinions. Which breeds a culture of stagnation, frustration, and malaise. Pushing out, as a consequence, all of GW's good design people, who are inherently contrary by nature.

Looking to Apple again... Steve Jobs didn't care if people got along with him. He hired the best people he could find and started screaming matches with all of them over product details that most regular people wouldn't care about if asked. He was basically Stelek, but with design sense and taste.

Would Jobs have cared about "flat, efficient management structures", or "controlling costs tightly"? Nope. He was a product guy. The business was there to support the creation of products, not the other way around. What does Tom Kirby know about his company's products? To him, they're all interchangeable widgets that exist to support his business's financial goals. He literally cannot tell a good GW product from a bad one, except in terms of sales numbers.
"There is no difference in our short-term, medium-term and long-term methods. All our strategic decision making is for the extreme long-term."
Products, sheep, what's the difference?
GW's methods are all long-term... Since when? Because it's obvious that GW's methods are all calculated to give them as much influence over each quarter's numbers as possible. So as to keep their results within a tightly controlled (and institutional investor friendly) range.

Consider how they release products. Whereas other companies (including Apple) will announce a new product a month or two before release (building interest), GW waits until just one week before, if that. Not because it helps them sell more, but because they can decide, week-by-week, how much product to release. If sales are good, we get fewer new toys, as we did a few years back, when they released one codex for the entire year. If sales are bad, they push out the next toy... and the next... until the numbers are hit.

And if the numbers aren't hit? Well, the rate of releases keeps increasing. Until we're drowning in low-quality products (because they're rushed) with premium prices. As we are right now.

If GW actually had a long-term strategy, they would be more like Disney. Who know EXACTLY what types of Disney products you'll enjoy. From your cradle, all the way to your grave, they have chopped up your lifespan into a series of demographic markets. With the offerings in each designed to pave the way into the next. So that there is a clear progression of Disney stuff for you to buy from toddlerhood, to pre-teen, to teen, to young adult, and so on.

Look at how they manage their Marvel Universe, which is similar in scope to GW's 40K.

Oh look, it's the teenage version of Iron MAN!
They're making Avengers movies, sure. But they also make a lot of Avengers cartoons that are carefully tailored to appeal to certain key demographics.

On the game side, you have your iPad cute bobble-headed kid fare, your mid-range teen games, and at the top is the high-end console titles.

Disney even uses Marvel's comics (remember those) as low-risk ways of testing new ideas, and appealing to new categories of customer.

There's no way they're going to do a She-Thor, or a black Spiderman in a $200M movie. That's too big a risk. But they'll talk about the company's new gender and race-bending comics all day. If these sell, maybe they'll make a TV cartoon. If not, well... who cares? It's just one comic run of hundreds. They can take all sorts of risks in a comic book.

So where is GW's grand plan? 

What GW products will pre-teens buy and play? Once they grow into teenagers, what is the next product designed for them? When they become Adults with high disposable incomes (and later, parents), what will keep them interested in GW's offerings? What will entice them to get their future kids into GW games?

Where will GW test new ideas? They used to experiment with new ideas in their Specialist Games. Many of which were refined and used in both Fantasy and 40K. But now? They've made major, high-risk changes to their cash-cow core systems without testing them first. How's that working out?

About as well as it has for Microsoft. Another company that's in love with Apple's margins, but which doesn't understand its product focus or methods. Microsoft's business was built by being THE low-margin, high-volume software maker. Their best products weren't perfect, but were 'good enough' to get the job done and spread across the world. Making them the worldwide standard.

Which, until Microsoft started trying to copy Apple, worked really well for them. Especially when Apple was dying on the altar of cost-savings and revenue generation.

Remember 1997? GW's current strategy almost killed Apple. It was Bill Gates' money that saved them.

So I would submit that GW needs to see itself less like Apple, and more like the old Microsoft (or the current Google). As the high-value, low-margin brand of games that you can go anywhere and play. GW, like Microsoft, shouldn't try and be the high-margin, low volume brand. Because that's not who they ever have been, or can be.

Leave the Apple worship to Forge World, and embrace your strengths GW.

Edit: Seems I struck a nerve. The hits on this article are exploding, due at least in part to being picked up on Reddit. You can read those comments here. Fun!


  1. thats a great analysis, thanks for writing it!

  2. I wouldn't be surprised at this point if GW turned out to be a 25 year long Monty Python sketch.

    I always though they where ignorant due to being uncreative MBAs in suits. It's shocking to see how much of that ignorance is willful.

    1. Their willful ignorance, even in the face of obvious failures, is really astounding. Stupidity and stubbornness is a really bad combination, especially in a leader.

      But... Kirby will be out of the CEO chair this January.

      That's when things will get really interesting, because if they're like most companies in decline, they'll hire a smooth-talking 'inspirational' know-nothing leader. As Apple did with Gil Amelio, and HP did with Carly Fiorina. That's when the profits will evaporate, and the company will start taking on debt. Wasting even more money on projects that never go anywhere.

      So I give GW about 5 years until they're in a dire enough financial position that they'll either have to find a product-focused leader, as Apple and IBM did, or close their doors in bankruptcy, as Kodak, and Motorolla did.

  3. Argumentum Ad Jobs - The referencing of something Steve Jobs(or by extension Apple) has said or done totally out of context to try to pass off your awful business decisions as unappreciated genius.

    1. "Steve Jobs was an asshole? I can do that!!! I'm a GENIUS!!!"

      Idiots never understand anything they read. :)

    2. I prefer: "Steve Jobs had cancer. Maybe I should get some of this cancer too?"

    3. Careful, the stupid executives might... Oh wait.

      Yeah! Cancer! It's the secret to success! Go get some of that there cancer!!!

    4. I wear glasses and annoy co-workers. Someone hire this man!

  4. I thought this was a good run-down of Tom Kirby-isms:

    1. Great article, Sandwyrm - we can always rely on you!

      I enjoyed the Telegraph's punt too - thnks, Farmpunk.

  5. Their stock price is actually up today. Go figure.

  6. That was a FIRST RATE article - the first GW-related article I've read to conclusion in a LONG time!

  7. Nice cheap shot I guess. Another assumption about me of which you know so little.

    1. Ah, the coward speaks. Careful Andrew, you can't edit or delete comments on this blog.

    2. We don't know it's necessarily Stelek. It could be Kirby or Steve Jobs's reanimated corpse.

    3. Naw. Tom Kirby wouldn't know what a blog is, and Jobs' ghost is too busy rattling windows at Samsung HQ. ;)

    4. I don't think it was fair to insult Jobs with the comparison to the Great Incoherent One.


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