By the time you read this, we will have been on our path to exclusively direct sales for more than a month. In the last pre-pub mailing, most of you (unless the mail service lost yours) will have seen my explanation of this decision. As that is the case, I will summarize the process leading up to this decision and the indicators that convinced us of this choice.

An Unfolding Plan

Last November, we explained the conditions which needed attention. You responded to that call and corrected the situation. Nevertheless, a careful look at our sales numbers for the past two years revealed some alarming trends.

First, wholesale orders of new game releases had slowly dipped from an expected 1,500 copies (in 1994) to the low 1,000 mark (with the occasional dip below 1,000). Second, reorders by distributors of older titles almost evaporated. Two years ago we could expect those numbers of sales of a new game and there would be about 1,000 copies of older titles sent with them. By late 1995, this number had fallen to under 200.

In our October meetings, we chose to redevelop our cash position (by asking for your help) and prepare ourselves for a significant emphasis on direct sales which would move toward strictly direct sales within six months to a year. Sales figures for new games in 1996 would determine the speed of this redirection. Would the dip in distribution remain the same, recover, or get worse?

The signal was loud and clear.

Stalingrad Pocket II went out the door to the tune of 953 distributor copies and 412 pre-pubs. Champion Hill produced an abysmal 876 distributor copies and over 490 pre-pubs. Keep in mind that Bloody 110 sold 750 in its initial distribution in 1989 as only our third release. Also, those sales were followed up by vigorous reorder activity--activity which is essentially nonexistent today. Deciding that the current wholesale-retail network was collapsing below our minimum requirements was easy.

Industry vs. Hobby

It is important to separate the industry from the hobby. The hobby is in the best shape it has been in years. Good new games are available on diverse subjects and the games being produced have hit all-time highs for publication quality. New companies abound with fresh ideas and new approaches. Sure, there is an occasional clunker, but there is so very much to satisfy discerning gamers. For the hobby, times are very good indeed.

The industry on the other hand is struggling and slowly losing ground. Real retail outlets (those that show a large selection of games available for inspection) are few and far between. Outlets with knowledgeable staff are even more scarce. The distribution network is selling fewer and fewer games at what were already slim margins. This does nothing to encourage them to push the product with extra effort. Many distributors who carry the games are already doing it at a loss. Something has smashed this system of selling games--I have my own speculations on what it was, you probably have yours--but the fact is that what little semblance of "mass market" this industry had is dying.

All of this means that as the industry realizes its destiny in niche sales, things must change. No longer can a manufacturer of our size (half million or so volume per year) afford the production systems needed to fill up a distribution system, chasing a handful of sales at 39 cents on the dollar. If you ever wondered why games cost so much, look no further... for us to be paid $16, you have to pay over $40 retail.

The volume just isn't there to make those economics work. Rather than throwing money into a pit in hopes of filling it up, we chose to restructure for the new industry of the future--smaller numbers of direct sales with no middlemen watering down the purchase value. This structure will allow the current or even smaller sales volume to provide the manufacturer with the funds needed to survive at an acceptable level.

Hey, SPI Screwed Up...

SPI made a mistake 15 years ago. They shifted from a direct sales emphasis to a wholesale emphasis. In four years, that decision killed them. If they could not make the volume work with $6 million a year in gross sales, what hope do companies today have at one-twentieth that rate? I see no point in repeating their mistake or in mindlessly trying to make it work for the sake of romantic notions of the past. Even the marginally effective system of the early 1990s, with nearly triple game prices and heavy direct sales to maintain manufacturer earnings, is now slowly declining below acceptable levels.

Once the industry has been redefined as a niche market, maybe it can start enjoying the high hopes and pleasant prognosis of the hobby it serves.