Business Breakdowns
· 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?
· Todd Wenning
[00:00:00] S1: No. So, they have their own retail stores, as you mentioned. They have about 575 around the world. And about 55% of those are in Europe and the UK. About 35% are in North America, and 10% in Australasia. And you probably don't even know that they have a store in your town. If you live in a semi-major city in the US, you probably have what's called a Warhammer store. So, if you go to Google and type in "Warhammer store near me", you probably have one. I don't know this for sure, but we have one in Cincinnati. There might be one in Pittsburgh. There might be one in Cleveland. A lot of these stores are run by enthusiasts. About 75% of their stores are single-staff stores. So these are just enthusiasts who thought, I get together with my friends anyway to play this game. And, I might as well have a store and have everything set up there and make some sales and make a little money while I'm doing it. So a lot of them are in strip malls. The stores are fairly small, but they're stacked to the gills with just Games Workshop materials. They do not distribute any third party. That's about 20% of the revenue comes from the retail channel. 60% of the revenue goes through the trade channel, which is the third-party. And so that's where they might be in hobby stores, or I'm not sure if they're in Walmart, but they might be in like a Walmart store somewhere. These are all distributed to third-party independent sellers.
· Matt Reustle, Todd Wenning
[00:00:00] S0: I looked to understand the concept of a Warhammer store and found there was one just a 20-minute drive from me. So, I can attest to that being the truth. Just to have some context about this market, I think it is very enthusiast driven, but it continuously amazes me, the level of enthusiasm. I think you can even look at something like Marvel movies, and the real appreciation and diehard nature of some of the fans of the origin stories back to the Stan Lee days, and what that generated for that IP over time. Do you have any way of contextualizing the size of this type of market, and Games Workshop revenue is one data point, but I'm curious about that. [00:00:00] S1: It's a lot bigger than you probably think. There are 790,000 people around the world who've signed up for the "My Warhammer" emails. Free, regular emails that go out to people who are interested in Warhammer. About 248,000 people are subscribed to Warhammer Plus, which is a $50 a year subscription. Now this number is up from 115,000 three years ago. It has doubled over the past three years, in terms of people who are willing to not only subscribe to the emails, but also pay for the unique interactions they have with the company. So this is bigger than you might expect and growing very rapidly. [00:00:00] S0: When you mentioned the origins, was there demographic concentration or geographical concentration where this was really material in Europe first before expanding outwards? How key is Europe to the story? You mentioned the 55% number earlier, but I'm curious about that as well.