Thursday, April 9, 2009

Digital Devaluation

Some retailers were privately praising Wizards of the Coast for pulling their PDF's from the Internet, while I'm still on the fence. I really don't know how these electronic products effect our brick and mortar sales. Are they supplemental sales? Are they replacement sales? Who knows? Besides the obvious concern that these are replacement sales, and some certainly are, the second biggest fear, one that I subscribe to, is that these electronic versions devalue the marketplace.

In other words, if an electronic version of a $50 hardcover book is regularly discounted at 35% off (the current Paizo sale and regular Amazon print price), the customer perception is the book has a value of $33. Buying that book for anything over $33 is foolish, or so the Internet logic goes. It's the Amazon effect, but it's perpetuated with electronic products. So what was the response to the WOTC debacle from digital RPG providers? Lets have a sale! Paizo, Green Ronin and others went on the offensive with a sales drive. No offense to them, but as a retailer it makes me wonder if they understand how to actually sell things. Or perhaps my brick and mortar sensibilities are irrelevant in a digital world.

So what's so wrong with sales and product devaluation? First, from a retail perspective, customers are being trained for sales and will learn to only buy items when on sale. It's retail 101. It's Pavlovian; shopping dogs that we are. Second, whether or not digital products are supplemental or replacement products, the perception is that of a lower value, which eventually translates into lower sales for products at full price. As a customer, that sounds great, but the reality is that stores simply won't carry products at a reduced margin. They can't keep the lights on. They'll move on to selling other things.

The theory goes:
  1. Reduce the brand value of the product
  2. Force sales to Internet discounters (electronic or print)
  3. Which guts RPG sales for brick and mortar stores
  4. New player growth stops, as it's believed brick & mortar stores introduce players to these games
  5. Destruction of your segment is complete
This is a war games scenario, where the only people playing role playing games in the future will be white haired old men at game conventions (myself included). Game stores, many of whom have seen a decline in RPG sales over the last few years, will still be around, but they'll be selling other things, or get this, maybe only Dungeons & Dragons because Wizards of the Coast has preserved their brand value. It's the old Taco Bell effect from Demolition Man that I've mentioned before, where in the future all role-playing will be Dungeons & Dragons.

That's rather simplistic and it ignores the fact that free is the ultimate brand value eroder. Pulling out does nothing to stop piracy. Still, if your company is all about selling stuff, wouldn't you want to avoid this issue for as long as possible? Isn't there potential that an iStore or a DDI solution could come along in the future to preserve your brand value, make you money and ensure your survival?


  1. If "free" content is done properly, it adds value to the brand.

    Free content that supplements the things that the customer pays for actually adds value to the products that they sell. It also allows them to give customers access to products that aren't "ready for prime time" - that niche rule/character/army, or the scenario that isn't fully developed.

    For example, during the days of first edition Flames of War, Battlefront provided frequent free errata and updates to the rulebook on their website, which also had any new rules published in army books up - for free.
    This sent a message to customers that their investment in the rulebook and their army book was a solid investment - and sales of Flames of War increased at a staggering rate.

    When they switched to second edition FoW, and their Late War emphasis, much of this free content dried up.

    After a few years where their business has evidently fallen off, they are now providing quite a bit of free content again.

  2. The retail stores that see WotC's new stance towards PDFs as a good thing are as shortsighted and ignorant of market realities as WotC is. Excuse me for being blunt, but this attitude is the ignorant belief that we can somehow put the genie back in the bottle and go back to the days before the easy distribution of electronic media was available.

    There will always be PDFs of WotC releases on the web. Suing 8 file sharers won't stop that. The RIAA has sued hundreds, if not thousands, and haven't put much of a dent into the sharing of music. WotC and Hasbro aren't going to have any better success. All it does is generate an antagonistic attitude with your customer base and create a "Robin Hood" mentality that using their products without paying for them is not just justified but the "right" thing to do in order to stick it to an evil corporation.

    Retail stores will just get caught in the middle of all that, much like the failing retail music industry.

    The fact is that PDFs in general are supplemental sales, and are unlikely to take sales away from retail stores. The vast majority of gamers want a physical book in their hands. They might also get a PDF in order to have easy reference on their computer, but few people just get the PDF and nothing else.

    Of course, my evidence for this is purely anecdotal, but I've known quite a few gamers and they pretty much all fall into this camp. The few that are PDF only often are the worst pirates, so they aren't going to buy the book regardless of whether or not there's a legal way to acquire a PDF.

    Personally, I've always been surprised that there aren't more bundle deals: pay $5 extra for your hardcopy book and get a PDF to go with it. When Shadowrun 2nd edition came out they did something like that for the pre-order and it got me to make the pre-order even though I don't normally buy PDFs.

    It might cut into PDF sales a bit, but would actually encourage more hardcopy sales if that's what you're worried about.

  3. "The vast majority of gamers want a physical book in their hands."

    Yeah, I don't know. I personally want a print copy, but I also want electronic copies so I can cut and paste for creating my own content. I wonder if the younger generation is content to have electronic only copies. I know plenty of college students that talk this way, although they fall heavily into the pirate camp.

    The erosion of value is my main concern. I think if you own a print copy, an electronic copy should be provided for as close to free as possible. When you de-link the purchased print copy from the electronic version, you then have a secondary market and one that is heavily de-valued.

  4. I can't speak for White Wolf's or Paizo's strategies with their sales, but I can tell you that I do not agree that Green Ronin's single-item sale on the True20 Core rulebook devalues the product or the brand. We've had sales before, we will have sales again. In reacting to Wizards of the Coast's strategy, we were able to highlight our familiar-yet-alternative rules set and give those disgruntled WotC PDF customers another chance to consider our product in the format they want.

    Our belief is that electronic versions of products are not the same as paper versions of products, just as VHS tapes are not the same as DVDs, or audiobooks are not the same as paperbacks. A sale on a paperback is not going to stop me from buying audiobooks if my only chance to "read" is when I'm making hours-long drives. People who want to sit down and read a roleplaying book have different wants and needs for their product than people who want a speedy electronic reference with a computer search and bookmark function. Some people want both, to meet ALL their needs (which is why I have an embarrassing amount of music in both CD and MP3 formats).

  5. Interesting. So do you think that the same sales strategies for print apply to PDF? I'm always a little shocked that PDF publishers have such wild price swings, or free days, or DM days, etc. I understand the cost of goods is significantly less, but I can't help thinking the regular discounting has a negative effect on both the perceived value of the product and on the sales in general of electronic products.

    As a retailer, the perceived value issue is my only involvement in this, provided sale of electronic version are just different, like you say.

  6. I just had one of those "ah-ha" moments in the store, talking with people about this. If the electronic product is truly separate, it's the medium that you're paying for, as opposed to putting all the value on the intellectual property. A print book has no bearing on the audio book if I only have time to listen to audio books. The print RPG book is of no interest to me if I require the utility of a PDF. If anything, the value of PDF's is diminished with regular PDF sales, and they have little value anyway.

    Does that sound about right?

  7. I didn't want to be all Marshall MacLuhan in my previous reply but I do think you can apply his "The medium is the message" here.

    Green Ronin waited for about a year longer than we should have to enter the PDF market because we wanted to study up on it and make sure we knew what we were doing, how it would affect our print sales and retail partners, how it would affect piracy of our products and so forth. In the end we found that not making our products available in electronic format did not prevent them from being made, it only removed the company from all control over the making. Offering legally created and officially endorsed versions of our products didn't stop electronic piracy but it certainly did give those who were willing to buy legitimate copies an avenue to do so (and there are many of those people, as it turns out). Our PDFs are priced less than our printed books because the costs to produce electronic books is less, but they're not offered for free or for prices that may as well be free, because there is still a cost to create the product and because we feel that there is value both in the content and in the format that we're providing. We rarely have sales on PDFs, though we do offer free preview sections that apply to both the electronic format and printed format products as a way for people to judge whether the product is something they'd like to have.

  8. "I personally want a print copy, but I also want electronic copies so I can cut and paste for creating my own content."

    This is the attitude that I've seen from most people who buy PDFs. Not all of them, but most of them. The key here is that even if you end up using the PDFs more in practice, you still want the printed copy, and it's still more convenient, and cost effective, for most people to purchase a printed copy than it is for them to print a copy of their PDF.

    Nikchick: I have to agree that I can't recall seeing too many PDF sales from Green Ronin, but I see Gary's point from a more general perspective: there are too many sales on PDFs, and they are generally too "good" from the perspective of the customer.

    I regularly get promotional emails about some PDF product being offered at a discount, and at least once a year there seems to be a big general sale where everyone puts up some of their top product at a steep discount.

    These sales have gotten me to buy PDFs, but they've also made it far less likely that I'll buy a PDF at the regular price unless it's something I need right away. I figure there's a chance it will be part of the next sale.

    Not to mention the buyer's regret that sets in when the product you bought at full price a week ago is being offered at half off now. That can really cause people to think twice before buying another PDF at full price.

    At the retail level, I can't speak for Gary, but I think that if I were a retailer I might want a cut of the PDF market, perhaps in the form of CDs to sell. I think that maybe Endgame was doing an experiment with that and some indy games? I seem to recall them talking about something like that on a podcast I listened to a while back.

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  10. Having a pdf copy on a disc in the cover of the book would be ideal.

    While a PDF copy is ideal for looking things up at home, etc. I like to have a printed copy to reference during games.

    Depending on the content (color etc.) it can be more expensive to print out a copy of a "free" pdf (assuming that you are using your own printer and paper) than to buy the published product. I guess a real pirate finds a way to "steal" printing as well as stealing content.

    Personally, if I'm going to end up paying $25 for a printed copy of a book, I'd just as soon pay the same amount of money (or maybe even slightly more) to actually support a retailer and publisher that I want to remain in business. It's kind of a waste to spend my money to support a printer ink manufacturer (or the USPS/UPS in the case of buying things online) who doesn't care about my hobby.

  11. Everyone at every tier in the hobby games industry is doing their best to keep the doors open these days, and the bricks and mortar retailer point of view is essential and much appreciated.

    If your "devaluation" hypothesis is correct, and especially if the "free is the ultimate devaluator" element is the case, how do you explain the incredible sales of the Pathfinder RPG Beta Playtest Edition?

    When we released the FREE PDF Beta Playtest edition of our game last August, we decided to print up a few of them and sell them at a low margin in softcover to help out the folks who wouldn't have to spend sixty bucks to print out their copy to properly playtest the game.

    We assigned a print run on the ambitious side of our operation, figuring that the number would last pretty much into the year. I remember a few meetings where we predicted that we might run out in May. In fact, the book sold out in 9 hours at Gen Con, and sold out completely at the retailer level within a month thereafter.

    Demand for that book exceeded supply precisely BECAUSE we had given it away for free on our website.


    Also, while we're on the subject, I should mention that the Pathfinder RPG Beta Playtest Edition was a hobby exclusive, and was not solicited to the "big box" clients serviced by our book distributor. Given that that product had the highest sales (and cost to produce) of any product Paizo published last year, I think this is a significant example of our support for the hobby market.

    There will be many more to come.

    --Erik Mona
    Paizo Publishing, LLC

  12. Erik,

    I've been convinced through this post and Nicole's blog that you're probably right.

    It's rare to get the publishers experience in retailer discussions. Retailer fear of PDF is so widespread that this perspective just doesn't come up. I also think many publishers have given up on the GIN as a forum for discussion, since it tends not to be very rewarding.

    De-linking print and PDF would go a long way to alleviating retailers concerns, AND it would open up the PDF market in-store if it was thought it wouldn't cannibalize sales.

    By the way, we sold that copy of your Beta in-store. It took about a month to get that one copy sold, which told me that you've essentially captured the Pathfinder market. You have the data to tell me if you have customers in my zip code; I suspect you do. This is very good for you, says good things about PDFs, and reinforces that what happens in PDF land tends to stay in PDF land.

  13. No one commented on that kid's overalls? A 15year old in overalls? Painter's pants yes, but overalls? Frankly, I'm floored, and feel like this topic deserves a lot more discussion.

    I mean the disintermediation of the brick and mortar store is important and all that, but overalls???!

  14. I didn't want to go there because I had a pair of overalls back then, when mom still bought my clothes.

  15. Re: Erik/Paizo:

    Now this is extremely disingenuous. It's available on Amazon. But more than that, the odds a "big box" retailer would buy his product (or sell it in any numbers) are very low.

    Don't get me wrong, I like Pathfinder. I have a small customer base that does, too. But for all his expressed support of small retailers, amongst my customers, he does more business in subscription-based, convention-based and online sales than I bet he does on the retail level. There's nothing wrong with this--many, if not most, Pathfinder buyers I know learned about his products because they were tracking alternatives when 4th edition came out on Paizo's website. But claiming to be a huge supporter of LGSes would be much better if Pathfinder offered us some marketing support, as Goodman Games does.

    It wouldn't frickin kill him (or for that matter, White Wolf) to put a Retailer Locator on his frickin website, either. Green Ronin does it. Wizards does it. Telling me you support retailers on the one hand and then not doing anything, really, about it...that's a bit of a problem in my mind.

    By the way, there's a really good thread referncing this post (and other comments around the web) on ENWorld titled "Retailer's Stance on PDF Deals"....y'all should check it out.

    Scott Roberts
    Gamer's Gambit
    (an FLGS in NJ)

  16. Paizo is one of those companies where I just bite my tongue most of the time. It's an issue of

    a) Forking the development path of D&D.

    b) Grabbing all the customers who go down their path with their online efforts (discounting on their web store, free testing of product, etc). Good for them, disastrous for me.

    c) Reducing my discount for their product as a retailer without even a pretense and acting like everything is fine.

    Now that my last Pathfinder customer has transitioned to 4E (I still have 2 of each of the last PF adventures unsold and on sale), I'm more willing to comment on this.

    Paizo is a unique example, in any case.

  17. Scott,

    I think the original post was very level-headed and both Nicole Lindroos and I have come on and tried to explain the publisher point-of-view without hyperbole or name-calling. I don't appreciate the adversarial tone, but since it's important to clear up some of the errors in your post and because this is an important issue for all tiers of the hobby business, I'll continue.

    To address your point about the Beta specifically, it is NOT on A few copies showed up there through their affiliate sellers program, which allows retail stores to put their goods up on the site. This is how used books sometimes show up on Amazon, and it's how the (very) few copies that have leaked out that way got on there in the first place.

    I can't comment on the buying habits of Scott's customers, except to say that while I wouldn't be surprised if some of them are subscribers, we don't actually do much of any convention business outside of Gen Con, so it's unlikely that our convention efforts are significantly cutting into the profits at his store. Subscriptions may. It's important to understand that the monthly Pathfinder Adventure Path product was a replacement for Dragon and Dungeon, requiring a constant flow of revenue to produce at the level of quality to which our customers have grown accustomed. I do not apologize for Paizo's subscriptions--I wish more people would subscribe.

    Black Diamond ordered _one_ copy of our flagship product last year. I don't want to encourage them to order more than what would sell in their area, but increasingly retailers seem to be taking an "only WotC" approach to RPGs, if that. My options, then, are to lay off my staff and close up shop or find a way to get the product into the hands of those who want it--and that's thousands of people all around the world.

    I don't claim that Paizo is a "huge supporter" of retail stores. I _wish_ Paizo was a "huge supporter" of retail stores. I've been on the horn with our distributors and with my sales team to come up with a killer bricks and mortar promotion in the very near future, and we will be creating a raft of point-of-purchase and display items for the Pathfinder launch in August. That's thousands and thousands of dollars that will be put directly into the retail side of the operation, with zero direct benefit to electronic customers.

    Please understand that up until Wizards of the Coast canceled Dragon and Dungeon Paizo was basically a magazine company, so a lot of the institutional structures and budgets and things that would go toward more retail support have taken a while to get off the ground. I know it seems like an eternity, but it's only been a couple of years.

    You're right. We should have a retail locator on our site, and this is something that's actually in the works. Sadly, we've to date only had one computer programmer on staff to create something like this, but a second guy starts in May and this is very near the top of his to-do list.

    In the meantime, I guarantee you we've got the nicest looking, most expensive retail-exclusive print product for Free RPG Day, we've just launched an ambitious organized play program with the Pathfinder Society that is perfect for in-store demonstrations, and we continue to look for other ways to support our retail partners.

  18. Erik,

    You've my sincere apologies for my mischaracterization of your situation. I did not do due diligence in my research regarding Paizo products and Amazon (frankly, I did a search, found Pathfinder Chronicles, and its two companion books, on sale there, and made my judgement from there).

    That being said: Keep in mind I have NO problem with your subscription model or your online store. I understand your issues with programmers (if you saw my store's website...well, let's just say I do it myself and leave it at that, and I am not an expert at HTML by any means).

    I look forward to what you have planned for Free RPG day, and everything else you do. I am not a Pathfinder player myself, but the quality and number of your products draw high praise from my customers and (speaking not as a fanboy, but as a business owner) it's my belief that you are the future of the development of the 3.5-esque model of D&D and I wish you nothing but the best.

    My apologies, again, for the adversarial tone.

  19. Speaking as a consumer I generally prefer to have both print and PDF copies. The PDFs live on my computers, and the print copies are used at the table.

    I do not use illegal copies - I purchase my PDFs through their PoS, be it RPGNow, Paizo, or YourGamesNow. I do tend to buy the PDF first, taking off my shoes, folding up my socks, then dabbling a toe in the water to see how it feels. But it does work the other way on occasion.

    So the occasional PDF sale often leads to a print purchase. If I am going to run the game, or think seriously about doing so, then I will likely have both

    The Auld Grump