Challenges and Solutions, Take Two

[Sean P. Fannon]

Hello again, everyone. I do hope that the holiday was a pleasant one for everyone.

As promised, I am now posting the larger document that I referenced numerous times in the previous discussion. Hopefully, it will answer the questions asked, and provide the added information that many felt was missing from the One Page. I will probably break this up across multiple posts, just to prevent it from being one long scroll-fest.

If, after reading this, you still have questions, comments, concerns, or what-have-you, I will be happy to entertain any reasonable discourse. I encourage you to ping me directly at my SeanPatFan@gmail.com for quick replies.

Challenges and Solutions for the RPG Market of 2006 and Beyond
A GAMA Program for Publishers, POD Printers, Distributors, PDF Sales Sites, and Retailers

Goal: To provide both a vision and assistance towards integrated solutions that enhance business opportunities for everyone involved in 21st Century RPG publication and sales.

The Foundational Issues

   Most RPG publishers cannot afford to do business in the same mode they once did. Up-front printing costs are too high, with too little chance that enough books will be sold to make up the investment, much less pay the bills of doing business. Those publishers that do print products have, in most cases, taken to direct sales to try and make up their losses (in some cases going so far as to actively encourage their customers to buy direct from them instead of supporting the retail outlets).

   Retailers are, not surprisingly, angry with such publishers. That is, they are angry with the publishers whose product they would be carrying. Other publishers – particularly newer ones – go this route because they can't even get retailers to ask for their products from distributors, and distributors are becoming increasingly careful about what products they will dare to carry.

   More and more RPG publishers have foregone print publishing altogether, instead relying on sales of their products as electronic files (almost entirely PDF) sold directly from their sites and through such venues as RPGNow, DriveThruRPG, e23, and Paizo. This market has fairly exploded for some companies, and it does well enough for others as to make it worth their sweat equity to keep producing.

   These adaptations have changed the business model to a large degree, to be sure, but things are still rough all over. In addition, there are a few other issues and challenges at work:

• Gamers generally want books. While many are willing to purchase PDFs, they would greatly prefer actual print products that did not require them to burn their own printer ink and spend lots of time putting sheets into binders. This is an oft-repeated comment from the consumer base.
• Publishers, as a general rule, really would prefer to have print versions of their product in the market as well.
• Retailers gain no benefit from the current PDF market; in many cases, they feel their businesses being unfairly undercut by this market.
• Distributors also gain no benefit from either the direct sales or PDF markets. In many cases, the products in question are not produced or sold in quantities that are worthwhile for them, but there are still quite a few products that could represent sales they are currently missing out on.
• Consumers who genuinely wish to support their locals stores cannot do so in the cases where the product lines they are interested in are only offered via PDFs or are otherwise attainable only through direct sales.
• Current trends have created a self-sustaining downward spiral as publishers have less and less opportunity to put products into the regular distribution channels (and less and less incentive to do so), while retailers lose more and more products to direct sales (as well as losing interest in supporting new and innovative product lines).

[Sean P. Fannon]

Positive Impact Elements

   Disparate elements and evolving models have, thus far, only served certain portions of the RPG market. However, enough ideas and technological breakthroughs have come about that a holistic, integrated set of solutions can now be described and undertaken to include various levels of the industry. A "win-win" scenario can be achieved for all concerned, in other words.

   The following elements figure into the solution options that now exist:

• Print-On-Demand (POD) technology has evolved to a state that serves the quality needs of the RPG industry. The average POD book can now sit on the same shelf as a traditional print product and be virtually indistinguishable from such a product in the eyes of the consumer.
• POD still offers the extremely valuable assets of low investment costs, low overhead, low risk, and no need for warehousing.
• POD technology is on the threshold of changing the entire print industry; it is not beyond reason to see that traditional print houses will lose massive ground to POD shops, especially as POD becomes capable of serving the color needs of publishers at costs equal to today's black-and-white costs.
• There are now two identifiable customer bases for RPGs – Internet customers and brick-and-mortar customers. These groups overlap, to be certain, but most RPG consumers still want print books for the majority of their gaming libraries. Many customers, in fact, will actually purchase both a PDF and a print version of their favorite products.
• Customers purchasing books via direct sales options are currently paying harsh shipping fees, and this strongly chills their purchase frequency.
• The average creator (writer, editor, artist, etc.) has been trained by current trends to take "back end" options for their work, making it much more possible for companies to put together good product for low up front costs. This is possible because the PDF/direct sales percentages from a product are so much higher than traditional per-book revenue. This model still works in the proposed solution options.
• Current marketing approaches enable publishers to develop a strong and loyal following of core fans that will consistently purchase new products. These fan bases can be cultivated to serve the entire industry chain if serviced correctly.

[Sean P. Fannon]

Clean and Easy Solutions

   The above positive elements can be combined in a manner that is both innovative and familiar to provide access to more customers for all concerned. Publishers, PDF shops, and POD houses can access traditional brick-and-mortar customers, while distributors and retailers can finally get a piece of the PDF market as well as woo back some of the direct sales customers.

   The following are some models that can be applied to accomplish these goals:

The "POD as Distributor" Model

In this model, a Print On Demand shop actually adopts the role of a distributor, creating a variant of the traditional three-tier business that currently exists. They establish direct relationships with the retailers, taking and fulfilling orders for product and shipping books to all points.

   The pricing is probably not dissimilar to that of the classic three tier mode of business, though adjustments for different costs and expectations may well shift that. At any rate, retailers will charge a cover price, while the POD shop and the manufacturer each gain a percentage of that price.

Advantages

• For the end consumer, this is little change beyond a wider variety of products made available. Those consumers seeking to attain print versions of their favorite PDF products will be able to get them from their local shops.
• For the retailer, there is access to product lines that were previously unavailable. They will be able to carry what was previously only available as PDFs and fulfill their customers needs for (a) print versions of PDF product and (b) relief from the burdens of high shipping costs.
• For the publishers and the POD shop, there is access to sales that were not previously being made. Both can benefit from retail sales to customers unattainable via Internet shopping.
• Both the publisher and the retailer will be working with a model they understand; the retailer, in particular, will have to do very little "mental adjustment" to make use of this model, other than perusing another catalogue of available products and making orders from it.
• The retailer will have some new options as well; they can order just one of the products they really want to have on hand, without having to worry about making particular price breaks or "stocking up" in case a print run sells out. They can always order another one, any time. The retailer can also just have catalogues and sales material on hand for other product, confident they can order what they need and have it on hand within a couple of days (which is actually pretty much the same as it is for regular print product).
• Savvy publishers will make sure they can offer anything released as PDF in print form. Savvy retailers will make sure they can sell anything published.
• PDF consumers will now have the ability to get print version without having to burn their own ink and paper. They will also be able to have a "real book" instead of a three-ring binder version.

Disadvantages

• The POD shop will have to develop an expanded order fulfillment operation. They will be dealing with far more shipping, entailing smaller orders sent all over the country far more frequently than they are currently accustomed to.
• The POD shop will have to develop direct sales relationships with the retailers, similar to those the distributors already have. In some cases, this will mean some form of competition with distributors, which can be problematic for those POD shops that are currently doing business with distributors on behalf of their current publisher clients.
• Retailers will have to develop relationships with the POD houses offering the product lines they want to carry. They will have to handle more ordering processes and track more product shipments.
• Publishers will have to evaluate their product offerings to maximize their revenue; additional sales into the retail market will be a good thing, but in some cases it could reduce the number of direct and PDF sales they are expecting. This will likely be a product-by-product issue. In most situations, however, sales into the retail outlets will be added revenue that was not being attained otherwise.

[Sean P. Fannon]

The "POD + Distributor" Model

In this model, a Print On Demand shop sets up with one or more distributors to fulfill POD-based orders for them. In effect, they become the "digital warehouse" portion of the distributor's operation, printing out books and including them in outgoing shipments to retailers.

   Alternately, the distributor can actually go so far as to set up their own POD operation within their main office, printing and fulfilling orders right alongside the stacks of traditionally-printed product and other product they are shipping out.

   As with the first model, the pricing is probably close to that of the classic three tier mode of business.

Advantages

• Most of the same advantages as found on the first model.
• The distributor already has all of the retail contacts needed and established business accounts.
• The distributor already has shipment processing on the scale required.
• The distributor is included in the revenue access, rather than excluded.
• The distributor's catalogue of offerings expanded tremendously.

Disadvantages

• Added complexity; either an intricate business deal between the POD shop and the distributor, or added complexity to the distributors processes.
• Up-front investment on the distributors part if they actually put POD capacity into the warehouse.
• Thinner slices of the revenue pie if the distributor and the POD shop are both cut in along with the publisher and the retailer.
• The distributor's catalogue of offerings expanded tremendously (thus increasing the "signal/noise" the retailers must sift through in their shopping).

[Sean P. Fannon]

The "PDF Internet Seller as Distributor" Model

The prime example of this model is RPGNow, though any Internet-based company that specializes in PDF sales and can supply POD versions is a viable element of this structure.

In this model, the PDF seller establishes the contacts and business practices necessary to fulfill orders from retailers for products they are already selling direct to their consumer base. In almost all ways, this puts the PDF seller in the same role as that of the POD shop in the first model. This usually means that a separate POD shop is involved as well (in the case of RPGNow, this means Lulu).

Advantages

• Again, many of the same advantages of the previous two models.
• The publisher is dealing with the same people, making their business easier to manage with little change.
• The PDF seller is converted from being only a competitor to becoming a partner with retailers, fomenting a positive relationship instead of a negatively competitive one.
• The PDF seller, along with their PDF-primary and PDF-only vendors, gains new revenue streams and opportunities.

Disadvantages

• Additional workload and other complications for the PDF seller.
• Likely pie-slicing issues as in the second model.
• Completely unfamiliar business mode for the PDF seller (and probably many of the publishers), requiring much education.

[Sean P. Fannon]

That's it, friends. That's the "big idea" that I've had about how at least some of us might make some additional money and reach more of our potential customers. I do also see it as a means of supporting existing participants in the industry overall, and while I understand that this may be a negative motivator for some of you, I do hope at least some here can see value in that goal.

I posted this because I wanted to honor those of you who've been kind, thoughtful, and welcoming in your dealings with me.

Thank you for that.

[Bankuei]

Hi Sean,

Can you explain, if at all, how this changes the relationship to retailers or distributors?  From the retailer side, there's no real incentive to try to stock POD games, and from the consumer side, there's no reason to pay extra for those games when they could be ordered via Lulu, RPGNow, etc.  I don't see how any of the current traditional distributors have something extra to contribute in either side.

As far as I can tell, this isn't any change from what is currently served by the market.

Chris

[timfire]

One issue you don't discuss here is the cost of POD printing. You acknowledge that POD costs are high, but don't really answer how to solve that issue. Presumably, if the Distributor does POD printing in-house, or partners with a POD service, it would cut the cost some. But I'm not sure if it will cut it enough.

Another issue to consider is what type of POD printing you're talking about. I'm sure you're aware of the difference between "true" POD (books are printed one by one when ordered) and "short-run" POD (books are ordered in batches of 100-500 or so). "True" POD is really expensive. That's possible when selling direct. So what if printing costs 30-40% of the cover? That still leaves 60-70%. But in the 3-tier system, when the publisher only keeps 40%, that's a killer. Even if you can get the cost down to 20%, that's not leaving a whole lot for the publisher.

I believe you can get the cost of "short-run" books within a managable percentage, but short-run books have most of the disadvantages as traditional printing. You still have to front money (though not as much), which means you have to worry whether the book will sell or not. You have also to worry about warehousing (though again, not as much).

(Cross-posted with Chris)

[Luke]

Hi Sean,

Thanks for posting this up for discussion. I'm sure this'll clear up a lot of questions so we can cut to the heart of the matter.

Distributors also gain no benefit from either the direct sales or PDF markets. In many cases, the products in question are not produced or sold in quantities that are worthwhile for them, but there are still quite a few products that could represent sales they are currently missing out on.

Consumers who genuinely wish to support their locals stores cannot do so in the cases where the product lines they are interested in are only offered via PDFs or are otherwise attainable only through direct sales.

Current trends have created a self-sustaining downward spiral as publishers have less and less opportunity to put products into the regular distribution channels (and less and less incentive to do so), while retailers lose more and more products to direct sales (as well as losing interest in supporting new and innovative product lines).

On one hand, you attest that customers overwhelming want books. I agree. But the above passage seems to fingerpoint at PDFs for cutting retailers and distributers out of a major revenue stream. It doesn't gel. Either customers are primarily buying books and PDFs are a minor side gig for the rpg publishing industry, or PDFs are the wave of the future. If PDF technology is adopted by the consumer, I don't think that printing is an issue. People who want PDFs will want them for their virtues not their flaws.

But all this also dances around the idea of this downward spiral you mention. How is a POD production model controlled by distribution -- who many of us see as the choking vine in the industry -- going to reinvigorate the process  of buying and selling rpgs? How is introducing more product into an already saturated industry going to help get kids to stores to play and buy games?

I dunno man. This model seems like you're centralizing production and distribution which has historically proven to be bad.

Thanks,
-Luke

[Keith Senkowski]

Sean,

I think Luke asked a very good, very tough question and I too am very interested how this model you have proposed going to get more people to sit down and play.  The current model, which you are just tweaking a bit, isn't putting more butts in the seats.  How is shuffling the deck of responsibility in the three tier system going to get more people to buy product, play that shit, and come back for more?

I say nuke the whole fucking three tier system as it stands right now cause it ain't help'n nobody.  Instead we should be looking at how to harness the success of conventions and learn how to export that to the smaller scale, much in the way those crazy fuckers in NYC do it.  But that is a whole 'nother topic and I should have kept my mouth shut and started a new thread.

Keith

[Sean P. Fannon]

Folks,

I am reading as best I can, and I am thrilled to already be getting feedback. I will be collecting all of your questions and posting a "mega-response" in the near future.

Right now, however, I am very much involved in getting an event submission system up in place for Origins 2006, and this will be a priority for the next couple of days.

More when I can, I promise.

I will say that I agree this is not and end-all, be-all solution. It is only one of a number of things that could or should be done to enhance the business. One of my main tasks at GAMA, beyond the shows we do, is to figure out ways to expand the RPG market and get more people to, as Keith so wonderfully put it, "play that shit."

[LloydBrown]

Can you explain, if at all, how this changes the relationship to retailers or distributors?  From the retailer side, there's no real incentive to try to stock POD games,

Know how I keep pointing out how indie pubs don't offer retailers anything?  Well, here's the caveat.  Once a store reaches a certain volume and cash-flow comfort level, it's not necessarily searching for every point of margin it can eke out on every single item.  It looks for other benefits, as well.  Picking up indie RPGs offers a competitive edge vs. big box and other independent retailers in the same market.  It also serves to reach those customers who spend some dollars in the store and some dollars online. 

Removing the burden of special-ordering every single title directly from the publisher makes ordering indie RPGs much easier on the retailer. 

At this point, speaking as someone with retailing experience, I wouldn't be worried about the cost until I saw some real numbers.  Many indie publishers underprice their product, which allows me to make my money anyway.  Just keep your darn un-informed SRP off the cover!  (said with a grin, guys). 

[Bankuei]

Hi Sean,

I am reading as best I can, and I am thrilled to already be getting feedback. I will be collecting all of your questions and posting a "mega-response" in the near future.

Thus far, you've avoided every direct question about the material you've presented, from the previous thread and this one as well.  How about instead of a mega-response, try addressing just a single question that has been posited to you.  I'm sure that it would require less effort on your part and serve everyone's needs here better.

Chris

[Ben Lehman]

Sean --

Well, thanks for posting.  I honestly cannot see what any of this has to offer me as a publisher or as a game player.

Perhaps your answer to Chris's question will clarify that.

yrs--
--Ben

[Valamir]

You know, maybe we could try cutting Sean some slack here.  I mean I'm pretty much a blunt, direct, eff you if you don't like it kind of guy; but these last threads are even making me cringe.

Is is really appropriate to turn Sean's threads into a bear pit just because we don't immediately see where the value added is?  I mean hell, even if we think the idea is all wet we should still be slapping him on the back and giving him kudos for trying...I mean this stuff may be so routine to us that we don't see why we need some third party assistance to accomplish it...but for some publishers out there the idea is down right revolutionary. Ok, so maybe it doesn't go far enough, and maybe it doesn't make a clean enough break with "the old school", but christ on a cracker why all the embedded hostility?

There are better ways of debating the merits of an idea than we've seen in the last couple of these threads, and 99 times in a 100 we'd be using them.  I'd appreciate it greatly if we stopped making these the 1 in 100 exception.

Thanks