Games Workshop P4: When Geeks Create a Monster (of a) Company

Back to Glory

Over the past episodes we’ve covered Games Workshop’s history: from three flat mates in London to a global business, it’s steep rise and growing pains from 2004 to 2015. Let’s latch on where we’ve left off.

In 2015 Kevin Roundtree is made commander-in-chief of Games Workshop. It takes him 17 years within the organization to rise to the top. He is not a sculpturer or designer, nor is he a storyteller. In 1998 he joins as assistant group accountant. He moves through various management roles including head of sales for the Other Activities division including Black Library, Licensing and Sabertooth Games. In 2008 he becomes Chief Financial Officer and three years later Chief Operating Officer. Finally, in 2015 he’s CEO.

Have you ever wondered to what degree the CEO is responsible for the success of an organization? How one leader is able to see something, a gap, an opportunity, pivot the organization into a strategically important direction when others can’t? The following string of decisions made by Kevin is worth keeping in mind when trying to answer this question.

Before Kevin takes the helm, IP royalty income is virtually non-existent. In 2014 IP revenue is a mere £ 1.4 million. Guess that figure in 2022? A whopping £ 28 million. That’s 20x in 8 years under Kevin’s leadership. The economics of these licensing revenues are beautiful as we’ll see later. In the 2022 AR, Kevin writes the following on this topic: “The second element is that we make fantasy miniatures based in our endless, imaginary worlds. This gives us control over the imagery and styles we use, and ownership of the intellectual property (‘IP’). Aside from our core business, we are constantly looking to grow our licensing income from opportunities to use our IP in other markets.”

Kevin also leans into new ways of marketing, targeting proper hobbyists, heavily leaning into digital channels. A few years earlier, in 2013, the Company had closed its Facebook page as a result of a customer revolt but since Kevin took over things have changed materially. This is what he writes in the 2022 AR:

“… we are customer focused. We aim to communicate in an open, fun way. Whoever and wherever our customers are, and in whichever way they want to engage with Warhammer, we will do our utmost to support them.” … “To reach them, we have two key tools: our retail chain and our digital content. In retail, we showcase the Warhammer hobby and offer a fantastic customer experience. Our digital offering has never been richer. Through warhammer-community.com and social media we reach thousands of people every day, showing them the very best aspects of the Warhammer hobby and inviting them to join our global community of enthusiastic fans.” …. “These pieces of animated content racked up c. 9 million views on our own channels alone, to say nothing of the millions of views generated elsewhere through reposting, watch alongs etc. We think it is safe to say that Warhammer content has never been viewed more than it has this year.”

Compare the above and the following to the state of play seven years ago, where there was virtually no digitally interactive touchpoint with the customer. Today there is Warhammer TV on Youtube, there is Warhammer TV on Twitch and there are Warhammer Podcasts. The official YouTube channel has 650,000 subscribers. The Company’s videos on Warhammer content are viewed 10s of millions of times across all channels. Apart from the brand building exercise, the ability to come closer to your costumer, building on top of and strengthen the gamer’s community, I view this as a highly productive mechanic of A/B testing content for the creative teams at GW. Because it’s interactive with the users, GW learns quickly what resonance with the fans and what doesn’t.

Another strategic move by Kevin: in the mid 2010s it becomes increasingly clear that the franchise is becoming increasingly reliant on the by then dated Warhammer 40k and as a consequence Kevin initiates the creation of new “worlds”. In 2015 Warhammer Age of Sigmar is released, effectively replacing Warhammer Fantasy Battle and a second edition follows in 2018. There is initial criticism but eventually it is well adopted and received by the fans and PC Gamer goes as far as to say that “Age of Sigmar second edition brings Warhammer close to its former glory”. What’s beautiful about this move is that it gives the Company the option to further expand and leverage the IP, grow and create new stories and characters while keeping the customers experience fresh.

On a side note, and given the recent Writers Guild of America strikes in Hollywood and the United Auto Workers strikes in Detroit, I feel this point is timely. The characters created and owned by GW cannot go on strike or demand for higher salaries. The worlds created cannot boycott the Company that gave birth to them in the first place. GW figuratively and literarily decides over the fates of these characters and worlds. Is there a limit on how much you can create out of thin air once you have, over decades, carefully curated and built a loveable, durable franchise of characters and worlds? Perhaps it’s worth studying Disney’s aggressive expansion of the Marvel franchise to get a better picture.

But the fun isn’t over yet - pun intended - it gets better. From 2015 to 2018, Kevin manages to expand overall profitability by shifting more volume from Retail, a lower margin channel, to Trade, a higher margin channel. Operating margins skyrocket by over 1,500 basis points from circa 14% in 2015 to over 30% in 2018 and onwards. Part of the increase is of course due to operating leverage as sales are starting to rise significantly again in 2015 and the years that follow, plus IP revenue.

Yes, things are taking off again in 2017, the Company’s revenues and profits are steaming ahead. See below:

It’s fair to say that Kevin Roundtree is delivering. He’s delivers hard! But I want to emphasize a key element of the Games Workshop story here that perhaps won’t be terribly obvious for newer students and customers of the Company. Former Chairman and CEO Tom Kirby together with CEO Mark Wells have built the foundation for Kevin to work on. I am not talking about the glorious 1990s and early 2000s. I am talking about the painful period from the mid 2000s to the mid-2010s. Tom has taken out costs, consolidated back-office functions, leaned in new sales formats, hired the right people, expanded Citadels colors, refreshed the game with new monsters, switched from metal to resin miniatures, kept those miniatures at the very highest quality standards by perfecting manufacturing, tried out and expanded one-man shops in various new regions, protected the valuable IP from dilution by avoiding signing up with less than excellent partners. One element however is particularly favorable playing into Kevin’s hand here, one that can easily be overlook. And that factor is time. The game was passed on from generation to generation, it had time to create deeply rooted share of mind with generations of gamers. You simply cannot recreate such development, no matter how much money, genius or resources you throw at it. Time cannot be replicated. I am not saying that Kevin hasn’t done a good job, he has done a great job, but he had all that groundwork working for him, he is building on the success of his predecessors.

The more I study truly remarkable businesses, the likes of LVMH, Hugo Boss, Nike, Walmart, Nvidia, Amazon, Hermes, Nintendo and others, the more I come to realize that progress never happens linearly or smoothly. You build, and you build, and the increments of progress seem marginal at times. You start to see the true results after years, perhaps decades. It’s like a volcano, all of the sudden it bursts and spits out lava. It might be sudden to the uninformed or ignorant observer, yet it’s been in the making for decades. So yes, Tom Kirby may have not invested enough in the franchise during his tenure and perhaps missed out on the IP monetization opportunities, but Kevin inherits a Company in 2015 that is on a much, much better footing than it was 10 years before taking over. Importantly, he had time working for him. He can now build on that, and better not screw it up.

To be continued.