My non-vulgar perspective on GameSalute....

So, after some deliberation, I figured I'd put this out there. It's non-vulgar, non-hateful, and atypical for me. But I think it will generate actual discussion rather than "You're Mean, Jerk" responses typical to BGG. Just a better class of people here.

Hajime!

The board game industry is not a whole lot different, from a business perspective, than any other industry that has a multitude of sales channels with end-users being the public at large.

The economic basics are no different than any other distribution business model. A guy makes something, has to pay licensing fees to the inventor (assuming it's not an in-house invention) they produce it with a sales target number in mind so that they can produce the most units possible with the highest realistic quality at the estimated price point in order to lower the cost of goods.

They sell either direct to the public, if they have the infrastructure, through their own network (again, if they have infrastructure and relationships with outlets) or, if they don't have the capacity, they use an existing network via a distributor.

The value of the distributor is that they will order large volumes on one PO, and they allow access into a larger target population. Anyone with a modicum of sales experience knows this one simple fact and lives by it: The more opportunities to close business, the higher the potential sales.

So, the distributor buys at a deep discount, sells "bundles" on contract or a' la carte to their channels, be they retailers, online stores, packagers, what have you. They offer discounts to the retailers, and they offer the most important thing, the ability of a retailer to buy from a wide selection of product ranges on one PO, with one shipping hit. The good distributors also offer product training, workshops, on-site demonstrations and other value-added services. The one drawback to distributors is that they generally have order minimums and tiers which allow larger retailers larger discounts for volume buys, which is fair since the retailer is the one carrying the note on the product while it sits awaiting final purchase.

The retailers then resell them based on their market segment:
- Value added retailers offer services which command the premium price for the products.
- Discounters offer products in the same vein as distribution, but on a smaller scale; they offer product bundles one on PO, take credit card orders, have no or very low minimums, and they make less margin, on average, but make up for it in spades through volume sales.

Now, again, in all of this, the MANUFACTURER is the one holding all the cards. They set MSRP based upon their own revenue goals, their forecasts, and what they believe the market can bear. All other prices are based off of that single price.

An MSRP of 50$ would sell to distribution for 15$, sell to retail at 25$, and sell to the consumer at 50$. Numbers vary, obviously, depending on a wide variety of factors.

Now, if it's not a retail situation, the whole scenario is different. Manufactuers almost always sell direct with a minimum order size, but they sell to distribution (which is the industrial version of a retailer) at a discount level in accordance with their buy size. A smaller local distributor will not get as good a price on soldering irons since they order 10 at a time where a big distribution house (catalog house) buys 100, so the small guy gets 32 points off list and the larger guy gets 40.

The small guy is ~~~~~~ALWAYS~~~~~~ at a price disadvantage. That is how it's SUPPOSED TO BE. Buying in quantity is always advantageous because it saves EVERYONE money. The local guy has to compete on an uneven playing field, but there's a reason they still exist: the big distribution houses don't offer anything but access to a product and a low price. Want support? Forget about it. That's where the local guys make their living - they SERVICE the customer.

FLGS' are that small guy. They provide SERVICE. The OLGS' are the big catalog house...they offer no service, but they offer wide access to product at a low price because they're little more than order takers.

/end basic distribution model lecture

Now, there's the GameSalute thing. Back maybe 7 years ago, one of my principals, the largest X supplier in the world, wanted to do away with 80% of its distribution channel. They wanted to go direct, capture more margin, and have exclusive distributors (all catalog houses) so they had less overhead, less paperwork...yada yada.

Guess what happened within a year?

They had to restructure because the catalog houses weren't out on the day to day trying to actively sell the product. There was nobody out there pushing the product at all, really. Just me, and 40 guys like me. So, the other companies with all the distribution from large to small starting getting huge market share. They capitalized on the stupidity and hubris of the big guy, and the company eventually broke up into 5 seperate, smaller business units because they had lost so much business they had to essentially start from scratch.

I can name 3 other companies that did the same thing with the same results. The problem is one that has been around FOREVER...you can almost NEVER make up for the loss of revenue, even at higher margins, when you lose the OPPORTUNITIES. NAFTA, free trade agreements, all of these things exist because the key to selling lots of product is getting it out in front of as many people as you can.

If you (like GameSalute is apparently doing) decide that you want to arbitrarily limit how their products are being sold solely to capture margin, they're defying the market.

LOCAL CONSUMER SALES:
- A customer who wants to buy Alien Frontiers has to either buy for 50$ from their local store, or buy at 50$ from their exclusive web store.
- If the local game store doesn't have it in stock, they have to order it and wait 1-2 weeks to get it.

ONLINE CONSUMER SALES:
- A customer who wants to buy Alien Frontiers and wants to buy, say, the latest and most attractive FFG game can't buy it on one order, they can't get a discount price, and they can't get free shipping.
- That same customer has exactly ONE store to buy from, and if they have had bad experiences with that store, they're stuck with them. (Read: Pixel Lincoln, Puzzle Strike, and TMG games...)

RETAILER SALES:
- Retailers are limited to specific requirements to stock GameSalute products.
- Retailers can't buy from a wide variety of vendors' products on the order, meaning they have to place two orders, one from Alliance, and one from GameSalute, which means they don't get as strong a volume discount from either vendor.
- The games that GameSalute offers are generally B- and C-tier games; games with little advertising, publisher sales efforts, and are the ones that go under the radar. I mean, Empires of the Void, Exile Sun, and Alien Frontiers are the only three that I've even really seen much on, and Exile Sun is becoming widely panned, for instance.

So, while I get that the whole idea is that they seem to want to make sure that no matter where you go, you pay full boat so that the little guys are on an even playing field, it defies economic sense to do so. The little guys' model is one based on SERVICE. They buy small quantities, and they charge a premium based on the fact that they provide value added services to increase the "value proposition".

Online sales for Black Friday topped 1 Billion this year. It's not a "blip", it's reality. Most people want to go online to shop. Making it harder and more expensive to do that is simply 180 degrees from the realities of the marketplace today. If we were in, say, 1997 when people had all kinds of money, maybe it's something that would be cute. But in a recession, it's madness to limit the places you can sell units.

I wish GameSalute the best, I really do, but they screwed me on one game so far, they screwed someone else on another, and honestly, this whole business with TMG isn't really giving me a strong feeling that they're on the right track.

Take it or leave it. I know of which I speak because I've seen it before. GS isn't some novel thing. The one thing I give them full credit for is helping small publishers make games. The shitty part is that they limit the exposure, so the games may never see the potential they otherwise would have seen had they gone through normal distribution channels.

So you aren't done with this site after all? It happens to the best of us.

My question is:

How would you start up a distributor to compete with Alliance? That gets tricky with exclusive deals and the like.

Similarly, if you are setting up a first time publisher, you really can't easily get distribution through Alliance.

And so the two really need each other to get access to the small guys.

If I were a new small publisher, Game Salute has some appeal, as that is the ONLY way you are getting into classic B&M stores.

The only other choice is really to manage your own distribution, which would probably be limited to strictly the volume online game stores, so you could sell to them in bulk shippable quantities. This is already happening quite a bit.

The current situation is such that I really WANT to see GameSalute succeed. The current situation with heavy consolidation of distributors has led to things like game stores that carry very limited stuff I'm not interested in. And my nearest game store really avoids ordering from Alliance, which means that they don't stock the one game I have a vested interest in getting people to buy. That annoys me.

Gamesalute seems to want to be publisher and distributor for its lines, to control everything. Where they fail is that in their misguided sense of justice they limit discounters. That's the sum total problem.

If they want to really compete head to head with ACD they will eventually have to accept that you can't trade units for margin. Especially not in the current climate.

I'd love to see them grow and become a player, and I love that they are able to bring games to the market that really wouldn't have a shot otherwise. They just need to be better at the sales end, not screw things up, and realize that all the companies will go the way of TMG when they realize that GS is forcing their clients' products to sell at a premium price, but with no value added services, which puts them at a huge competitive disadvantage. I got Alien Frontiers for 34$ last time, if I recall. To buy it now I'd have to pay 50$. With an IOS version, what is my impetus to do so? Even if no IOS version existed....how does Alien Frontiers command the same value as me buying Tannhauser and a small expansion pack from Coolstuff?

I like this one better. Your other one looked more like "nerd rage" over getting a game late, which seems to happen pretty often in this industry, as long as people keep publishing stuff in the U.S. without manufacturing them here.

I thought a long time ago that Gamesalute isn't the best idea. Going with them attempts to maximize designer's marginal revenue rather than total revenue. Silly.

You're assuming that Game Salute's goal is to make as much money as possible - which is usually the case for a business, but not always. This is supposition on my part, but based on where he's coming from, I think that Dan wants to use Game Salute to show that a maximally FLGS-friendly model is viable - maybe not optimal, but viable.

And he is primarily appealing to first-time and 'vanity' designers who want to get their name on a box and don't have the usual avenues. So this is a much simpler path to market.

One factor you're not considering is that Game Salute gives a much larger chunk of the sell price to the designer. Typical publishers give the designer a 5% royalty. Game Salute - if you use all their services, which you don't have to - gives, I believe, around 20%.

So from a designer's perspective, a traditional publisher needs to sell 4x as many copies as Game Salute can. I don't think this is realistic with most games. You may shortchange yourself if you have a hit, but - let's be honest - most games sell a few thousand copies and then the world moves on.

So who's losing in the Game Salute model? The Designer is winning, and the FLGS is winning. Game Salute is losing, and the buying public is losing, since they're paying more than they otherwise might through a normal publisher.

In the traditional model the designer loses and the FLGS loses.

So which model you go with depends on what your goals are. Typically publishers will not set up a non-optimal model, which is why they end up trying to get as wide a distribution as possible. But Game Salute has other motives, not just profit.

As an aside, the widest distribution possible is not always the best. I know publishers that worked and worked to get into Barnes & Noble, and ended up pulling out because their demands were way too onerous (unlimited returns, paying for shelf space, etc). So maximal distribution does not always equal maximal profits.

Geoff

But what best serves the designer and the community of players?

(Using your 5 v. 20% example just for the ratios)
Netting the designer $1 each on 5000 copies
Netting the designer $4 each on 1250 copies

Jexik wrote: I like this one better. Your other one looked more like "nerd rage" over getting a game late, which seems to happen pretty often in this industry, as long as people keep publishing stuff in the U.S. without manufacturing them here.

I thought a long time ago that Gamesalute isn't the best idea. Going with them attempts to maximize designer's marginal revenue rather than total revenue. Silly.

The nerd rage was there, but not because of late delivery. It was more that they didn't communicate at all, and as a publisher, they KNEW the timeline wouldn't fly but said nothing. They acted as if all was well. Had they said in November "I don't think it's going to happen" I would've been disappointed, marginally, but at least I'd have been able to plan better. Having a December delivery date means that it's right around the holidays, and in my case, it made a difference as to what I was going to send a friend. Not telling the truth is a big deal to me, and they didn't. That was my rather uneloquent point.

engelstein wrote: You're assuming that Game Salute's goal is to make as much money as possible - which is usually the case for a business, but not always. This is supposition on my part, but based on where he's coming from, I think that Dan wants to use Game Salute to show that a maximally FLGS-friendly model is viable - maybe not optimal, but viable.

OK, I'll buy that. But the problem with that concept is that it is the CONSUMER, not the FLGS, that holds all the cards, and by limiting the availability of products, and charging the highest prices in the market for B- and C- tier products, nobody wins.

And he is primarily appealing to first-time and 'vanity' designers who want to get their name on a box and don't have the usual avenues. So this is a much simpler path to market.

I understand that, and that's the only draw I see to GameSalute; the ability to get more games out there (variety) that might not have otherwise seen the light of day. With Kickstarter, though, I'm not entirely sure they're the only game in town.

But again, they control the production, the price, and the distribution to such a degree that while those games do exist, they get the minimum exposure and therefore less people will see the games. It's like saying, "We want your game to get published, but we don't want very many people to actually get their hands on it."

One factor you're not considering is that Game Salute gives a much larger chunk of the sell price to the designer. Typical publishers give the designer a 5% royalty. Game Salute - if you use all their services, which you don't have to - gives, I believe, around 20%.

Could be...

But the question is this: Would a designer/publisher rather sell out 2,000 copies and have wide audience or sell 500 copies, make $2,000, and fade off into obscurity? I owe you one, Geoff, because it seems that there might be a viable reason. I didn't expect that the margin would be so high for a designer.

In the end, it still hurts the consumer and limits the availability and exposure, but perhaps for a budding game designer this might be a reasonable jumping off point. I still would rather take the 5% and 2,000 units moved scenario, but that's me.

The other thing to consider is what percentage of sales come direct through Amazon and/or the GS site, which obviously capture nearly 100% of the margin (less fulfillment costs) and net the designer a higher nut.

So from a designer's perspective, a traditional publisher needs to sell 4x as many copies as Game Salute can. I don't think this is realistic with most games. You may shortchange yourself if you have a hit, but - let's be honest - most games sell a few thousand copies and then the world moves on.

If that. But limiting your exposure stacks the odds toward not selling even a thousand, let alone a few, which would be considered, by almost any metric, a failure.

So who's losing in the Game Salute model? The Designer is winning, and the FLGS is winning. Game Salute is losing, and the buying public is losing, since they're paying more than they otherwise might through a normal publisher.

The buying public is losing and the designer is only winning if they're looking for an extra $1200 after taxes. If the designer is looking for a successful product, one that has wide acceptance and sales, then it's not really a big win. I mean, John Clowdus did the 100 units per game model for years and years and until Michael and I started talking about him, nobody seemed to know who the hell he was. (<--maybe some hubris there, but I don't recall seeing any press or interviews before I started championing Small Box. Could be just me not looking hard enough)

So, success is most certainly subjective, but I'll agree that you certainly have posited a compelling argument. I keep thinking that "helping the FLGS" by hurting the consumer is going to hurt the FLGS in the end, because game stores are live-or-die on cash flow, and having less products, and arguably not as well known products, at a higher price point will equal a shelf toad. I'd love to hear Michael's take on it, since he did in fact own a game shop.

In the traditional model the designer loses and the FLGS loses.

Again, it's subjective on the part of the designer "losing", but I wholly disagree that the FLGS loses a damned thing. In fact, it's arguable that they win more on the flip side. See, FLGS always command a higher price because they cultivate a local user base. They provide services that OLGSs don't have. So, they EARN their money. OLGSs discount because they offer no service, but they have the capacity to place large orders.

Additionally, the fewer distributors that FLGSs have, the better, because they get higher discounts for larger buys, and the incremental cost-per-unit goes down in other ways as well, such as shipping, for instance. I get what you're saying, that they get to "play on a level field" so to speak, from a price perspective, but the fact is that because people can buy on Amazon or elsewhere at the same price point, it actually hurts FLGSs in the long run because they have to compete with a company that has always got stock. If I go into my local FLGS and ask for Alien Frontiers and it's not in stock (I literally JUST called them, they do not...) I was told that it would be a week before they got it in stock. I've ordered from them before (a couple years back) and they said the same thing, but it took 2 weeks.

I can order from Amazon right now (just checked) and get it for 60$ plus free shipping and have it in 2 days (fulfilled by Amazon) for only 5$ more than my store sells it for or I can buy it direct from GameSalute's site for 4$ more and have it in a week for sure.

The only way this model actually ensures FLGSs are in the driver's seat is to limit the sales entirely to FLGSs. Close Amazon and close the web store.

So which model you go with depends on what your goals are. Typically publishers will not set up a non-optimal model, which is why they end up trying to get as wide a distribution as possible. But Game Salute has other motives, not just profit.

See, this is where we part ways. The optimal model IS to cast as wide a net as possible. The thing that you're not speaking about here is the incremental cost-per-unit on a cost basis. Printing 5,000 units is exponentially less per unit than 2,000, which is exponentially cheaper cheaper than 1000. This doesn't even begin to speak to corners that need cutting in order to make the economics work.

If royalties are paid on GP, then the bigger publisher will make the designer more money every time. They print larger volumes, thus the cost per unit is lower, and therefore the royalty is larger. If you could tell me what that 5% (or 20%) is paid on, that would make a big difference. If it's on gross profit (the sale price less the cost) that's one thing, if it's on gross sales revenue, that's another. My above quickie spreadsheet assumes it's the latter.

As an aside, the widest distribution possible is not always the best. I know publishers that worked and worked to get into Barnes & Noble, and ended up pulling out because their demands were way too onerous (unlimited returns, paying for shelf space, etc). So maximal distribution does not always equal maximal profits.

I understand what you're saying all too well, but this is a business decision that is based on the venue. Obviously some distribution channels are better than others. Consider that if it wasn't profitable, FFG and others wouldn't be selling in B&N, right? It's a matter of capacity. Personally, I think B&N is a bad fit, but that's just me. Target and Wal-Mart, they're the targets. If you can get a contract with those guys, you're getting orders for 5,000 and 10,000 units in one fell swoop, and all your costs go down.

As in all things, you have to do what makes sense for your business.

Great insight, Geoff. I really appreciate it.

I understand what you're saying - and will respond at length when I have more time.

But just to clarify - I was approached to do Space Cadets through Game Salute, and that's why I have some of the numbers. But I didn't get into the nitty-gritty, so I don't have all the details on what they offered specifically. There was a sliding scale on how much of a cut GS took, depending on what services they offered, which ranged through playtesting, artwork coordination, manufacturing coordination, and distribution. I was only interested in distribution - since my business is getting stuff made, and I just didn't want to deal with that part - so I had the largest piece.

I never seriously considered going with Game Salute as I had a handshake deal with Stronghold (while he was negotiating his buyout of his partner) at the time, but otherwise it would have been worth looking at.

Geoff

All I can add is this--there is no maliciousness on Dan's part. One of the most genuine, "Gee whiz, games are pretty freaking awesome" dudes I've had the pleasure of dealing with. He's also always been very supportive of Fortress: AT, mostly because of its smaller community--but also because we're known to be people that really love our games.

I think there's some truth to the notion that Dan is not purely trying to optimize his profit numbers but wants to (and believes he is) helping local game stores. I can definitely believe that.

It's also true that if someone has my friendship, I'm more likely to give them the benefit of the doubt and cut them slack, so take this with a grain of salt.

I don't think anyone but the most ridiculous believe this is some sort of malicious cash grab. For one, as cash grabs go, it's a pretty stupid way to do it. Look to MayDay for insights on how to REALLY do a cash grab.

I think they probably want to help game stores a lot, but the problem is too complex to be solved by exclusivity deals. The problem lies in the fact that many game stores are were started by people with little business acumen, and are undercapitalized.

Pair that with the fact that mostly Magic, RPG, and Tabletop guys use their services the most, and then you've got a situation where they're asking people to pay the highest price in the market for any given product for no real reason.

Then pair all of that with the fact that most game stores don't stock a whole lot of any one thing, so you're really, as a consumer, better off simply ordering from Amazon (which many credit card companies like Chase offer points for purchases deals) and now the FLGSs that were supposed to be helped are competing with the publisher on an apples-to-apples basis, but the publisher is stocking and can ship it to you in 2-3 days where you need to order from the FLGS, wait a week or two, drive back and pick it up.

It's a complex problem, and really, the move towards more and more online shopping is putting nails in the coffin of the FLGSs by and large. Game stores like some of the bigger ones I've frequented offer painting seminars, have a wide selection of things other than games, and have a lot of space for tournaments and whatnot. If you don't want those services, there's simply no reason at all to do business with them, and if you have to wait longer to get the games than going direct, there really is no plausible reason to do business with them.

I can literally count on two hands how many games I've got at a store in my lifetime. Most of the people I know and game with are in similar positions. So, maybe I'm an outsider looking in, but it just seems like shopping at a game store is a thing of the past. Or at least, on its way there.

Why not leave it to the game stores to help themselves? I've recently moved over to shopping exclusively at a local store, and not because of the prices (although the prices pretty much match online retailers).

What this places offers is an area to just sit down and play a board game from a huge library while sipping on beer or coffee. And hey, they just happen to sell board games too. The place probably makes more money off of food and beverage sales, though they sell a shit ton of games. If it takes a few weeks to order something in, no problem. I like going there anyways to just chill and have a few games.

Maybe if more game stores took this legitimately friendly approach and kept out the awkward nerds with BO, more people would shop at them. As a side benefit, this place is extremely popular with the types of people you would never see at a typical hobby store. Regular people who come in to have fun and drink coffee with friends and leaving with a designer board game from a niche hobby.

Maybe it's time the typical FLGS dies off while better businesses take their place. Prices are the least of the problems with their way of operating.

My local game store has more constraints than you're identifying SaMoKo. They're not allowed to sell food because the restaurants in their rental space complained, and they are required to be open hours when there no sales occur or they pay a rental penalty. They have great game space and a good selection of materials, they run tournaments and are the local Mecca for the gaming scene. The clientele is as all-American as it gets. Their Christmas rush consists of people coming into the store to take photographs of the games they want to order online later in the day. During Pokemon last Saturday I watched the owner look at his customers and he wasn't smiling. His sales are often sympathy-driven and that does not please him.

Richard Garfield visited the store a year back when he was passing through the area and raved about it. He literally said "this is what all game stores should look like." But the store has to pay rent and has to play nice with other retailers. It's a requirement to reach a broader audience. Those are anchor chains not so easily thrown off.

This isn't a game issue. This is the entire U.S. economy. Best Buy is getting put out of business. The retail book industry is essentially there though B&N is putting up a noble fight. Tools, spare parts, pretty much anything that doesn't need to be fitted or otherwise customized is due for complete removal from the local retail scene. It's just part of the reality of the modern economy.

If you're providing a differentiable product you can thrive. That's where GameSalute comes in. In my opinion the only way to compete with online sales is online sales. I think it's as viable as any other option. But it depends on having an in-demand product that can't be purchased at a better price somewhere else. Part 1 of that last sentence is the hard part.

S.

So, maybe the "new FLGS" of the future is actually a bar, restaurant, eatery, or coffee shop that also sells board games, and then the "tabletop" hobby stores that exist today remain primarily comic/collectible/hobby stores with less emphasis on buying games. Maybe those shops are where the Magic happens, so to speak, regarding tournaments.

Really, the ecology of gaming stores would benefit from these sorts of things as restaurants that HAPPEN to also be places where gamers gather allows new people into the scene, and with the hobby shops becoming the "tabletop and card store", the old warmongers and stinky Magic players can really take over the places.

The RPG guys...well...they can do what they've always done - go to Starbucks and camp out for 6 hours at a spell fueled by biscotti and coffee?