Pandasaurus Games(stooge)United States
first appeared on the company's blog on Sept. 4, 2019 in a somewhat different form. —WEM)
I want to talk about an issue called "The Superstar Effect" and the chaos that it creates in markets, focusing on the board game industry and why games are often out of print.
The Cabbage Patch Effect
There is a long-standing "common knowledge" theory that companies like to intentionally constrain supply in order to create a false sense of demand in the market, thereby making a thing hard to get, with that scarcity then making people want the thing that they can't have, even if it's not a thing that they would have otherwise wanted. This all falls under the blanket term "artificial scarcity".
Magic cards, Beanie Babies — any consumer product whose value is derived from the act of collecting itself or from speculation in secondary market prices. Rares have to be...well...rare. I was an avid collector of basketball cards as a kid, and I loved grabbing my Beckett and valuing my cards. If the rare cards had been more abundant and you could easily get them from a blind pack, then there would have been little point in collecting them as you could cheaply and easily get whatever collectibles you wanted.
Oddly enough, the most famous examples of artificial scarcity (Cabbage Patch Kids, Tickle Me Elmo, Furby, Ocarina of Time, Popeyes chicken sandwiches) were likely not artificially scarce. They were unexpected hits — or at least bigger hits than expected — that wound up outstripping the producers' capacity to make them. There is a famous story about the factory that made Etch-a-Sketch working around the clock on Christmas Eve to produce more to sell on Christmas morning.
The initial shortfall of supply for most of these products is a matter of guessing wrong about how badly people would want the item. After that, they couldn't catch up to the demand, at least not until months after Christmas.
Cabbage Patch Kids were all unique dolls. No two were ever going to be the same — I see you, KeyForge — and that caused massive issues at Coleco trying to keep up with the production demand of creating millions of unique dolls for Christmas. They just couldn't, which led to mass chaos and angry parents fighting each other in malls.
The vast majority of things that are supply constrained are not artificially constrained. They are actually constrained in the supply chain by how quickly they can be produced in quantity to meet demand.
The board game industry is not supply constrained, at least not in the hobby board game market. If our company wanted 100,000 units of a game, I could likely have them produced in 3-4 months. (I'll note that 100,000 units is a massive success in the hobby game space.) There is, of course, some upward theoretical limit of board game production capacity and at certain times of the year we come close to hitting it, but in reality the board game industry does not have a production capacity issue.
So if that's the case, why is it that board games sell out all the time?
The superstar effect isn't a new idea. The basic theory is this: If something is perceived to be of a higher quality, it will get a disproportionate number of dollars.
I'll put this into board game terms. Let's say that Root is 10% better than some similar game that came out in the same year. We'll call the other game Little Root. He has the heart of a champion; he's just not as good as Root. For this example, we'll assume Little Root is mechanically, artistically, thematically, and cost-wise similar to Root, but a little worse.
Logically speaking, Little Root is 10% worse, so you would expect sales to be about 10% worse if demand were linear.
And in a world in which consumer information was low, you would expect Little Root to do pretty well. After all, a game that is 10% worse than Root is still a good game. Why wouldn't it do well?
The problem for Little Root is that Root exists. More than that, though, Reddit exists, BGG exists, Facebook groups exist — and consumers talk. They talk about how good Root is. They talk about how Root is better than Little Root. They may even say things like "Little Root is actually pretty good, but it's not as good as Root." Consensus starts to form around how good Root is. People are playing Root, so then other people want to see why everyone is making cute woodland creatures go to war against one another, so they buy Root.
As a result, Little Root is not going to sell 10% worse than Root. It's going to sell a lot worse. Labor economist Sherwin Rosen's formula for the superstar effect is complicated, but the net result is this: Root is going to get almost all of the sales, and Little Root is probably not going to fare well.
It's simple. If there is a limited amount of money to go around for consumers, and Root is better, why buy Little Root at all? Just buy Root.
Of course, the board game world has hits out there other than Root, but they tend to fill a different niche, either mechanically, in game weight, or thematically. As a result, Scythe and Dinosaur Island and Wingspan and Root and Spirit Island can all coexist with one another. Santorini, Azul, Sagrada, and Machi Koro can all sell well. They all scratch a different itch from one another and will find an audience.
The hits are HITS. The non-hits are...well, going to do poorly.
What About the Sell-Outs?
You might be saying to yourself, "I thought this was about why games are sold out all the time."
I'm getting there, I swear. The reason games are sold out all the time is because of the superstar effect. Not every game can be a hit. For every Root, there are probably a hundred or more Little Roots that don't sell well.
And here is the big twist: Before consumers vote with their dollars, it is very hard to tell the difference between Root and Little Root. After all, it's not like Little Root is bad. It's a really good game, 90% as good as Root! And it's not as though the publisher of Little Root was aware that Root was coming out. If so, that publisher would have done something different.
Now for the second twist: Root didn't know it was the superstar either.
Leder Games has talented people top to bottom, and Root is a fantastic game — but Root could have been Little Someothergame. I think most talented publishers and designers set out to make the best game they can, but there is always the chance that another game will be better or be perceived as better.
Good publishers tend to have more than one hit title, so there are some things that we can do — release fewer games, be choosier about the games we release, put the games through longer development cycles, spend more on art and components, etc. — to try to give our games a chance at becoming a superstar...but we don't actually get to decide what is or is not a superstar.
This means we have to be cautious, so let's MATH!
I'm going to keep the math brief.
If we run a 30% profit margin on a game (made up numbers, but close enough to average, I would say), that means we need to sell 70% of our print-run to break even. We're going to ignore fixed costs in this calculation, so understand that the real numbers are likely worse than what I'm describing here.
• If I print 1,000 copies at a 30% margin, I need to sell 700 copies to break even.
• If I print 5,000 copies at a 30% margin, I need to sell 3,500 to break even.
• If I print 10,000 copies at a 30% margin, I need to sell 7,000 to break even.
Now let's reverse this.
• If I sell 3,500 games and I've printed 5,000, I have broken even.
• If I sell 3,500 games and I've printed 10,000, I have lost money — a lot of money.
If we assume this is a $50 game and the publisher sells the game into distribution at 40% of SRP, we're talking numbers like this:
• Revenue from selling 3,500 units: $70,000
• Cost of printing 5,000 units: $70,000
• Cost of printing 10,000 units: $140,000
So the swing is from breaking even to losing $70,000 by overprinting. Overprinting is a huge risk for publishers.
If I am Root, printing 10,000 copies is probably safe. Hell, printing 100,000 copies is probably safe. But if I am Little Root, printing 10,000 copies is bad, like "my company could be out of business" bad.
Now if Little Root doesn't know it's not Root, and Root doesn't know it's not Little Someothergame, then what does a publisher do? The answer is simple: We go to store owners and distributors and ask them, "Hey, how many of this thing do you want?"
Perfect, So You Solved It!
As it turns out, distribution and store owners, well, they also don't know what is going to be a big hit. They have more information than publishers do, generally knowing far more about the games that are coming out across the world.
Tapestry, whereas distributors have likely known about it for, say, five months. If I had gone to one of our distributors and excitedly showed them a civilization-building game, they would probably not take very many because they would likely feel that Tapestry is going to be the bigger hit.
Yes, sometimes distributors have enough information to have a good sense that given all the games they know are coming out, Game X is likely to be a success — but they aren't always right. There are games that surprise them. They certainly have under-purchased games from us in the past — and they have over-purchased games from us in the past as well. I mean, a quick perusal of games that are regularly on sale for 80% off SRP is a good guess as to where someone bet wrong.
Distributors Are More Risk-Averse Than Publishers
It turns out that distribution also has to worry about risk.
Distribution generally buys board games at about 40% of SRP and tends to sell them somewhere in the range of 50% of SRP to retailers. It's more complicated than that, with minimum order quantities and free freight shipping and discounting so that number can range from a little less to a bit more than 50%, but I don't want to overcomplicate stuff here.
In general, if distribution buys a $50 game for $20 a copy, they are going to sell that game for $25 a copy. Distribution's profit margin per $50 game (not accounting for fixed costs, shipping, marketing, employees, running a warehouse, etc.) is $5 for every game sold.
Again, let's run some math. Let's say a single distributor buys 1,000 copies of a $50 game.
• Cost to distribution: $20,000
• Revenue from selling 500 copies: $12,500
• Revenue from selling 1,000 copies: $25,000
These numbers can help you see part of the problem: Distribution's margin is thinner, and their risk on overbuying a title is higher than it is for even the publisher.
Distribution has some advantages over a publisher, namely (not accounting for exclusives) that they are more likely to be able to spread around the risk of games that underperform. For publishers, Little Leder Games and Little Root are in a world of hurt, while Leder Games and Root are doing great. The distributor, on the other hand, may have taken too much Little Root, but they'll also get to sell Root to offset some of those losses.
To sum up, the risk per title is worse for distribution and their overhead costs are far worse, so even though they can spread the "superstar" risk across more titles than a publisher can, they still can't make a habit of buying 5,000 copies of everything in the hope that they are all Root.
Retailers have similar limitations with risk, so they don't generally run around buying cases of games. They buy one or two copies and take a wait-and-see approach to most games for the same reason that we don't run around printing 20,000 units of every single title.
It leaves us in a pickle without a good way out. The reality is that for the vast majority of games, no one knows how big of a hit it's going to be until the game has come out and consumers have played it. Given that I don't want to go out of business, we have to print most titles as though they are Little Root.
If we have a breakout hit, then we'll print more and run with it. It may take us 6-9 months to find the right balance between demand and production, which means gamers are likely to be annoyed when they can't get games. We also run the risk of losing shelf space on store owners' shelves and losing mind-share in the marketplace while the game is unavailable.
We also don't actually know how many people want the game. Selling out of 5,000 copies doesn't mean we should go print 100,000. Demand for the game may top out at 6,000 copies, or perhaps 10,000 — or maybe over the next year or two that demand will continue to grow as more people play it. We just don't know.
We also risk another game coming along in the interim and firing us. It happens, and it happens not infrequently. You sell out of your first print run of a game and enthusiastically print more only to have some other new game come along, and the next thing you know you're Little Root.
Basically, everyone is cautious, and since everyone is cautious, it means hit games will be hard to get ahold of for the first 6-9 months of release.
What is Pandasaurus Games Doing About It?
We would be a pretty poor company if our solution to the whole "how to gauge demand" issue was to throw our hands up and say there is nothing to be done. Here's what we're doing instead:
Make fewer games that are better.
There is a business model out there that says print 3,000 copies of loads of games. Sell the first 3,000, then move on. There are companies that certainly follow that model.
It's a bad model.
If consumers figure out that a company can't be relied upon to make consistently good games, they will take a "wait and see" approach to your games. If stores get stiffed and have loads of your old games collecting dust or being put into sidewalk discount sales, they will remember. If distribution has loads of your games in a warehouse not moving, they will take less of your next game.
Our goal is for all of our games to sell 10,000 copies in their first twelve months. We are getting close to that being the case, and we've done that by releasing fewer games and making sure that every single one of them is special.
Our goal is that most of our games get a third and fourth printing and that one or two titles every year become evergreens — games that continue to sell for the next ten years and beyond. So far, we've had a lot of luck with several games that continue to sell extremely well year after year.
The way that we are getting our average sale per game up is by making sure every single game is good and by putting money into art budget, marketing, and store outreach. It takes years to earn gamers' trust that our games will be high quality and of an expected sort of game. This usually means family-friendly games in a gateway to midweight category. (Dinosaur Island is probably the upper limit of difficulty that we will release.)
It means Molly and I have a lot of frequent flyer miles. We are on the road all the time, both looking for new games and meeting with store owners and distributors globally to make sure they know about our games.
Jonathan Gilmour has been to four conventions in the last six weeks looking for new games for 2021. (2020 is already fully set in stone.) It’s a ton of work. Jonathan looks at up to a hundred games at larger shows, with a lot of them being repeat designs as he may see a game at Unpub and give feedback, then see changes at Origins or Gen Con. For our 6-8 releases in a year, we are likely looking at 400 designs to find that small number.
Now, we don't just put out the best eight games we find every year. Sometimes a game is fantastic, but it's a weird fit for our brand, so we'll send those designers to friends in the industry who would be a better fit for the title.
Wayfinders is probably about 90% the same as the game that we originally signed, but those small tweaks that Thomas and Jon made took the game from a very high-quality gateway-plus game to something incredibly special, and it took a lot of hard work and time.
After development we go through graphic design, art and production, something for Molly and Stevo to cover in a blog post at some point, but I think our artwork is top-notch, and our production quality tends to be on the higher side of the industry.
Wait, Why Don't You Just Make Root?
Well, for one thing I don't think Patrick will give it to us, but for another, it's because of everything I said. We don't get to decide which games are going to be superstars. We just put out high-quality game after high-quality game and figure if we play the odds enough, we'll get one occasionally. All we can do is make the best games we possibly can and hope that what made a game resonate with us also resonates with all of y'all. And we have to be cautious about the numbers that we print. Most of our games have print runs of 5,000 copies, although Machi Koro Legacy was several times that amount.
All that we can do as a company is try to make our non-superstar games more successful. If we can't do anything to make Root, we can do something to make sure our Little Roots find a bit more success in the market as a baseline and give them every chance we can for them to become superstars.
It also means something crazy has happened, and this entire blog post was very prescient on my mind because we have a "good" problem: All of our new releases for mid-2019 are completely sold out at the publisher level. Now, this doesn't mean that all of them are going to be the next Root, but it does mean you should probably snag any of our new games you want quickly. We're reprinting all of them, but it'll be December 2019 before they are back in stock...
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