Business Breakdowns
· Matt Reustle
[00:00:00] S0: This is Matt Reustle, and today we are breaking down Games Workshop. This episode is another examination of the business of IP, and whether it’s Disney, Electronic Arts, or Nintendo; there are so many businesses built around core a IP franchise. And Games Workshop and its Warhammer franchise may not be as familiar to our North America listeners, but this episode will tell you why that may be changing very soon. Or you can just stay tuned on your Amazon Prime or search around your local area to see if there are Warhammer retail shops in your location. My guest is Todd Wenning, President and CIO of NZS Capital. Todd shares his own personal story uncovering Games Workshop many years ago, he gets into the fun evolution of this business which ties into the vertical integration that it has today. And he shares what lies ahead as awareness of Warhammer grows, and those loyal enthusiasts that have been around for generations welcome more into their world. So please enjoy this episode on Games Workshop. Alright Todd, it is great to have you back. You gave us one of my more enjoyable episodes last year with Ecolab and some of the unique details about that story. So anyone who hasn't listened to that episode, I would definitely point you to that. But today, we're here to talk about Games Workshop, a business that I have seen popping up. I actually had someone else reach out, a former guest interested in doing a breakdown on it. There seems to be growing interest in this name for obvious reasons. It's a fascinating story that we'll get into. But I just wanted to start out with the simple introduction because I think there's IP in here that some may be familiar with. But it is what I would consider kind of in the niche hobbyist category. And you can elaborate on that in terms of what Games Workshop is as a business and what they might be known for.
· Todd Wenning, Matt Reustle
[00:00:00] S1: Matt, thanks for having me back. It's great to be here. I love listening to the show and any way I can contribute, all the better. Games Workshop is, in my opinion, the best company that most North American investors, at least, have never heard of. It's a really fascinating story. As you mentioned, it combines intellectual property, there's network effects, there's a television show coming out. There's a lot to dig into with Games Workshop. So, it's a company I came across in probably 2019. I had heard of it. I used to work in the UK, and I'd heard of it, rumblings, but I hadn't really known much about it. Once I started diving into the company, I thought, this is really one of those companies I needed to have on my radar. And then once I launched my fund, I saw the opportunity to buy some and have been a shareholder since. Very excited to talk about Games Workshop today. [00:00:00] S0: Maybe you can get into some of the IP. We have infamous brands associated with IP, Marvel or DC and how they operate, as a framing in mind. But what makes up Games Workshop in terms of that special IP and their way that they monetize that, operate it, and nurture over it?
· Todd Wenning
[00:00:00] S1: So it's probably good to start with the history of Games Workshop. There is deep lore about Games Workshop's origins and backstory, as well as the narratives of its stories. It's a very beloved IP and a very beloved company. And that's part of what makes it a really special company. In the late 1970s, a group of three men in the UK were building wooden games. Backgammon, Go. Around that time, they caught wind of this new thing that was hitting the US called Dungeons & Dragons. They thought, this is really fascinating. And so they had some connection with the owner of Dungeons & Dragons in the US, and so they became the UK distributor for Dungeons & Dragons. And eventually they saw how this connection between narrative and gameplay was coming together. And they opened their own store, started selling their own games that they were making, started selling Dungeons & Dragons materials through those. In the early 1980s, they decided that, we're going to create our own game. The first game that they came out with was called Warhammer. And it was loosely based on the Lord of the Rings kind of era, medieval fantasy role-playing. What they did was instead of doing a tabletop game where people sit around and tell stories, they have miniatures involved. The miniatures are part of the game. You get these miniatures and they're very ornate. Now they're plastic, but back then they were metal alloy. And you could paint them. Each of your characters has different attributes and you roll dice. There's similarities to Dungeons & Dragons. About two years later, they came up with this new concept, versus Warhammer which is more medieval fantasy. And it's called Warhammer 40,000. It's basically the Warhammer world 40,000 years into the future. So, it became this grim, dark science fiction fantasy world where you have a human race that's fallen. They're fighting against different alien factions across the galaxy. You can play as a humanoid or you can play as an alien faction. And you can pick, which one appeals to you the most. I'm not sure if it was part of the plan or not, but when you have a world that takes place 40,000 years from now, you can build a lot of backstory behind that to the present. Just endless stories and IP around how things got to where they are. That's created new storylines for the business. So it gets really deep, very intricate.
· Todd Wenning, Matt Reustle
So if you're thinking about the Tolkien world, or the Game of Thrones world where they just keep adding new context to the backstory, it's very similar. So it can go very deep. Games Workshop actually owns their own publishing arm called the Black Library that produces a lot of this narrative. They are actually vertically integrated all the way from paint to publishing. They manufacture the miniatures, they make the paint – Citadel, the publishing, they do the distribution, they do the stores. They own it top to tail. It's a very fascinating business in terms of how they control all of it and the allure of their IP, and how beloved it is with their fans. [00:00:00] S0: I'm curious, you don't often hear about the origins being in the distribution and then evolving into the creation of a world and a game and narrative around it. Were those original founders still very much a part of that storyline into the '80s as they took off with the homegrown IP? Did they play a major role there or was it someone else coming into the fold that helped them evolve that side of things?
· Matt Reustle, Todd Wenning
[00:00:00] S0: I'm curious, you don't often hear about the origins being in the distribution and then evolving into the creation of a world and a game and narrative around it. Were those original founders still very much a part of that storyline into the '80s as they took off with the homegrown IP? Did they play a major role there or was it someone else coming into the fold that helped them evolve that side of things? [00:00:00] S1: One of the three decided that he wanted to just go back to what they were doing before, working on wooden games. The other two really got into this fantasy world and narratives, and tabletop gaming. They brought in other people. So there were a couple of major outsiders that came in and helped them develop this game, and it spawned into this subculture of people who just really loved the narrative and dove into it, and wanted to play it, engage with it, and connect with other people, which is a big part of the story today. [00:00:00] S0: You alluded to this. It sounds like the evolution of that story takes place both in publishing, whether it's books, graphic novels, whatever it might be, in addition to the miniatures. Is it fair to call them figurines? [00:00:00] S1: Gotta be careful here, Matt. I think the way it's framed is they are miniature war games. They're not figurines. They are tabletop gaming pieces. They are things that we engage with and use to achieve our mission in the game. So we got to be careful what we say.
· Todd Wenning, Matt Reustle
[00:00:00] S1: Gotta be careful here, Matt. I think the way it's framed is they are miniature war games. They're not figurines. They are tabletop gaming pieces. They are things that we engage with and use to achieve our mission in the game. So we got to be careful what we say. [00:00:00] S0: It's an important distinction in terms of how they're used, and, I maybe didn't appreciate the definition of figurine to begin with. So, I’ve learned something way beyond businesses on this show. In terms of the brick-and-mortar concepts, there are Warhammer stores. Are they distributing, obviously, Warhammer-related IP products? But is there also still third-party product that gets distributed through those stores as well?