Wednesday, December 3, 2008

State of the Game

Well, I was going to blog about another topic, but it seems that another hot topic has emerged today, and thus we have this blog on the state of the hobby.

The economy is a bit of a mess. This is perhaps an understatement, but it is a good lead in to this topic. As some of my readers might know, I am in China for a year, and I will be returning to back to the US mid 2009. China represents the manufacturing center of the world. I could probably find some exact stats on what the value of products build in China are, but I think its safe to say that it is a very high percentage. One of the metrics used to gauge the health of how the world economy is doing is the number of new orders to the factories. Being on the ground level over here, I can say that orders to the factories are slowing down...a lot. Orders are off across the board, which is an indicator that all companies are cutting costs, as sales out are down. If it was just a 5% cut, we probably would not even notice, but it is more significant than that. With projected revenues down, all companies are tightening their belts a couple of notches.

With this in mind, WotC announced layoffs today. Firstly, I want to say that I am sorry to hear that, and I do not wish that on anyone. Layoffs are terrible, especially in the holiday season. Looking at the list, I was a bit surprised at the names I saw. Based on this, I think we can draw a couple of conclusions:

1) Hasbro is cutting costs. I suspect that they are projecting their holiday revenues to be off earlier projections, and this aligns well to what I am seeing in China. They have already given warning of reduced revenues, and their stock is down ~$10 from 6 months ago. They are also projecting higher product costs out of China.

2) The D&D business unit is not immune to the slow down in the economy and its effect on Hasbro.

I will also offer some of my theories and insights based on the evidence at hand

1) The Digital Initiative has not gone well, and Hasbro is looking to cut non performing segments of the business.

2) WotC might be moving more to an outsourced model of using free lancers to write gaming material. As long as there exists a pool of free lancers, they can effectively use them as contract labor and avoid the overhead of salaries and benefits. Paizo makes significant use of freelancers, and I think that ultimately helps their bottom line. As long as you have a good editorial staff, and a couple of head writers on staff, you do not need to fund a whole department of creative talent.

3) We probably will see a smaller number of products being developed and the smaller brand lines get cut. We have already seen this to a certain extent.

The crystal ball

Having wrote all that, I am going to make some predictions for this year and next:

1. The economy remains soft through June 2009. I think the months after the holiday season will be brutal, with the economy showing signs of life after June. Overall, 2009 will remain flat in terms of GNP with small gains in the second half of the year, balancing out loses from the first half. In 2010 the recovery should be in full swing, and we should be returning to a normal economy. Consumer spending will be up, and businesses will be reporting ok profits.

2. Price of oil remains low through 2009, as everyone continues to cut costs through lowered consumption.

3. Most industries will see wage freezes for 2009. This will limit the amount of money available to spend on hobbies.

4. The wargaming industry will be hit hard, as people will limit their expenditures on the big expensive items, and buy more smaller (cheaper) ones.

5. The established companies will rely on free lancers, as a way of reducing costs of overhead.

6. There will be a boom in the number of fan created products. These products will be inexpensive, with low print runs, and will be mostly distributed through PDF sales. We are seeing this now, and I think it will increase. I also think that fan shared materials (free) will continue to increase.

7. The brick and mortar game stores will continue to struggle, and there will be many more closures.

8. There will be further consolidations in the game industry, with fewer products produced.

9. 4th edition sales will flatten out, after a very promising start. This will be due to the success of Pathfinder, retro clones, free/inexpensive fan created material, and fewer dollars available to chase the higher cost products.

10. The old school movement will continue to gain momentum.

11. Pathfinder will do well, and Paizo will have a good year for 2009. In 2010, they will see sales flatten out, unless they can launch another flagship product to keep the momentum going. Keep in mind that total Pathfinder sales will not compare with 4th sales, but it will be enough to keep Paizo in the black. Paizo will continue to become a very influential player in the industry.

While some may look at the list and see nothing extremely cutting edge on the predictions, I believe that we will see further shake ups at WotC, and I do not believe that the GSL will ever get fixed to the point of being usable. As a result of all of this, I think we will see strong rumors on 5th ed start as early as 2011.

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