Games Workshop PLC profits while testing the loyalty of its biggest fans
Shares in Games Workshop from 11,540p to around 9,487p over the past six months. Supply chain issues and rising costs could be to blame, but customer dissatisfaction could also
Games Workshop Group PLC (LSE: GAW) has a dedicated and die-hard following who nonetheless regularly get angry with the company.
Constantly wiping out the fanbase hasn’t stopped the business from evolving from a company that initially served a niche market in the UK to an FTSE 250 company that serves a niche market across the UK. world.
The most recent controversy within the Games Workshop community erupted about five months ago when the company changed its intellectual property (IP) guidelines.
Rather than aimed at warning commercial companies, the new guidelines seemed to be aimed squarely at fans who were creating their own content inspired by Games Workshop’s game systems (essentially Warhammer, a set of war game rules based in a Tolkienesque world. Lord of the Rings, a set of war game rules featuring characters, races, and locations from the books by JRR Tolkien; and Warhammer 40k, a sci-fi game featuring 24 different factions, including one called ” Orks ”- I can’t begin to think where they got the idea for this faction from).
The stipulations imposed by Games Workshop (GW) were intended to prevent the use of any illustrations or images copied from any official Games Workshop material; prevent content creators from making money from their efforts; prevent the use of any GW logos – i.e. make it clear that the content is unofficial; make sure that none of the content providers have said anything derogatory about GW.
Some popular GW fanboyz and fangurlz have gotten the hang of their GW related content creation activities, which has shocked fanboys / fangurlz fans.
Soon, an article on Reddit called for a boycott of Games Workshop.
The boycott may have hit stocks more than the bottom line
Interim results announced today by Games Workshop suggest that no boycott will bring the company to its knees. Pre-tax profit for the six months ended November 2021 was down to £ 88.2million from £ 91.6million the year before, but revenue at constant exchange rates increased to 191 , £ 5million versus £ 186.8million.
Peel Hunt said the results were excellent given the tough comparisons a year ago and the impact of currency, freight and supply chain disruptions.
“The headwinds are easing now, as the currency flattens, capacity increases and freight and supply chain issues stabilize. With prospects for improvement, we are increasing our forecasts by around 3%. There’s a lot to look forward to in our opinion, with increased capacity to meet demand, a full roster of video game releases, and plenty of activity on new projects, ”the broker said.
Gemma Boothroyd, analyst at Freetrade, said Games Workshop’s vertically integrated business model provides some advantages.
“Soaring transportation costs to transport its miniatures and tabletop games may have made these products less cost effective than in the past, but given that Games Workshop manages the process from start to finish to deliver these products to consumers, it might be better able to pivot and react. This could mean reducing costs in other stages of production or prioritizing more profitable product flows instead, ”said Boothroyd.
Or, if a Youtuber is to be believed, increasing the prices of model packs while reducing the number of model figurines per pack – a trick the company may have adopted from the confectionery world, where the size of a bar of chocolate seems to decline in times of high commodity prices.
“Games Workshop has responded to its supply chain issues by focusing more on digital products, entering into a computer games licensing agreement with Nexon Co. By selling the games remotely, the company can bypass the related issues. to the production and distribution of clunky physical products instead, ”Boothroyd said. .
Of course, many GW aficionados adore “clunky physical products,” which they lovingly put together and paint.
Fans also love all the hoop associated with being a member of the “hobby” like the aforementioned fan fiction, YouTube sites, and internet forums.
It’s a bit Orkward
As such, the damage to GW may be more to its reputation than to its profit and loss account. As Russ Mold at AJ Bell observed, this is potentially more serious than the growing supply chain and cost issues.
“Potentially more serious have been reported rifts between Games Workshop and its followers, related to launching a subscription service and aggressively protecting its intellectual property by suing YouTubers who created Warhammer-inspired animations and stories.” , Mold said. .
“While it is understandable that Games Workshop protects its intellectual property [intellectual property], he must advance carefully. The value of the company is inextricably linked to the attachment of fans to the Warhammer brand, ”he added.
Mold isn’t wrong, but while it’s true that there are other gaming systems similar to GW’s offerings, none of them have the market share or track record of Warhammer and Warhammer 40k. .
To use an analogy, Apple users can be just as evangelical and enthusiastic about their iPhones as GW fans are about their Dark Eldar armies or whatever, but if the going goes worse, Apple users could upgrade to an Android phone and get a similar level of apps, features, and functionality.
With Games Workshop, you leave the GW camp and immediately have trouble finding players with whom to organize miniature fights.
Some might argue that this market dominance has led GW to go complacent and take their fans for granted. Fortunately, the company seems to be aware of the need to forge links with part of the community.
“It is remarkable in today’s results that Games Workshop plans to launch a community outreach team to help fans create user-generated content and potentially mend some barriers with the fanbase,” Russ Mold noted in his commentary on the results.
“The main areas of interest for the long-term company are the licensing and royalty opportunities associated with video games as well as television and film productions. These revenue streams are very profitable as they usually involve limited costs for Games Workshop itself.
“Games Workshop is already quite advanced on the video game front, however, comments from the company that it remains” ambitious and patient “when it comes to media and entertainment opportunities suggest that this area will not be successful in the marketplace. overnight, “he added.
Again, I don’t want to downplay the importance of digital, but tabletop war games remain a face-to-face gaming hobby; the clue is in the name.
In the long run, Games Workshop shareholders may be more concerned about the growing popularity of 3D printers. These are not yet widespread, but their existence means that it is already possible to produce model figures at home. Meanwhile, since the era of Gestetner and Roneo duplicators, it has been possible to mass produce miniature fan-based war game rules systems and the digital age has made that much easier.
Imagine a website where fan-made 3D model files are available for free alongside fan-based game systems and storylines. Who needs Games Workshop then?