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  Hey, Let's Talk about the Biz.  

This is a boiled-down but still very long recap of a conversation between James Ernest and Martha Frey, MFrey@gdclaw.com, about some of the ins and outs of the gaming biz. Repeated here for all those people who want to ask James Ernest the same things every week...

Martha's text is in black, James is in red.


James:

For the last several months my friends and I have been buying and playing your games, nearly to death I might add. We consider ourselves very experienced and diverse gamers, and it's been great to play board games with style and flair again, not to mention body parts and fried foods. I just wanted to say keep up the good work!

Thanks!

But that's not really what I'm writing you about. I would like to know what you can share with me about starting a game company. Yes, I realize it's the far-flung dream of every gamer to take their own particular pet project to the market place, and we are no exception. Let me clarify what I'm not asking for: (1) advice on a game we've designed, (2) to steal an idea from you, or (3) to try and get you to buy something.

I'm interested in the business end of the game industry - how did you go from a product or idea to the shelves?

The most important thing to know about the game industry is that hardly anyone seems to be in it for the money. Everyone, from the designers to the retailers to the consumers, are gamers first and foremost. Maybe that's because there isn't much money here, or maybe it is the reason why there isn't.

What I mean by the "game industry" is the core hobby game industry, not the mass market. So, I'm talking about small companies like mine, not giants like Hasbro and Nintendo. And I'm talking about distribution in mom-and-pop retail stores, comic book shops, and direct marketing over the web, not selling into Wal-Mart and Toys R Us. If you're trying to get started in game publishing, and you're asking me, I can only assume that small hobby is your area of interest. And I don't know anything about the mass market, anyway.

What does it mean to enter an industry of hobbyists? Well, there are good things and bad things. You will encounter a lot of people with no business sense, which can be frustrating. But your audience is dedicated, easy to reach, and ultimately forgiving. Like any niche market, they are all reading the same magazines, all buying the same game products, and every so often they all gather together at the same convention to see what's new.

I read through the play tester section of your website, and it sounds like you have a great group of people with experience from difference companies all pooled together. Would you say that it's the "secret" to your success - drawing together talent from other companies?

It certainly helps. I have people from gaming, software, book publishing, and many other fields who meet at my house on a regular basis. They are not exactly my Board of Directors: we usually just playtest new games. But they certainly have plenty of good ideas.

Is it the niche you carved for yourself in the previously defunct board and card (non ccg) games market? (which was totally brilliant by the way; remind me to ask you about that in more detail sometime later.)

I don't think that market was defunct. But it was on the wrong track. In 1995 and 1996, I noticed a steady increase in the production values and retail prices of hobby games, perhaps as a reply to the production values in the CCGs that were taking the money away from the old standbys. Lunch Money came out with a retail price of $17 (or was it even higher?), and I remember thinking how ludicrous that sounded. But it wasn't any more expensive than a pair of Magic decks, so it sold.

I didn't create this niche, either. In fact, it wasn't even empty when I jumped in. But I managed to convince a whole bunch of people that Cheapass Games was new and different, which is the way to get a foothold in an existing market. (I highly recommend Jack Trout's "The New Positioning," a nice little book about marketing, branding, and getting into people's heads.)

By the way, I think the influx of German games has done more in the last few years to liven up the American game market than anything else, though you might argue that the influx is merely the -result- of a horrible void.

...I already know the legal end of things (how to incorporate, how to write up by-laws and articles of incorporation); the pieces I'm missing are the ones that tell me how I take an idea in my head and turn it into a product.

There are a huge number of steps in that. But the big picture looks like this: your best bet is to work the process backwards, looking at game products already on the market and trying to decide what you can do that will simultaneously -stand out- enough to be noticed and -blend in- enough to be understood. That's a challenge. Then figure out what that product should look like, how you will sell it, and how you will make it.

I'd also suggest you go to the major game shows (the GAMA trade show in Las Vegas, or Origins and Gen Con, which are consumer shows in the midwest in July and August) and meet with small publishers who can tell you about their view of the business.

Do I need to sell or lease that idea to another company and allow them to use their production resources to take the product to the marketplace, or can I do it myself by contacting individual vendors?

That depends on how much time you want to spend, and how much money you want to risk. You -can- learn all about production and distribution if you're willing to do a lot of legwork and take on a full-time job. With a little less legwork, you can find a game company who will look at your idea, or an agent who will shop it around for you. The more work you do, the more money you can make, but unfortunately the top end is still pretty low. (Yes, it's conceivable to become fabulously wealthy in hobby gaming, but this business chews up and swallows hundreds of poor game publishers to produce one rich one.)

What electronic formats do production-ready products need to have?

You'll learn more about this as you research printing and publishing. Talk with printers about what you need, and find a printer who can not only understand what you're talking about, but who can also help you make it work better.

If you're doing full-color work, you'll probably want to deliver the master files in a layout program like Quark or Pagemaker, with artwork imported from Photoshop, Illustrator, or a similar graphics program. You'll eventually learn the software that's best for you, and it might not be on this list. I'm personally fluent with Quark and Photoshop, but only because those are the programs I started with.

Do I have to use a publishing company, or can any schmuck with good enough computer skills and a credit card go buy a printing machine? This is where I'm stumped...

There's no strong -legal- reason to have to go through a "publishing company" to bring a product to market. But there are practical ones. As I said, it depends on how much expertise you have, or are willing to acquire, and how much time and money you want to spend.

You certainly don't have to buy your own printing equipment. That will never pay for itself, unless you want to open a print shop as well.

Cheapass Games is a full time job for me, and it makes money. But I came to this job already knowing about the game industry, with a background in technical writing, advertising, printing, and publishing, as well as an aptitude for game design. Depending on how many appropriate talents you already have, going into business for yourself may or may not be a good plan.

I always suggest reading up on small business accounting, printing techniques, niche marketing, and general marketing and product design. Meet some people from the gaming industry and start getting a feel for how the distribution process works. And meet people from other small industries to see what -their- solutions are for the same problems.

Above all, look before you leap. Most small companies fail because they are undercapitalized, and poorly planned. Do not expect that your printing cost will be the biggest fraction of your expenses. If you do, you will be out of money and out of business before anyone can decide if they like your stuff.


Where Cheap Ass Game's brilliance truly lies, in our opinion, is its ability to appeal to gamers with board games.

Actually, that was exactly my intent. I knew how to get games to gamers, so I made games gamers would like. [That makes no sense... by "Gamers" we mean hardcore Hobby gamers, of course.]

One of the wonderful things about Cheap Ass Games is that they really require thought! That just isn't true with most other broad consumer based games.

The problem facing mass market game publishers is the play habits of the American gamer. Americans, -even the hardcore gamers- take longer to play games than Europeans. Maybe this is because they don't play as much, but I think it's because they care too much about winning.

Suppose two groups play the same game of Settlers of Catan. One group is American, and one is German. The Germans will finish in about a quarter of the time. The Americans will deliberate over the most mundane of decisions, -especially- those which have a certain "German Fairness" to them. (This means all the choices are roughly equivalent.) But by and large, the Europeans will come to the balanced decision and say "what the hell," and just play the game.

And so a game that's wildly successful in Germany comes over here and becomes plodding and tedious. And we wonder why the Germans thought it was so good. (Yes, I'm generalizing. But that's how you sell to the mass market. You generalize.)

The most popular American games require little or no strategy, and we still play them -intensely,- even imposing strategic thought where there is clearly none deserved. What games am I talking about? Casino games. People play Craps as if there were more to it than "Bet the pass line, take the odds." People play Roulette, which is not only strategy-free but a complete ripoff (compared to the European version). And the most popular casino game is the slot machine, which clearly requires no strategy at all. But Americans overthink even these simple games, concocting betting strategies and money management techniques to fool themselves into thinking they have an edge.

Anyway, my point is that a mass-market game from Germany can't make it to the mass market in the US. We think too much, and ironically this makes strategy games the worst kind of games to play.

I have a particular player in mind when I write a new game. He'd like to get some advantage from thinking, but he doesn't want the game to boil down to who thinks the most. I call these games "thought-optional" as opposed to "thought on" (like Chess) and "thought off" (like Candy Land). People who want to make it a strategy game can do that, and they can get a slight advantage over the people who are just playing for fun.

You can subvert the too-much-thinking problem in other ways, like making the turns simultaneous (like Starbase Jeff) or making the game real-time (Like Falling and BRAWL), but I usually do it by making each turn as simple as I can. (Deadwood is a good example.)

Back to the subject of gaming company start-ups, I was wondering if you've heard of the concept of "incubators." ...Incubators don't have to be manufacturing based, however, and I was wondering if you had ever heard the idea applied to toy and game companies.

I think this industry is too small and squishy for that. Most small game publishers "incubate" at their day jobs while they get their small companies off the ground. I got lucky and quit my day job a year before I launched Cheapass Games, but most people can't do that. As for one small game company starting inside another, I did try to get that started at Wizards about six years ago (we were going to call it "Tumor Games") but it never happened.

One of the difficulties I've been having in putting together my research on a gaming start-up is the lack of information available on the other gaming companies we want to emulate. At Berkeley I wrote several papers on game companies and suffered for them because the companies are private and therefore under no obligation to make their financial holdings or results public for study.

All true. And the industry is very protective; they don't want anyone to know how well (or poorly) they are doing. And for no good reason. Okay, I also don't want anyone to know how well I'm doing, but I assure you it's for no good reason. ;)

TSR was the target of my last study; I spent hours on the phone with their marketing and customer relations departments searching for even so much as whether they were in the black or not with little result.

Oh, heck. I could have told you that. ;)

Do you think the fact that the gaming market is so small is a hindrance to newcomers? Obviously gamers are a small subset of the population and only need so many producers to meet their needs, leaving very little room at times for new ideas. But there have been complete revolutions in the gaming industry - just look at Magic and the LARP phenomenon. Were these the natural evolution of the direction gaming was going (which I don't believe), or just the brilliance of a particular person (Garfield) at a particular time?

I'd put the brilliance of Magic on several people, not just Richard Garfield. The way I heard the story, Wizards actually came to Richard with general specs, and said "make us a game like this. Something that we can sell at conventions, that's cheap and addictive, that will help us raise enough money to produce RoboRally." (Ha ha.)

I think in a small market like this one, there's -plenty- of room for new ideas. But there's little incentive to generate them. I've just written a letter to the Origins Awards committee asking them to consider a "new ideas" category to cover games like Button Men, which clearly don't fit any of their established categories. [Note: They wound up classifying it as a "Board Game."] And even if you're incredibly original, how much money is it worth? Until Magic started selling like gangbusters, the best a hobby game inventor could hope to achieve was to have his game turn into a mass market success like Trivial Pursuit, and that isn't worth a whole lot when you consider the hundreds of also-rans that lose money.

Yes, I would be interested in more information on the distribution process, if you don't mind. Maybe a "Bill on Capital Hill" approach where you walk a game idea from conception (ahem) through distribution and into the arms of a waiting gamer.

Okay, in brief, here's how it goes at my company:

The impetus for a new Cheapass Game can be either a good idea, or an unfilled time slot. For example, we might need a Button Men expansion for January, hence, Brawl Button Men. Or we might have a great game idea that's waiting for a spot in the schedule, like Save Doctor Lucky. Once in a while necessity creates a new slot, like when we have nine cards' worth of extra space on a press sheet (like we did for The Big Cheese.)

Whatever the idea, we run it through development, which can take as little as a week, or as long as three years. Once we have decided on a release date, we pick a time three or four months before that date (three months for a small release, four months for a big one) and start announcing the product to distributors. They, in turn, are expected to announce it to their retailers, and gather pre-orders by the time the game is ready to ship, which is why the process takes three months. Sometimes we miss the boat, and a small game doesn't get the hype it needs.

We assign art as soon as we can, based on the design that exists at the time we assign the art. In other words, sometimes the game changes a lot between art assignment and production, and we have to make up for that, either with a longer lead time or with constant last-minute changes to the art. Sometimes we have a complete art list before we know the details of the game, which gives us more flexibility.

About a month (or less) before the scheduled release, we send the game to press. This is usually in the form of a computer disk with the artwork for the game, and printing instructions. If it's a bigger project, we allow more time. Actually, we make sure every printing bid includes a time estimate as well as a price.

Most of our games require some in-house assembly, so we leave a week after the parts come in to complete the first orders. At the same time, we are calling distributors to get their numbers. Note: A lot of companies, especially comic book publishers, set their print runs based on pre-orders, so they would have gotten these final numbers a lot earlier. We would do very poorly to base our print runs exactly on pre-orders, because those orders are usually pretty small compared to our total expected sales.

We sell games through three channels: Distributors, Retailers, and directly over the web. We ship new products on a staggered schedule so that every distributor gets his product at the same time (more or less). The distributors break out the cases and ship the games to their individual retail accounts. We also have a few direct retail accounts, who we ship to a little after the first distributor orders.

Each tier in this system gets a different discount. Players who buy over our website pay the retail price, plus a flat rate for shipping that's supposed to encourage them to go to their local retail store if it's convenient. Retailers pay 40% off the retail price, which is a worse discount than they could get from distribution. This is intended to get them to go through distribution if it's convenient. Distributors pay roughly 60% off retail.

These discounts aren't really based on quantity, but on the function of each customer. We are paying distributors to handle multiple retail accounts, including taking multiple credit risks, and to disseminate information to more stores than we could handle. We are paying retail stores to run retail stores. If you think of these discounts as payment for services, it makes it a lot easier to cut off people when they aren't doing their jobs.

Game retailers and wholesalers typically don't take chances on new products, and typically don't stock anything very deep. There is not a lot of cash in the system, except in the high-volume products like Magic and Pokemon. This means that orders are always low, and it's a constant struggle to keep product flowing through the channels. As in any industry, sometimes small publishers don't get the attention they deserve. Our biggest distributor stocks us ludicrously light, and then short-ships its retail stores. And here's the best part: they have a graduated discount structure based on order quantity, and if they short you, they charge you the higher price, as if you'd only ordered that many. Things like that just tell you how crazy this business is.

There. That was brief. ;)

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