After the Kickstarter: The Board Game Industry’s Value Chain

The unasked question I’m going to answer here, is:

Since Kickstarter creators sell directly to customers (without the intermediary of distributors and retailers), why can’t they offer the game at the same price as they would to a retailer?

My half-snide initial answer would be that sometimes we DO! Look at Planet Apocalypse we ran last year – a $299 level for over $600 worth of stuff. We currently have our Hyperspace campaign which also has a $299 level for $519 worth of stuff.

But more often than not, KS campaigns don’t quite offer that level of deep discount. Why not?

First, let’s acknowledge that in the past decade, Kickstarter has dramatically changed the tabletop game industry by lowering the main barrier to entry in this industry – capital. Indeed, Petersen Games only exists thanks to Kickstarter! But once a Kickstarter funded board game exists, it still enters the same industry as games published without Kickstarter. Or, it dies, having been a one time print run.

Let’s start with the tabletop game industry value chain without Kickstarter. Like all industries, this one has a chain from the product creator all the way to the end consumer. And also like all industries, there is some amount of negotiation between each link in that chain over the value each link deserves. I do not know the details of other industries, but I do know that the value each link in the chain for tabletop games is fairly rigid. Not to say it can’t be changed, but it’s long standing and well established.

Here’s how it breaks down, roughly:

Manufacturer: 20%

Publisher: 20%

Distributor: 10-20%

Retailer: 40-50%

Here’s an example, in case this is confusing:

Suppose there’s a game with an MSRP of $100 in a game store. That store paid $50 to $60 to its distributor. That distributor paid $40 to the publisher. And the publisher paid $20 to the manufacturer. To see how much value each link has captured, simply follow it the other direction: the manufacturer received $20, which is 20%. The publisher received $40, but paid $20 to the manufacturer. So, they only got 20% of the total value. The distributor received $50 to $60 from the retail store, but had to pay $40, so they are left with $10 to $20, which is their 10-20%. And finally, the retail store paid the most (among the supply chain), and therefore has, in many ways, the most control over the value they receive in the chain (i.e., they can choose how much to charge the end consumer). If it’s a hot game that people will buy at close to MSRP, then the retail store can obtain the most value (40-50%!!). Often, they have to discount it (especially if they’re online retailers), and so they don’t quite get that much. If they only get, say, 20-30%, the remaining value would go to no one (or, more properly, to the end consumer).

So far so good? The publisher, who thought of, designed and developed the game, captures about 20% of a game’s value. It’s a minority of the value, but that’s fine – I would expect that in almost every industry a given link in the chain only captures a minority. But it’s less than a quarter of the value in a chain with only four links – i.e., if things were split evenly you’d expect publishers to capture 25% of the value, which is not the case here. Alas.

In addition to only capturing a minority of the value, publishers have another challenge in getting these games to market that the other three links in the chain do not. As the publisher, there are many up front costs of goods sold that are NOT captured in the value chain as described above! If they are accounted for, then the numbers shift such that publishers take a very small amount indeed (at least on the first print run).

Let me explain. When a manufacturer makes a game, it costs them roughly the same whether it’s the first time they’re making it, or the second, or third, or fifteenth. (There could be upfront costs, such as steel mold tooling, but those would always be passed on to the publisher). Likewise, distributors and retailers have no special upfront costs for a new game. Their costs of goods sold for a game are the same whether it’s the game’s first print run, or seventh. (There could be some extra marketing costs for a new game, but that would be a very small proportion of their received value in the chain). They basically just buy the game from the previous link, and then sell it down the line.

By contrast, a publisher has a lot of up front, one time costs that apply to a newly developed game. Most publishers, except the very biggest, tend to use freelance artists. (How do I know this? Because a zillion freelance artists have reached out to us over the years asking for work, and showing art and work they’ve done for all sorts of publishers, from Fantasy Flight to CMON). The design process could be cheap (aspiring designers could act as freelancers for a relatively low price), but it can also be expensive depending on the amount of playtesting and time it takes to develop. Other miscellaneous costs such as editing and layout exist. And if the game has sculpts, this can dramatically increase the art budget, as a single highly detailed 3D model can cost thousands of dollars. Finally, these 3D models have to be turned into steel molds (an expensive process called tooling). These can also cost several thousand dollars per model.

After accounting for all of these up front, one time costs to develop the game, the publisher can’t really “bake” these costs into the total value of them (otherwise known as the “MSRP”). If they did, then the game would cost too much for the consumer and no one would buy it. Thus, a game that hits the market for the first time has cost the publisher, uniquely, a lot of capital. But the manufacturers, distributors, and retailers have no such special difference between this new game and any other game.

Each game’s up front costs are different, but say, for the sake of example, that these costs divided out equal 10% of the per unit cost. If so, then the value chain for the FIRST print run, instead changes to the following:

Manufacturer: 20%

Up front COGS (art/tooling,etc.): 10%

Publisher: 10%

Distributor: 10-20%

Retailer: 40-50%

On the second print run, these up front costs don’t exist, and the publisher can capture the full 20% it normally gets.

Now, let’s see how Kickstarter DRAMATICALLY changes this model for us.

The up front costs for Planet Apocalypse, a KS campaign we ran a year ago, were in excess of $200,000 (the majority of these costs are tooling, as there are many unique figures, and they are fairly large). Since the funding level was a little over $500k, this means the up front costs represent about 40% of the value. Kickstarter itself takes about 10%. There are no distributors or retailers, so the value they get is 0%. That leaves us with 50% left over to split between the manufacturer and publisher.

You’d think that with manufacturing normally taking 20% of the value, there’s a full 30% left over for the publisher! Much more than the typical 20% portion. BUT, there’s a major catch:

Kickstarter offerings (especially ours) have deep discounts compared to the MSRP. So, for example, the Planet Apocalypse offered a roughly 50% discount for the top pledge level. That means the per unit manufacturing cost should represent twice (proportionally) what they normally do – so 40% instead of 20%.

So, here’s the value chain for Planet Apocalypse:

Manufacturing: 40%

Up Front COGS: 40%

Kickstarter: 10%

Publisher: 10%

You’ll notice this is HALF what a publisher normally gets!  Why on earth would publishers bother to use Kickstarter??

Well, of course, that’s incorrect, because it IS better than a new game sold through regular retail markets for the first print run. If we went straight to distributors with Planet Apocalypse, for example, having to front 40% of the total print run’s value, then the value chain would look like this:

Manufacturer: 20%

Art/tooling/misc. COGS: 40%

Publisher: -20%

Distributor: 10-20%

Retailer: 40-50%

This is not an impossible thing in the business world. For example, pharmaceutical companies could have R&D costs for developing a new drug that equals hundreds or thousands of times the cost or value of actually making the pills and selling them to retail pharmacies – think of the Art/tooling/misc. as R&D spending. Whatever the link in the value chain that invents and develops the product (for the game industry, the publishers), this sort of thing can happen.

The publisher, on the first print run, has invested money, and once the product has sold enough units, especially over more print run, the publisher eventually recoups that money, and eventually their 20% take in the value chain becomes a positive sum.

In short, Kickstarter usually allows us to offer a game to the market when the up front costs would likely be too high for a small publisher to handle. Yes, I took a long way to say what we all knew already – Kickstarter provides indie companies like us to make big, expensive games!

But hopefully you can see that even with this, the value the publisher really keeps is fairly small. And therefore, it is not always wise for KS creators to offer games at steep discounts.

There’s another catch to all of this. What should we do with the 10% from Planet Apocalypse? Should we use it to cover our normal overhead (salary, etc.)? Or, should we use it to print an overrun of games to sell at retail later?

This is why The Gods War, as I’ve said several times, lost money for us. The up front COGS was too much, and rathen than even the low 10% value we should have gotten, it was a negative amount.

Planet Apocalypse had VERY thin margins, and the current Kickstarter – Hyperspace – will have slightly better margins, because we’re not quite offering half off. We’re offering about 40% off. So, the manufacturing per unit is going to be about to 33%, and the up front COGS, because the miniatures are smaller, is also unlikely to be a full 40%, but probably closer to 25% with any luck (and assuming we fund at a higher level than PA, which could be the case).

This means that Hyperspace will likely have more products available at retail later, or we’ll be able to fund our company for a little longer!

And that is what Kickstarter does for a game company!

  • Arthur

P.S., Now you can probably see why our shipping prices and import taxes and VAT for Hyperspace are NOT subsidized in any way in our pledge levels. If we were to ALSO subsidize that, we’d soon be losing money.

How Shipping Prices Work on Kickstarter

Add Comment

Your email address will not be published. Required fields are marked *

Your Cart