Report to the Stakeholders for 2005

by Steve Jackson

Steve Jackson Games Incorporated has a single stockholder . . . me. But we have a great many STAKEholders — that is, people who have a stake in the success of the business. These include our employees, our distributors, the retailers who carry our line, and, of course, the people who PLAY our games! Less obvious stakeholders, but very real, are the creative talents who produce our games, the printers who create the finished product, and the convention organizers who depend on us for game programming, prizes, and so on.

We try to stay in good communication with all our stakeholders. The main avenues of communication are our website, the catalogs and other marketing material that we distribute, and the quarterly letter that goes to the 100+ people and companies to whom we pay royalties. But for the past couple of years I have written a report not unlike the "report to the stockholders" that you would expect from a public company. It was a useful exercise for me, and I got a surprising amount of favorable feedback from all levels of the hobby. So I'm going to continue.

Note that, unlike a typical stockholder report, this does not strictly start and finish with the calendar year 2005. I didn't even start writing this year until the books were closed on 2005, and once I started, I covered developments through mid-June. It was delayed longer than intended this year . . . game writing and company management come first.

Overview

We are, as I assume the reader knows, a publisher of games. Not all of these are physical products. A number of them are digital downloads . . . PDFs and a few other types of file sold through our e23 site. An online game, UltraCorps, went through a successful alpha-test last year; it's almost ready for a short beta and we hope it will launch soon. We also publish two online magazines: Pyramid and the Journal of the Travellers' Aid Society.

We have been in business since 1980. We employ, at the moment, 16 full-time staff (and are interviewing for a couple more), plus a number of contractors and part-time personnel.

Our 2005 gross was approximately $2.4 million, down 13% from 2004. As expected, we showed a loss for the year, because of our big move (see below). Some of this was direct moving expenses; some was because the move took time away from release of new products; and some was because, like last year, we wrote off some inventory rather than move it. Our cash flow was still positive, and our fiscal health is good. At this writing, 2006 looks as though it will be a solid, though not amazing, year.

Our most important products continue to be the GURPS roleplaying books, with more than 100 titles in print, and the Munchkin card game. With its sequels and supplements, Munchkin accounted for over 40% of our sales in 2005, and appeared in more translations; by the end of the year, it should be available in nine languages.

Significant Changes in 2005

The biggest 2005 change was, of course, our move to new facilities. This was a "big win" in a class all its own. Our old offices were crowded and Spartan; the building was at least 40 years old, the roof leaked, the driveway was unpaved . . . The best thing that can be said about it was that the wildflowers were beautiful in the spring.

After months of searching, we found a 3-year-old building, with a large, separate warehouse, that met almost every requirement we had identified. Amazingly, it was less than two miles from the old site, simplifying the move enormously. By the end of December we were moved. Even now, in June, we're still unpacking boxes in the new place, but it's already home. And we have wildflowers here, too!

And Austin is once again our only base. In early 2005 we moved our main warehousing from our Las Vegas facility to a contract arrangement with PSI in Georgia. We kept our assembly operations in Las Vegas at the time, but we have now closed the Vegas division completely. Much of our assembly is now being done at the printers, and the rest will, for now, be done in Austin, since we have the room.

The High Points

2005 brought us some big wins, though none as big as the new building.

Sales

Sales were off about 13% from 2004, which had been the best sales year in a decade. This seems directly due to our completing and shipping fewer products, which was an expected consequence of the move. Not that we're happy about lower sales, of course, but it was expected. A bright spot was the near-doubling of licensing income, though it needs to double a couple more times to become truly significant!

e23

Our digital-product division, e23, has been in operation for more than a year now. Sales continue to grow. Our original goal was to offer 1,000 files for download by the end of 2005. As of mid-2006, we have not reached that goal, which is disappointing . . . at this writing, we have 932. But we are continuing to create original releases for e23 and to contract with more third-party publishers of quality PDFs.

Last year, I said, "One thing you will not see in e23 is PDF versions of our new GURPS books. We know that some publishers are issuing their new books simultaneously in hardcopy and PDF. We are concerned about the effect this will have on the retailers, and unless something happens to remove that concern, our hardback books won't be available in PDF." Well, over the last year, we saw continued fan interest in buying the new releases in PDFs, and retailers did not report any drastic bad effects from the availability of other publishers' products in both PDF and hardcopy. So we compromised. For now, at least, the GURPS Basic Set will remain available in hardcopy only, but other GURPS hardbacks will be released in PDF three months after they are available in stores. We may tighten or loosen this policy further as time goes on and the market sorts itself out.

GURPS Fourth Edition

The Fourth Edition of GURPS, was launched at GenCon 2004. We have continued to support it. Our original plan to release a hardback book every month proved to be excessive . . . it takes a lot of creative and production effort to produce a large hardback, and staff turnover made this impossible. However, before our angst could become too deep, the fans let us know they'd rather see one about every two months anyway. So that's what we're doing. We're happy with the quality of the releases so far, and pleased with the state of the "pipeline" for the next year.

And Wiley Publishing released GURPS For Dummies in early 2006. This is only the second "Dummies" book to be released for our hobby. We all thought that was a Very Neat Thing.

Warehouse 23

Our online store remains a success story. We are the exclusive online retailer for several high-quality publishers, including Atlas Games and Grey Ghost Press. Our customer service continues to be a point of personal pride for me. Our new facilities will allow us to increase the variety of products we sell.

Business Organization

Our business organization improved over 2005-2006. It had a way to go! I did get some time away from corporate management; more on this below.

By closing the Las Vegas facility completely, we saved not only money (rent and several full-time positions) but also a lot of our Controller's time; our financials are now up to date.

And the old building was a constant source of problems and management distractions, for me and for others. We don't miss those at all.

Ehhhhh . . .

In some areas we worked hard and made progress . . . but not enough.

UltraCorps

We continue to work on the UltraCorps online game project. It has gone more slowly than intended . . . among other things, we decided to re-implement the game completely in Perl. The original code had proved very difficult to modify; it was written for a Microsoft commercial server that is no longer supported. So progress has not been as quick as we had hoped. As of this writing, we are not yet offering subscriptions, but we have made the game run a lot better and added a number of new features. We are drawing closer to a real launch date, and after that we'll just let the fans tell us whether we have a viable product. In the absolute worst case, it has been a valuable learning experience as we move, too slowly, toward . . .

Digital Games

We have still, much to my personal frustration, neither released a homegrown digital version of one of our products nor entered a licensing relationship with a major publisher. But we have not given up; we're simply forcing ourselves to prioritize our successful hardcopy sales first.

The great success of the GURPS Character Assistant, both as a physical product and as a download, is encouraging. But that is a game aid, not a game.

We are still actively seeking partners among the major console and PC publishers, as well as among "wireless" (e.g., phone) game publishers. The first priority remains to implement some of the existing products in our catalog, but I'm excited about the chance to do new designs for the digital media.

Failures

And some areas were disappointments, requiring us to "try, try again," or to abandon efforts that we'd had hopes for.

Staff

I am sorry to report that 2005-2006 brought continued staff turnover. In a couple of instances, we interviewed long and hard and ended up hiring talented people who, for one reason or another, did not stay with us. This is always frustrating.

Not quite in the same category was Stephen Sopko's tenure as Chief Operating Officer. Steve is both a game fan and a high-powered Fortune 500 exec, who had been informally advising me for years. He was ready to leave Dell, and anyone who has been reading these reports knows that I would like to have someone else managing the company, so I could design more games. So, for several months in 2005, Steve was that person. He held the fort, day to day, during the time when we were hunting for our new site and moving into it. As a result, I not only retained my sanity but was able to turn in several completed projects in a relatively short time. This was a big win.

However, the business plan under which we brought Steve on board assumed that we'd be able to place at least one major digital game license in order to cover the (significant) expense of a Fortune 500-level talent. This didn't work out, so I had to resume the helm . . . but we all learned a lot from Steve. and the break did me good.

But on the whole, our staff is smaller and less experienced than it has been for years. The "new guys" show great promise, but right now we are looking forward to a little more stability.

GURPS Lite and Game Aids

Two fan-support programs languished badly, in part due to staff turnover issues that left no time for anything but shipping products.

When GURPS Lite was released for Fourth Edition, we invited fans worldwide to translate it into their own languages. Over the next year, we had volunteers for nearly 30 languages. Unfortunately, fewer than a half-dozen have finished as of this date. But they're volunteers; they work at their own speed. The more upsetting thing is that the work of some who DID finish has been stalled in our Production Department, in one case for almost a year. This is embarrassing. We really have to find the time to get those out!

And we ended our formal Game Aids License program. The original idea was to encourage fans to create digital support for our games by offering a specific licensing procedure and quality control support. But our system proved to be a hindrance rather than a help to the fans who wanted to code game aids. We took too long to respond, and our attempts at professional QC simply sucked the fun out of it for the fan creators. So, better late than never, we changed the program to "Here are the guidelines for legal use of our trademarks and copyrights. Please follow them. Have fun." Okay, that's just the executive summary . . . you can read the full version on our Online Policy page.

State of the Industry

The "hobby" or "adventure" game industry (not to be confused with the mass-market game industry epitomized by Monopoly, or the "gaming" industry that runs casinos) had a boring 2005. No big publishers or distributors closed their doors, nor did any major players enter the market. Card games remained popular, roleplaying slumped badly, and European (and European-styled) board games continued to make inroads.

Collectible card games are still big business, but most of them now belong more to the children's or anime market than to the "adventure game" hobby. A significant exception was Fantasy Flight's A Game of Thrones CCG, based on the George R.R. Martin novels, which combined a classic fantasy theme with actual gameplay and saw continued success through the year.

The year's biggest hit in the hobby game industry was probably Alan Moon's Ticket to Ride, a train game with clean, simple mechanics; the publisher also made an online version available. For our part, we have continued to work with various hobby industry partners to accomplish shared goals. These include:

• PSI, which is now acting as our fulfillment agent;
• more distributors with whom we have flooring contracts, thus making it easier for retailers to get our products;
• several overseas publishers who are now creating translations of Munchkin releases on a regular basis, and a few who are translating other games, notably GURPS Fourth Edition;
• Adventure Retail, which represents us at Origins, GenCon, and other major conventions;
• and the growing number of publishers, small and large, who are distributing digital product through e23.

We still believe this sort of cooperation is our future.

Looking Forward

We anticipate our 2006 revenues to be up a bit from 2005. Munchkin still seems to be growing, and we are selling more cardgames of other types. Roleplaying is in a hobby-wide eclipse right now, but we'll continue to support our GURPS players with a half-dozen books a year.

I'm working on a couple of bigger boardgames for which I have great hopes. Time is the big obstacle here. Bigger games require more development and more playtesting.

We have more games in the development pipeline than at any time in the past few years, and several of them are unconventional; I don't promise that any of them will be the Next Big Thing for the whole hobby, but it's nice to be working on a few projects that break the mold.

We hope (as always) for more progress in the digital domain, as e23 and UltraCorps grow and as other projects step into the spotlight.

Thanks, as always, for your support. We're hanging in there, operating more efficiently, in nicer offices, and now set for a bit of growth. I'll try not to make the next report quite so late.

– Steve Jackson

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