Games Workshop Group PLC (LSE:GAW) has a hardcore devoted following that nevertheless gets very angry with the company periodically.
Consistently cheesing off the fanbase has not stopped the company evolving from one that initially served a niche market in the UK into a FTSE 250 company that serves a niche market across the world.
The most recent controversy exercising the Games Workshop community flared up about five months ago when the company changed its intellectual property (IP) guidelines.
Rather than aiming being aimed at warning off commercial enterprises the new guidelines seemed to take aim squarely at fans who were creating their own content inspired by the Games Workshop game systems (essentially Warhammer, a set of war game rules based in a Tolkienesque world; Lord of the Rings, a set of war game rules featuring characters, races and places from JRR Tolkien’s books; and Warhammer 40k, a science fiction game containing 24 different factions, including one called “Orks” – I can’t begin to think where they got the idea for that faction from).
The stipulations imposed by Games Workshop (GW) sought to prevent the use of artwork or imagery copied from any official Games Workshop material; prevent the content creators from making any money from their efforts; prevent the use of any GW logos – i.e. make it clear that the content is unofficial; ensure that none of the content providers said anything disparaging about GW.
Some popular GW fanboyz and fangurlz took the hint and ended their GW-related content creation activities, which upset the fans of the fanboys/fangurlz.
Pretty soon, there was a post on Reddit calling for a boycott of Games Workshop.
Boycott may have hit the shares more than the bottom line
Interim results announced today by Games Workshop suggest that any boycott is not going to bring the company to its knees. Profit before tax in the six months to the end of November 2021 was down at £88.2mln from £91.6mln the year before but revenue on a constant currency basis rose to £191.5mln from £186.8mln.
Peel Hunt said the results were excellent given the tough comparatives from a year ago and the impact of currency, freight and supply chain disruption.
“Headwinds are now abating, with currency flattening off, capacity increasing, and freight and supply chain issues stabilising. With an improving outlook, we are increasing our forecasts by c.3%. There is a lot to look forward to in our view, with increased capacity to meet demand, a full slate of video games releases and plenty of activity on new projects,” the broker said.
Gemma Boothroyd, an analyst at Freetrade, said Games Workshop’s vertically integrated business model confers certain advantages.
“Soaring freight costs to transport its figurines and table-top games may have rendered those products less profitable than in years past but, because Games Workshop manages the start-to-finish process to get these products to consumers, it might be better able to pivot and react. That might mean cutting costs in other steps of production or outright prioritising more profitable product streams instead,” Boothroyd said.
Or, if one Youtuber is to be believed, bumping up the prices of the packs of models while reducing the number of model figures per pack – a trick the company might have adopted from the confectionery world, where the size of a chocolate bar seems to diminish in times of high commodity prices.
“Games Workshop responded to its supply chain kerfuffles by increasing its focus on digital products, securing a computer game licensing deal with Nexon Co. By selling the games remotely, the firm can circumnavigate hiccups from producing and distributing clunky physical products instead,” Boothroyd said.
Of course, many GW aficionados love the “clunky physical products”, which they assemble and paint lovingly.
The fans also love all of the hoop-la associated with being a member of “the hobby”, such as the aforementioned fan fiction, the YouTube sites and the internet forums.
This is all a bit Orkward
As such, the damage done to GW may be more to its reputation than to its profit & loss account. As Russ Mould at AJ Bell observed, this is potentially more serious than the supply chain and rising cost issues.
“Potentially more serious have been reports of fractures between Games Workshop and its devotees, linked to the launch of a subscription-based service and the aggressive protection of its intellectual property by pursuing YouTubers who have created Warhammer-inspired animations and stories,” Mould said.
“While it is understandable that Games Workshop is protective of its IP [intellectual property], it needs to tread carefully. The value of the company is inextricably linked to fans’ devotion to the Warhammer brand,” he added.
Mould is not wrong but while it is true that other similar gaming systems exist to GW’s offerings, none of them has the market share or track record of Warhammer and Warhammer 40k.
To use an analogy, Apple users may be every bit as evangelical and enthusiastic about their iPhones as GW fans are about their Dark Eldar armies or whatever but if push comes to shove the Apple users could switch to an Android phone and get a similar level of apps, features and functionality.
With Games Workshop, you leave the GW camp and you are immediately struggling to find players to stage miniatures battles with.
Some might argue that this market dominance has led GW to be complacent and to take its fans for granted. Fortunately, the company seems aware of the need to mend bridges with some of the community.
“It is notable in today’s results that Games Workshop is planning to launch a community outreach team to support fans in creating user-generated content and potentially mend some fences with the fanbase,” Russ Mould noted in his commentary on the results.
“Key areas of excitement for the business longer term are the licensing and royalty opportunities associated with video games as well as TV and film productions. These revenue streams are highly profitable as they typically involve limited costs for Games Workshop itself.
“Games Workshop is already fairly advanced on the video games front, however, comments from the company that it remains ‘ambitious and patient’ when it comes to media and entertainment opportunities suggests this area won’t see an overnight success,” he added.
3D threat
Again, I don’t want to downplay the importance of digital but tabletop wargaming is still very much a hobby that is all about face-to-face gaming; the clue is in the name.
Long term, Games Workshop shareholders should perhaps be more worried about the growing popularity of 3D printers. These are by no means widely owned yet but their existence means it is already possible to produce model figures at home. Meanwhile, since the era of Gestetner and Roneo duplicators, it has been possible to mass-produce fan-based miniature war games rules systems and the digital age has made that a whole lot easier.
Imagine a website where fan-created files of 3D models are available for free alongside fan-based games systems and scenarios. Who needs Games Workshop then?