The Ballbusch Experience: Games Workshop Won’t Sell!

Games Workshop has always had a reputation as an aggressive,
slightly erratic company, and the last few years have only entrenched that
notion.  Trade embargos, Finecast™,
cracking down on bits sellers, sped up release schedules, one-man stores; GW
has been all over the place, around the block, and back.    
Who know what really goes on at GW HQ
Now there are even more big changes afoot at GW.  Sales: down. 
Stock price: down.  White Dwarf:
dead.  There are rumors that a few of the
underperforming WHFB armies are on the chopping block.  I know that Squating is a sore subject for a
lot of people, but given recent credible (but unconfirmed) reports that the
least popular WHFB armies account for less than 1% of GW’s sales, it is
believable.  It would cost GW the same
amount of money to update the long suffering Wood Elves as it would to create
Codex: Poka Dot Marines.  With sales
declining pouring resources into a dud is foolish.

We know a lot about the goings on at GW, but only through
rumor and hearsay.   GW is a secretive, even
paranoid company.  They don’t talk to
their customers, they don’t talk to the press (gaming or financial), they don’t
talk to anybody.  So, despite its central
place in the wargaming universe the company is something of an enigma.       
Man has a deep-seated psychological need to have things
‘make sense.’  Satisfying that need leads
to inquiry, creativity, and discovery. 
Yet this can also lead people to see connections that aren’t there.  To impart to random events a meaning and a
position in a larger structure that simply does not exist.
Trying to divine the motives of strangers invites delusions
of larger plots and conspiracy, particularly when these people are seen was
hostile or potentially dangerous.  In
recent years the frankly bizarre decisions made by GW corporate has lead to a
great deal of discussion in what roles their actions might play in some vast
plot.  While an interesting as a
intellectual exercise, wargamers as a collective are giving GW’s corporate
bosses far too much credit.
One idea that keeps making the rounds is that GW is courting
potential buyers.  The model for this is
TSR, which was bought by Wizards of the Coast, which was in turn bought by
Hasbro.  This creates the precedent for
nerdy companies to get bought out by mainstream ones.
The theory goes; GW is attempting to inflate its financial numbers
so as to increase its stock price in a buyout. 
So, slap-dash products, price gouging, and trade embargos are all part
of a plan to maximize short term profits ahead of a potential sale.  The ultimately fatal flaw with this idea is
that it presupposes that the team of transactional and corporate lawyers,
accountants, appraisers, and financial analysts who would be called upon in
such a deal are completely incompetent.
Ignoring that problem we’re still left with the obvious
question of why.  GW remains reasonably
profitable, continually pays dividends, and GW’s brass draw decent
salaries.  Selling your equity for a
grossly inflated price and retiring to the Cayman Islands
with three score women between the
ages of sixteen and nineteen-and-a-half always has appeal, but it isn’t the
operational goal of every going concern. 
What about the buyer? 
We look at GW and think ‘40k is cool’, but GW is a lot more than the
Warhammer IP.  GW has a large,
multi-national retail arm built to deal exclusively in GW’s range of niche
products.  I seriously doubt Hasbro is
interested in managing GW’s retail arm, yet leases, fixtures, retail going
concern value, etc. would be a significant part of GW’s selling price; and
liquidating the GW retail chain would be both expensive and time
consuming.  Also, GW has a manufacturing
wing that is both small and primitive by the standards of a major toy
company.  That’s something else that
would have to be paid for and liquidated, probably at a loss.  None of which considers the contingent costs
and potential labor disputes that comes with mass layoffs.
All GW has going for it, from the prospective of a larger
operation, is its IP.  But, even if it could
somehow be separated from GW’s retail and manufacturing arms, how much is that
really worth.  GW’s current market
capitalization is about 280 million dollars. 
Market capitalization does not equal selling price, and any offer to buy
the company would increase the value of the stock.  However, at the moment that is what the GW is
‘worth’ in the eyes of the market.  So,
rather than engage in blind speculation let’s say for the sake of discussion
that GW ‘costs’ 280 million.  Is
Warhammer 40k worth anything approaching 280 million dollars?  No, not even close. 
While big in wargaming 40k is far from a household
name.  I’ve never read comic books, but
when a new super hero movie comes down the pike I recognize the characters’
names, generally know their powers and a few basic details about them.  The same is true for the Lord of the
Rings.  You can make a successful LotR
movie because everyone has at least heard of it.  They aren’t going to pack into the theater to
see the Logan Grimnar movie because no one knows who Logan Grimnar is.
You’ve also got the added problem that in 40k is a heavy
metal punk rock universe where there are no ‘good guys’.  The only obvious heroes are insane,
genocidal, religious zealots, but are (debatably) less evil than some of the
things they fight.  I doubt any
mainstream company is comfortable attempting to mass market an IP where the
main characters make the Taliban look reasonable.
40k is just fantasy in space with some window dressing.  You want steroid-abusing space marines with
chain-saw bayonets fighting through modern-gothic architecture?  You can swipe that without paying GW a dime
(Gears of War, looking in your direction). 
Warcraft took huge amounts of inspiration for WHFB (of course, they
later ruined it by turning orcs into peyote-smocking hippies from mars, but
whatever).  The point is that GW settings
are generic enough that you can copy it without buying it.  All GW really ‘owns’ in its IP is the copyright
to names that no one recognizes.
Clearly, there is a market for 40k-themed video games,
books, Dutch wives, and cereal.  But,
these are still going to sell to GW’s target audience.  That audience is always going to be small
because wargaming is a ‘challenging’ pass-time. 
You have to buy models, prime models, paint models, build terrain, and
then you get to play the slow moving, convoluted game.  This is never going to be a popular hobby
because most people just don’t have the patience. 
From a business prospective GW is a labor-intensive manufacturer;
an old fashioned, highly specialized retail chain; and a relatively little
known and rather generic IP; all tied to tabletop game that requires hundreds
of dollars and hundreds of hours of commitment to even play.  Who wants to pay 280 million dollars for the
pleasure of owning that?
GW is a big fish in a small pond, and it dominates the
wargaming scene, but it isn’t ready for prime-time.  Back in 1999 when Hasbro bought WotC they
picked up Magic: The Gathering, a card game with wide ranging appeal; the world
renown Dungeons and Dragons IP including all the settings, characters, novels,
etc.; and a load  of other, smaller
properties owned by either TSR or WotC. 
All for only 455 million (adjusted for inflation). 
Even if a potential purchaser planned to run GW as a
subsidiary rather than liquating and leave its manufacturing and retail
divisions in place, for a variety of financial reasons that I’m not going to
bother explaining it would still need to acquire 80% of GW’s stock.  225 million plus is a lot of money for a
tabletop wargame that isn’t selling well. 
With that kind of capital you could start your own wargame and lavish it
with resources that any other wargaming company (GW included) could only dream
of.  Or better yet, you could fund GTA 6
and make a billion dollars.                  
The purchase idea just doesn’t make sense from any angle,
and besides that doesn’t explain GW’s behavior. 
They’re alienating their customers, bastardizing their products, and
lowering their market share in order to sell their company for more money?  Again, that really doesn’t make any
sense.  In fact, the theory only works if
everyone involves, buyer and seller is an idiot.  This is not to say that you’d have to be a
fool to believe that GW was in search of a buyer.  But, the theory really doesn’t hold up under
close examination.
So, GW’s what’s their deal? 
I argue that GW’s behavior is consistent with an overall business plan,
just a limited one.  First and foremost
it is important to understand that the powers that be at GW are not wargamers,
and on a fundamental level they don’t understand their customers. 
GW: strict obedience, obsolete control
First it is important to understand that what GW truly wants
is to improve its sales volume; hence the massive number of codex updates
dropped on the market in the last year. 
Also, the people running the show at GW have no idea why anyone would
want to buy their products and so have no idea how to market them. 
GW constantly gives the one-figured salute to long-time
customers, but as far as GW is concerned they’re a high-priced toy company and
Warhammer is a kid’s game.  Adults who
insist on playing are handy because they’re willing to slap on the red shirt
and work for minimum wage, but they ceased to be GW’s intended audience long ago.  Admittedly, there are signs that this is
changing at least on he Forge World side of things.
GW may not understand what it’s selling or to whom, but
there is one important lesson that they have learned: their customers are
willing to pay almost any price for brand name GW products.  That knowledge informs all of their business
decisions; and encourages them to continually increase prices far faster than
inflation demands.   
Crappy copy-past codexes with poorly balanced rules?  People are willing to pay 50 bucks for line
edits to the book they already have.  So,
GW happily takes their money.  Not the
sort of business practices I encourage, but that is the level of quality GW’s
customers demand, so that’s the level they get.
Editorial note: much of what follows reach a similar
conclusion to Tastytaste’s thesis here.  
 TastyTaste, he hit it first
The thing is that business model is dependant on little or
no competition.  That’s why GW ignores
the internet, once you’ve typed “miniature wargames” into a search bar you’re
already damaged goods.  This is also why
GW pushes the concept that official GW figures somehow wargame better than
those from other companies while never officially acknowledge that other
miniature manufactures even exist. 
That’s why companies like Chapterhouse, on-line retailers, bits sellers,
and even fansites are perceived as such a threat.  If little Timmy goes on-line to buy a box of
Space Marines from a third party maybe he’ll pick up some Infinity figures
while he’s at it.  How’s GW going to keep
him a loyal customer once he knows that there are better, cheaper games out there? 
GW doesn’t want to compete with other companies, so they do
their level best to function as a monopoly. 
This goes back to GW’s preference for the under-14 market.  Kids are drastically easier to manipulate and
unless their brother/father/uncle is also in the hobby unlikely to have much
experience wargaming.  From the GW
prospective, older, experienced gamer is already ‘broken.’  He knows what his options are and they knows what
his dollar will buy.  Maybe he’ll select
a GW product for his hobby needs, but maybe he won’t.  Either way, he requires effort to maintain as
a customer.
This goes back to GW’s essential discomfort with its own
market.  The veteran gamer wants
innovative products (once GW’s hallmark) that the good people at GW simply
don’t know how to provide even if they wanted to.  The only idea coming out of GW in recent
years is ‘more, bigger’.  More bigger
models, more bigger battles. 
GW’s abandonment of the ‘competitive’ market is a case in
point.  Whatever the projected cost to
keep competitive players happy (at a minimum a new design team I would think)
exceeded the projected revenue from keeping that group happy.  Which makes sense, many tournament types seem
willing to buy regardless of the quality of rules GW puts out (see Fire,
Torrent of), and the tastes of the remainder are difficult to predict.
Maybe there is a touch of cynicism to this, but GW has
probably reached the maximum audience for its current offerings.  There really isn’t anywhere to go unless it
decides to pursue X-Wing or Heroclix style games.  The fact the GW consistently pays dividends
supports this.  GW’s management feels
that it has no reason to retain capital, which is as good as saying that it has
no plans to expand or develop new products. 
So, what does GW do? 
They do what makes sense, and what really is the only thing they can do
at this point, double down on trying to control a limited and slowly dwindling
audience.  All of GW’s ‘stupid’ or
‘anti-fan’ decisions have been based around the goal of controlling the flow of
information and product to its customers. 
All that said GW is still the biggest thing in miniature
wargaming, and has been so for decades. 
The problem with being big in a limited market is that at some point
there is nowhere to go but down. 
Wargaming is never going to be more that a small, cult hobby.  Notice video games only got big when they got
easy.  And there really isn’t any way to
make wargaming ‘user friendly’.                    
GW is flailing around and losing sales partly from poor
management, or at least poor engagement with its customers.  But, it is also a company that grew beyond
its market’s capacity to support.  There
aren’t enough wargamers for a GW in every town, the initial success of LotR let
the company grew too fast.  Now it is
coming back down to size, fast and hard. 
Do I think GW is going to continue to shrink?  Certainly. 
I expect continued reduction in physical store locations and increasing
centralization of sales.  But, I also
don’t think anyone has compelling reason to buy GW right now, and I certainly
don’t think GW is actively courting a take over.          

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