Report to the Stakeholders for 2007

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 freelance artists and designers we work with, 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 200+ people and companies to whom we pay quarterly or monthly royalties. But for the past four years now, I have written a report not unlike the "report to the stockholders" that you would expect from a public company. It's a useful exercise for me, and I've gotten a surprising amount of favorable feedback from all levels of the hobby. So here it is again.

Overview

We are, as I assume the reader knows, a publisher of games. Not all of these are physical products. An increasing number of them are digital downloads . . . PDFs and a few other types of file sold through our e23 site. 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, 17 full-time staff (and are recruiting for at least one more), plus a number of contractors and part-time personnel. Our overall head count has increased a bit since last year.

We expected 2007 to be a strong and profitable year, and it was. Our 2007 gross was close to $2.88 million, about a 14.8% increase over 2006. The 2007 books are not yet closed, but we will show a profit, and our cash flow remained excellent.

Our most important product, even more than last year, is the Munchkin card game. With its sequels and supplements, Munchkin accounted for over 70% of our sales in 2007! It is now available in 12 languages. The GURPS roleplaying system, with more than 100 titles in print, is still the other main component of our sales, and the mainstay of the e23 PDF library.

Significant Changes in 2007

Executive summary: Things got better.

The High Points

2007 was definitely a good year. We have more than the corporate books to say so. A poll of employees gave a strong consensus that they are happier, and that the company is better off, than last January.

Sales

Sales were up by about 14.1%, and this year they were more consistent. 2007 was the year that we got (re)organized with our print buying. Having identified the failure to keep the Munchkin core games in print as our #1 problem of 2006, we addressed that failure with energy, and very nearly erased it. Having more to sell, we sold more.

Licensing income, mostly from Munchkin, also continued to grow.

Staff

Our staff picture is much brighter than it was last year, when we had some significant gaps. Two experienced former employees, Phil Reed and Michelle Barrett, returned in 2007. We also lost a couple of good people, but fortunately not at senior levels. We still identify "lack of depth" as a weakness . . . too many of our key people have no clear backup . . . but now all our key slots are well filled.

The game business is not a terribly high-paying industry, but we want our staff to have more reasons to stay here than "we love games, and we like coming to work in jeans." In 2007 we gave holiday bonuses totaling about 5% of 2007 payroll, plus modest raises. As of this writing, we have just implemented another round of raises equivalent to about 5% of 2007 payroll.

Warehouse 23

Our online store is still a success. Sales of physical goods were marginally higher than in 2007. We are the exclusive online retailer for several excellent publishers, including Atlas Games and Grey Ghost Press. Our customer service continues to be a point of personal pride for me. Cost control and improved software, both web interface and back end, will be our direct-sales goals for 2008.

e23

Our digital-product division, e23, is now three years old, and the second largest seller of downloadable files for the gaming community. A 2007 goal was to have 2,000 files available for download, and we made it with more than a day to spare!

We are ramping up our efforts to create original releases for e23, since those are better-selling and more profitable than third-party material. We intend to release at least 25 significant originals in 2008. However, we don't want e23 to become a pure company store, and we DO want to take advantage of the "long tail" effect, so we will continue to sell quality PDFs created by other publishers. At the moment, our third-party contract offers dramatically better royalties than does our competition, and we'll do our best to continue that.

The PDF versions of our new GURPS books will now be available after the hardcopy has been in stores for a month. We continue to see no evidence that PDF and hardcopy sales interfere with each other. In fact, PDF releases have created demand for short-run hardcopy editions of several GURPS supplements.

Business Organization

Our business organization remains reliable. Our financials are up-to-date. We pay our royalties accurately and on time. This pleases me greatly.

This year we got our "Watch List" report back. A big part of keeping the important things in print is accurately predicting when you'll run out. Not trivial when sales fluctuate, press runs are of different sizes, and product is divided between a number of flooring distributors. But it's doable, and now we're doing it again.

This was also the year that we moved our Employee Manual and procedures documents from hardcopy to wiki.

And, as of a few days ago, the business now has a designated successor – Phil Reed – to explicitly be in charge when I'm not around, and moving toward the day when I'll spend most of my days out of the office and he'll be in charge all the time.

Neat Little Things

Perhaps not terribly important in the grand scheme of things, but 2007 did bring a few "small wins" that are just too cool not to mention:

Warren Spector, an SJ Games alumnus, sold his development studio to Disney. Cheers for Warren for hitting the biggest of the big leagues.
We learned that, as far as anyone has determined, the Daily Illuminator is the oldest still-active blog on the Internet, going far back before the invention of the word "blog," or even "weblog." Its daily updates, still archived, go back to November 16, 1994. On that day, I said "This is going to be a daily news/chat/update column from SJ Games. The writer will change from day to day . . . whoever has something to say will grab the keyboard. If something fantastic and important happens, we'll let you know. If nothing fantastic and important happens, we'll probably make something up fnord . . . Today we DO have something fantastic and important to report . . . we got the proof sheets for the last 100-card "form" of INWO cards. This is the one with the Illuminati themselves on it . . . and it looks great. Now we can start playing with real cards!"
We produced a spiffy Munchkin Bobblehead. He was available over the holidays as a Barnes & Noble exclusive, packaged with the original Munchkin game. Now the bobblehead by himself is on its way to retail stores. Yes, he gives an in-game advantage!
Four of our games – Car Wars, Ogre, Illuminati, and Toon – were covered in the Green Ronin book Hobby Games: The 100 Best. SJ and Phil Reed both had essays in that collection, too.
And we mounted a large Eye-In-Pyramid logo on the building, but no company name. Those who need to know, know.

Ehhhhh . . .

The places where we wanted a win and didn't quite get one.

Warehouse 23 Upgrades

Last year I said "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." Well, we're still planning those things. We've done a lot of homework on the mezzanine and learned just how difficult the City of Austin permitting process can be even when there are no particular issues. As for the shopping cart, a shortage of coder-hours has pushed it back.

Podcasting

The Fnordcast was fun and got some good comments, but after #10, we quit . . . not officially, but the fact is, we haven't done one in months. The people involved have more pressing duties. It's a shame, and maybe we can get back to it.

Failures

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

Digital Games

While we've made some very promising contacts, we have still neither released a homegrown digital version of one of our products nor entered a licensing relationship with a major publisher. We're not working too hard at that, either; last year we decided to prioritize our successful hardcopy sales first. So this isn't an utter failure, because it wasn't a top goal . . . but it remains a disappointment, and it is no longer even a priority for 2008.

Our UltraCorps online game project has gone on for another year, and now feels very much like Zeno's arrow paradox: we keep getting closer, but will we ever get to the point of launch? Not giving up, though. It's a great game.

Sending Steve Home to Design Games

This has been a goal for years. As I've said more than once (a LOT more than once): I seem to be a competent manager, because we've been here for more than 25 years, but I'm not a great manager, so why don't I get somebody else up to speed to do it? Well, it's been tried, and it has never worked out well enough.

Failure to solve this problem has made it a bigger problem. I'm definitely feeling the symptoms of burnout. In early October I abruptly realized I needed time off NOW, went home, and didn't officially come back till Halloween Game Day . . . which meant that I only worked about 20 hours a week during that time. Not only am I fried, I have forgotten HOW not to work. So in 2008 I'll practice. I will be taking a few long chunks of time off, possibly working on new game ideas and possibly working on nothing, but definitely not facing deadlines or day-to-day management. Maybe we can work up to a genuine long sabbatical sometime in 2009.

But we're addressing this: as noted above, Phil Reed is now the Official #2 Guy, and I feel very comfortable with that.

State of the Industry

Big board games became yet more important. Gamers continued to enjoy quick card games, but the retail tier showed a preference for big, expensive boxes with lots of plastic toys.

Roleplaying didn't get any healthier. Not long before this writing, the Games Workshop divison which produced the popular Warhammer RPGs announced that it would discontinue the line in order to put more effort into fiction production . . . because the Warhammer novels are more profitable than the game is. Nevertheless, word from our distributors is that GURPS at least maintained its sales base during a time when other lines were losing 50% or more.

We didn't gain or lose any big publishers in 2007, but there were some significant losses in other tiers:

Games Expo, launched as a head-to-head competitor with the GAMA Trade Show, failed disastrously. It took with it the promoter's two magazines, the 16-year-old Games Quarterly Catalog and its newer spinoff, Games Quarterly Magazine.
GenCon SoCal was discontinued, though the original GenCon remains healthy and active.
RPV Distributors closed its doors.

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;
the many overseas publishers who are translating Munchkin releases on a regular basis, as well as 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 products through e23.

We still believe this sort of cooperation is our future.

Looking Forward

Setting some hard priorities worked very well for us last year. So . . . we've done it again, and they're a bit different, and we allowed ourselves one more than in 2007:

The top priority this year, for the company and for me personally, is to get the Munchkin board game, Munchkin Quest, finished and excellent, and to get it to press, and to support it with at least one good supplement. This will be our first entry in the "big pretty box full of neat toys" category. We can do that. We want to make it a lot of replayable fun, too, rather than just a source of toys to put on top of your computer monitor.
The next priority is to keep the existing Munchkin line in print. We succeeded in this last year when it was Priority 1. We can still do it.
The third priority, and the second highest priority for me, is to support Munchkin with new releases. There will be one new Munchkin game, and at least three new expansion sets, in 2008.
The fourth priority will be e23 support: better code, a better front end, more third-party publishers, and a LOT more original material. Most of the original PDFs for '08 will be for GURPS, but we hope to offer some surprises, too.
The fifth priority is to release some new board and card games unrelated to our current lines. We will get some done.
The sixth priority is to support GURPS with new hardback releases. There will be two in 2008. But the big thrust for GURPS will be in PDF, which is up there in Priority 4.
The last significant priority is to keep the GURPS core books in print. We can safely make that the last priority, because we pretty much have it down to a science. Knock on wood . . .
Everything else after that is a non-priority, something to do if the above things are under control. That includes digital games. At our last planning session, most of the senior staff identified digital games as a threat . . . not a threat to our sales, but a distraction that keeps me from working on the new card and board games that are our life's blood. I'm about to visit GDC, but mostly just to learn. We will continue to work enthusiastically with the publishers and developers that have proposals in progress with us, and we all hope something great will come of it, but chatting with new digital publishers in 2008 will take a back seat to making "real games" unless someone opens the discussion by waving a very large check.

Thanks, as always, for your support.

– Steve Jackson

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