Report to the Stakeholders for 2006

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, the volunteers who demonstrate our games at conventions and retail stores, 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 letters that go to the 150+ people and companies to whom we pay quarterly or monthly royalties. But for the past three years now, I have written a report not unlike the "report to the stockholders" that you would expect from a public company. It is a useful exercise for me, and I have gotten a surprising amount of favorable feedback from all levels of the hobby. So here it is again.

My 2005 report didn't appear until 2006 was more than half over. I'm pleased that this one is more timely.

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, has been "almost ready" for more than a year, but I expect that, no kidding, it will launch very 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, 14 full-time staff (and need a few more), plus a number of contractors and part-time personnel. As compared to this time last year, we have fewer full-time staff but more contractors, for about the same number of workers.

Our 2006 gross was a bit less than $2.4 million, about the same as 2005. At this writing, the books are not closed, so we may make a small profit or a small loss depending on accounting decisions, but it was a good year, with excellent cash flow. Our fiscal health is good. 2007 is shaping up as a strong and profitable year; more on this below.

Our most important product is now clearly the Munchkin card game. With its sequels and supplements, Munchkin accounted for over 55% of our sales in 2006, and is now available in nine languages. The GURPS roleplaying system, with more than 100 titles in print, is the other main component of our sales.

Significant Changes in 2006

2006 was a year of consolidation in our new offices and adaptation to a changing marketplace. There really weren't any big changes in the way we did business. Getting used to nice surroundings proved very easy . . .

The High Points

2006 was a good year, not because we did anything new and amazing, but because the hard work of the last few years paid off.

Sales

Sales were very strong. Our greatest failure in 2006 stemmed from this success. We let Munchkin sales surprise us . . . we allowed some Munchkin products to go out of print, which is like leaving money on the table. Sales were very heavily weighted toward the holiday buying season.

Licensing income, mostly from Munchkin, also continued to be significant.

Warehouse 23

Our online store remains an important part of our overall operation. 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. We're planning to add more space for Warehouse 23 this year by installing a mezzanine floor in our warehouse, and we intend to update our online shopping cart to more closely integrate Warehouse 23 and e23.

e23

Our digital-product division, e23, has been in operation for two years. It is now the second largest seller of downloadable files for the gaming community. This is not just due to increased sales – though they have increased! Our larger competitors all merged into a single company, OneBookShelf.

As 2006 ended, we had just over 1,400 files available for download. We are continuing to create original releases for e23 and to contract with more third-party publishers of quality PDFs. The original releases are better-selling and more profitable, but we will continue to offer other publishers' material. We don't want e23 to become a pure company store, and we DO want to take advantage of the "long tail" effect.

We'll continue to offer PDF versions of our new GURPS books, but only after they are available in stores for three months. This was an experiment in 2006, and nothing bad has come of it.

Print On Demand

2006 saw our first use of Print On Demand technology, and the experiment was successful. GURPS Bio-Tech was made available in a limited POD edition before the main print run reached our shores. GURPS Mysteries, originally a PDF file sold only in e23, was so popular that we used POD to release a softcover version. We'll be doing more POD books in 2007.

Business Organization

Our business organization continued to improve. Our financials are up-to-date. We completely replaced our royalty system with custom-written code; the new system promises to turn a quarterly death-march into a fairly routine procedure.

Ehhhhh . . .

Some parts of our operation didn't fully succeed, nor did they exactly fail. But they took up enough of our attention to be worth mentioning.

UltraCorps

The UltraCorps online game project has gone much more slowly than intended . . . and has taught us some useful lessons in the process. When we launch, we'll let the fans tell us whether we have a viable product. I think it's a lot of fun, myself . . .

Digital Games

We have still neither released a homegrown digital version of one of our products nor entered a licensing relationship with a major publisher. But, as I reported in mid-2006, we have not given up; we're simply forcing ourselves to prioritize our successful hardcopy sales first.

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.

New Servers

The servers that run our website and internal services, including backups, were overdue for replacement. We started that replacement in 2006, but it cost too much and never finished, thanks to an unsuccessful attempt to "outsource" the project. However, as of this writing, we think it's back on track, with a competent, full-time, in-house IT manager.

Failures

Things that definitely didn't go as they should have . . .

Staff

Our staff has been stable since the last report, but we remain significantly understaffed. Over the past few years, hiring the wrong person has proven to be a worse mistake than hiring nobody at all, so we've become very cautious. We are talking with candidates for two positions as this is written. But during 2006, some employees were seriously overworked and behind on their projects.

Scheduling

Our ability to make and meet schedules simply collapsed in 2006. We were kept afloat, and even in a very good cash position, by Munchkin, but then, it was attempting to keep a dozen very popular Munchkin products in print that did us in.

With a single employee acting as both Print Buyer and Production Manager, and with the duties of Managing Editor falling between that same employee and me (or simply falling through the cracks), much of the year was a constant flip-flop between "must get the new product to press" and "must keep all the Munchkin sets in print." The result was that we succeeded in neither. Time and resources were not allocated effectively. Almost every new product was delayed (a couple, now, are 90% done but over a year overdue!) and Munchkin was not always available to distributors who were crying for it.

The blame for this has to be laid, in the end, on my own doorstep, because I'm responsible for setting priorities, and I didn't scale our priorities to our ability to follow through. So for 2007, priorities will be different; more on this below.

State of the Industry

Quick card games, and longer European-style board games, dominated our hobby in 2006. Roleplaying continued its slump (and some commentators began to throw around phrases like "death spiral"). Prepainted miniatures, with and without clicky bases, continued to increase in variety and quality, bringing more players back into miniature gaming.

Two high-profile publishers left the industry in 2006, and one changed hands:

Eagle Games, best known for high-ticket boardgames, went out of business quite suddenly, leaving inventory to be sold at auction.
Guardians of Order, publisher of a variety of (mostly licensed) RPGs, ran out of money and ceased operations.
White Wolf Publishing, best known for the "World of Darkness" RPG, became a subsidiary of the Icelandic company CCP, publisher of the massively multiplayer game EVE Online. As of this writing, we have only speculation about what that might mean to the hobby as a whole.

SJ Games continues to work with various hobby-industry partners to accomplish shared goals. These include:

the distributors with whom we have flooring contracts, thus making it easier for retailers to carry our full line;
PSI, our fulfillment agent for other distributor sales;
several overseas publishers who are 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 2007 revenues to be higher, and our production of new games to be lower, because our 2007 plan involves facing the reality of our current position. We have only so many hours in the day, and the effort of reprinting a Munchkin product is far less than that required to create a brand-new game . . . and the average payback is much better. Munchkin has the potential to do a lot for this company in the next few years, if we treat the game, and its fans, right! So:

The very highest priority is to keep the existing Munchkin line in print. We will do this by more careful tracking of sales, by ordering reprints well before we expect to need them, and by heartlessly pushing everything else to the side when a reprint needs production resources.
The second priority, and the highest priority for my own time, is to support Munchkin with new releases. There will be at least two new Munchkin games, and at least two new expansion sets, in 2007.
The third priority is to keep the GURPS core books in print.
The fourth priority is to support GURPS with new releases. There will be hardbacks, but probably only two in 2007 (plus Ultra-Tech, which belonged in 2006 and was delayed). Replacing the other books will be a roughly equivalent amount, by word count, of PDF items in e23. These will range from very short – 16 pages or so – to around 120 pages.
And the fifth priority is to release new board and card games. Since I really like working on new games, it bothers me that this item is so low on the totem pole . . . especially since some of the games in the pipeline have a lot of promise. Beyond a doubt, some work will get done on them. But they won't be assigned to-press dates, let alone ship dates, because at such a low priority, any claim to a particular slice of calendar time is pure wishful thinking.
All the way down in sixth priority is "Keep thinking about digital games." I will be going to GDC 2007, and doing a presentation, and talking to people. I would dearly like to have something happen, but if it happens, it will be in its own good time.

In the long run, we want to back our existing hits and work on new games that might be next year's hits. We look forward to redeveloping the ability (and the staff) to do more things at once.

Thanks, as always, for your support.

– Steve Jackson

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