Saturday, January 07, 2006

Games Workshop Profit Warning

Yesterday GW issued a profit warning to the London stock market. This is basically saying, we told you what we expected to make (because as a publicly traded company they publish such things), you bought our stock on that basis and we just realised we're not going to hit our targets. The stock proceeded to drop 15% and some analysts (effectively stock pickers who publish high priced newsletters) downgraded their advice on the stock from "hold" to "sell" which will probably have longer term impact on the GW share price (the analysts, by the way, are likely experts on retailing rather than games, games isn't big enough to be a category).

Ultimately, the management at GW answer to their shareholders, and they're going to have to come up with a plan to fix things or else the shareholders (typically dominated by "institutional" investors like pension funds and banks, rather than being a large mob of people with pitchforks and one share each) will want new management. As a public company they're measured on profit, so the answers are to sell more stuff (assuming it's profitable) or to cut costs. GW's "plan" (I put this in inverted commas since I'm sure there's more to it), in their statement, is to open more retail outlets and introduce more people to their games.

The blame, by the way, has been placed squarely on the Lord of the Rings, and a fall-off in interest in the associated games. This doesn't mean the LotR games are a disaster, just that they're not making as much money as they used to make (these crises and judgements are based on the likelihood of whether the company can continue to grow and justify a premium on its price, not whether it's likely to lose money and go bust). Unfortunately for GW, this provides a great angle for journalists and as an example the Independent business pages have a great picture of a Mumak and some infantry miniatures.

In fact, GW is still making a profit, albeit barely - £119,000 for the first half of 2005 (their profits for 2004 were £7.7m). Sales for the second 6 months of 2005 up to November, were £57.1m, down 20% . Unfortunately, those shifts are big enough to attract news.

I guess a bunch of people will see this as a well-deserved poke in the eye for the "evil empire". Personally I like to see GW, given their sponsorship of some great models and some great games, do well and I hope they can turn it round without damaging "the hobby" through mass cost-cutting and more price rises. The stuff about more retail outlets makes me think they're still more obsessed with price protection than with selling more stuff, though.

By the way, the Reuters article linked at the top of this post lists GW's portfolio (in addition to LotR) as "the classic Warhammer, the simply-titled Epic and other games including Battlefleet Gothic, Blood Bowl, Inquisitor, Necromunda and Warmaster". Given that the journalist is also probably a retail expert rather than a games enthusiast, he probably got this from a publicity pack somewhere. The mention of the "specialist/fanatic" games may just reflect their files being out of date, or maybe someone in GW marketing realises their game portfolio is really a bit too small for a company their size? If the analyst community realised that they actually depend on 3 games, 2 of which are called Warhammer, then they might realise that a significant shift in one of them (by all accounts the most successful) is going to seriously destabilise the business.


Anonymous c0d3monk33 said...

LOTR obviously gets the blame because it's a licensed 'game world'. I wonder how much the license costs reduce the margin on LOTR products?

Fairly constant price increases have reduced my interest in Games Workshop's main games for several years now. I do play the specialist games mainly because of the reduced figure counts - oh and because some of them are particularly fine games.

11:43 PM  
Anonymous Anonymous said...

First off, great blog, I stumbled onto it tonight, and I'm glad I did. In regards to the GW story, I hate to say it, but they had this coming.

I remember fondly the GW of my youth, and the GW of today is simply a different company. Between price-fixing, overly-expensive models, a reliance on fadishness, and inexplicable mistreatment of older gamers, GW was bound to pay the price sooner or later.
I've been very sorry to see the downward spiral of the "specialist" games, those were always my favorites. It would be great if GW can turn over a new leaf, drop LotR (honestly Warhammer is a LotR ripoff anyway), and go back to releasing a "third" game every few years. Here's hoping! Otherwise I see newer, more agile companies like Privateer killing GW over time.

3:00 AM  
Anonymous Anonymous said...

First off I disagree with your statement that GW should drop LOTR as their third core game, there is a lot of interest in the game look at if you don't believe me and it is also the best, most realisic, in terms of gameplay, game that GW do . However I agree with you that GW had it coming, constant price rises have practically destroyed the interest of newcomers to the game. I know plenty of people that have dropped out for the simple reason it is too expensive, you can't expect a newcomer to spend £10 on one small 25mm figure. GW have realised this and have started to bring out more and more figures to compensate for the lack of sales. Take Lord of the Rings they have bought out a practical whirlwind of materially challenged supplements recently. GW have taken to making a load of completely random characters,twisting the LOTR SBG from an excellent and highly playble game true to both the film and the book into an almost unrecognisable jumble of fiction. They don't even take time to cover their supplements properly LOTR has now become a purely money making scheme destroying the franchise utterly. Now they have bought out the Chaos Space marines for 40K and I can see the same happening to them and Warhammer now has the orcs comming. At the beginning new models and supplements were carried out with care and love, factors that have completely disappeared. It is also a huge shame that now supplements are a regular occurence they are no longer a suprise and pleasure real contributionds to the game but one of those things that people groan at and shake their rapidly diminishing wallets. I also feel for the specialist games and their supporters who GW have abandoned but maybe they should think themselves lucky that GW hasn't started trying to exploit them and their games.

10:49 AM  
Anonymous Anonymous said...

It's a real shame that GW seems to be on a downwards spiral.
The truth is that so many people - myself included, love Games Workshop and have fond memories of what it used to be like. Memories like these can obscure the fact that GW is a business.
However, there is no question in my mind (and I'm sure alot of people would disagree with this) that GW has just become too unfeeling in it's whole approach to the hobby - I mean Jesus, you've got to be pretty well off to be able to buy new miniatures these days! This is so apparent when you can go on ebay and get the same miniatues for a fraction of the price! Thats just it - as long as people are going elsewhere to get bargains, it's money lost to GW, especially when those bargains are second hand goods. If only they would drop their prices - not to a stupid level but enough to persuade bargain hunters to buy new from them instead.
I don't want them to go under, but they have got to make changes.

8:44 AM  
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