Report to the Stakeholders for 2003

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 we pay royalties to. But it seems to me that it's worthwhile to try to pull it all together, once a year, and create a report not unlike the "report to the stockholders" that you would expect from a public company.

Overview

We are, as I assume the reader knows, a publisher of games. At the moment, all these games are physical products; none of them are videogames or online games, nor are any (yet) PDF files. We do 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, 27 full-time staff, plus a number of part-time personnel and contractors.

Our 2003 sales were approximately $2.5 million. We had a small net loss for the year, due to the expense of moving our warehouse to Las Vegas and writeoffs of accumulated damaged or unsalable inventory. However, our cash flow has been positive and our overall fiscal health is good.

Our most important products at the moment are the GURPS roleplaying system, with more than 100 items in print, and the Munchkin card game. With its sequels and supplements, Munchkin accounted for over 30% of our sales in 2003.

Significant Changes in 2003

In 2003, we closed down our miniatures operation. We were happy with the quality of the work we were doing, but sales were disappointing and profits were marginal at best. There are better places for us to spend our time and money. We have contracted with Gray Cat Castings (operated by Richard Kerr, who was formerly our chief sculptor) to keep the Ogre figures, and some others, available through Warehouse 23.

At the end of 2003, we moved our warehouse operation . . . storage, assembly, and shipping . . . to Las Vegas. Certainly there are drawbacks to such a divided operation, but we felt the advantages outweighed them. More and better warehouse space was an absolute necessity. Las Vegas had good pricing on the sort of space we needed, and the tax treatment of inventory there is more attractive than that in Austin. And our Controller, Gail Barton, was already in Las Vegas. Now, instead of being one of our telecommuters, she is in charge of the Vegas office and warehouse.

This has freed up a lot of space in Austin, allowing us to use both offices and storage more efficiently. It will also allow Warehouse 23 to increase the variety of products that it stocks.

The High Points

2003 saw significant wins in several categories.

Business Organization

Year by year, we continue to organize ourselves more like an actual business, knowing full well that most actual businesses aren't organized. We have a complete schedule for the year 2004; at this writing, only three publication "slots" for the year remain unfilled, and we know what type of item we'll put in each one and have simply not chosen among the options.

We also have actual written goals for the year 2004, and are on track to achieve them.

We have an up-to-date employee manual. Our royalties are accounted and paid for in a timely fashion, which is not typical of either the game or the publishing industry. In short, we are a real business, and we do our best to act like it.

Product Quality

We feel confident that in terms of gameplay we're at the top of the market. In terms of physical quality, though, we have been merely adequate. Maps have often been on thin paper; counters were not die-cut, but required the user to spend some quality time with his scissors before he could play.

This year we have significantly improved the physical quality of our boardgames; the most dramatic change was a switch to die-cut counters. But this raises the stakes; it makes production more expensive without (in most cases) raising what people will pay for the game, so we have to sell more of each title.

Staff

Whatever the business it is in, a company is only as good as its staff, and it's important to retain your skills. We kept our "talent cadre" nearly intact in 2003, and made an important addition. The extremely talented David Pulver is now a Guardians of Order employee; our loss is their gain, but he will continue to participate in some GURPS projects. And the alarmingly multidisciplinary Kenneth Hite is now a full-time staff writer.

We have two key positions that will remain unfilled until we can find the right people. We know we need a full-time Marketing Director working in Austin; the perfect combination of energy and communication skill, combined with love of the hobby and a determination to NOT be a "marketroid," is not easy to come by. And we know we need an experienced person to administer all our nascent computer/videogame projects and help create more, but we're not even sure what the title would be. "Producer"?

The Internet

Although we have no digital products, we depend heavily on the Internet for our operations, and we feel that we have learned to use it effectively . . . though there is always room for improvement. We run a large and successful online retail store; we work with several remote contractors and many, many freelancers. Both our sites have T-1 access to the net.

We also have a large and (fairly) well-maintained website, which is the top Google hit not only for "Steve Jackson," but also for "Steve"! And until mid-February, when Google reworked their algorithms, we even owned "Jackson" . . . And, of course, there's . . .

Warehouse 23

Our online store continues to grow and improve; it's a significant revenue center. We are now the exclusive online retailer for John Kovalic's Dork Storm Press; for several game companies, including Atlas Games; and for two webcomics (Something Positive and Ninja Burger). We pride ourselves on excellent customer service.

Ehhhhh . . .

Some projects could best be described as "Coming along so-so."

Our e23 initiative, which will offer a large variety of digital products (such as PDF adventures) in Warehouse 23, is not coming along quickly. Site programming has simply gone much more slowly than expected. Nevertheless, work continues, and we hope for a launch early in the second quarter. We hope.

We have also been telling our fans, for well over a year, that Worlds Apart Productions was working on a licensed online version of GURPS. Unfortunately, progress has been minimal, and fan questions have been frequent. We continue to talk regularly with Worlds Apart, and now that they are through with their "Lord of the Rings" project for Decipher, we have been assured that things will speed up.

Failures

My greatest disappointment for the year is probably that, once again, I did not manage to replace myself as SJ Games' chief executive. I had a good candidate, but it didn't work out. One of these days I shall manage that, and concentrate on what I do best, which is making up games.

And once again we ended the year without visible progress on any sort of videogames. There was some non-visible progress, which I'm not ready to discuss. But . . . with as many great properties as we have, it's a crying shame that we cannot find an honest and competent partner with the backing and the skills to develop them for the digital world. We may very well have to do it ourselves, starting small and building up. One of our 2004 goals is to have at least one real computer game on the market by the end of the year. I think it can happen.

Car Wars was another disappointment. Our 2002 relaunch of the line started well but then stumbled over about three problems in a row . . . then I got a credible offer for the digital game rights, which didn't work out . . . then I got another credible offer, but that didn't work out either. At the moment, the game is very much in a holding pattern.

The online magazine d20 Weekly, launched with great hopes in 2002, was closed down in May of 2003. It simply never found an audience; apparently there were enough free sites with d20 material that a subscription site, regardless of quality, was not a valid business play. We offered subscribers their choice of a transfer to Pyramid or a pro-rata refund; to our delight, the great majority chose to give Pyramid a try. Pyramid itself remains well-read and slightly profitable.

And in 2003 we gave up on miniatures, as discussed above. This was not an easy decision, but in the end there was no arguing with the numbers.

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) remains, for the most part, divided between (a) megacorporations that have acquired game companies and don't seem quite sure what to do with them, and (b) small companies staffed by enthusiasts, which is where SJ Games originated. There is a middle ground of professionally managed businesses, which (on our good days) we occupy, but it's a small middle ground. Effective cooperation among groups of game companies is not common; there are various associations, but no one organization which can truly claim to speak for the industry.

On the other hand, there definitely are a number of quality companies and talented individuals in the hobby. On an individual basis, we have worked with various partners to accomplish shared goals, notably:

• Issaries Inc., whose products we are distributing;
• the distributors with whom we have special flooring contracts, thus making it easier for retailers to get our products;
• our Warehouse 23 retail clients;
• Adventure Retail, which represents us at Origins, GenCon and other major conventions;
• and publishers like Eden, Pinnacle, and Amarillo Design Bureau, with whom we have shared game systems and backgrounds through license agreements.

We see a lot of future in this sort of cooperation.

Looking Forward

We will make some big product announcements at the GAMA trade show in March. We have scheduled a total of 43 games and supplements (not counting reprints or PDF releases) in 2004.

We anticipate our 2004 revenues to be about equal to those for 2003, but we expect a meaningful profit, both because 2003 suffered due to non-recurring expenses and because we expect the Las Vegas operation to make us more efficient.

We truly expect to become even more "online and digital" in 2004, offering PDFs and at least one videogame.

Thanks for your support. We'll see where the year takes us.

– Steve Jackson

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