We are into the fourth week of the new marriage of TSR and Wizards of the Coast, and I figured you might be interested in my thoughts on what's happening out here in Lake Geneva.

Basically things are going very well. The TSR folks are great and we're making a lot of new fnendships. I've even had the chance to play some AD&D @reg sessions while I'm out here; I'm playing my female 5th-1evel bard named Hope in Ted Stark's campaign with Cindi Rice, Stan Brown, Lisa Stevens, Julia Martin, and Cindi's and Julia's husbands. So far no one in the party has tried to backstab me, so I guess that's a good sign!

This week we finalized the schedule for the rest of 1997 and we're writing purchase orders for new products and some backlist products. Everyone's excited to have the presses rolling again! In fact, when the first shipment comes to the warehouse we thought of running out to the trucks with cookies for the drivers, a film crew, and the whole works: "SO, Mr. Truckdriver (or Ms. Truckdriver), how does it feel to be making the first big delivery of TSR products? How was the drive in? Did you have trouble with crowd control along the way?" Yeah, okay, so we're getting a little giddy out here, but that pretty much describes the mood right now.

Obviously it will take a few weeks to get products printed, assembled, and distributed. The first backlist and new products should start showing up in stores in early August. I think the first new product will be the next issue of Dragon ® magazine.

Business Stuff

It's no secret that TSR has had severe financial difficulties in recent years. TSR has operated at a loss for almost three years, and even when it was profitable it was only barely so. If your image of TSR is that of a large, wealthy corporation swimming in money, you're in for a surprise. TSR operates on a shoestring budget -- with employees who barely make a living and for the most part are working on out-of-date computers, and with only nominal funds for marketing and promotions.

Our goal, of course, is to turn the business around and make it a profitable enterprise. While we obviously have a duty to our shareholders to make a profit, we also have a similar duty to our customers and to the adventure gaming industry. A financially healthy TSR will have the strength to support gaming, through the regular release of quality products, to support organized play programs like the RPGA, to attract new people to gaming through advertising and promotions, and to take risks in launching new lines that may or may not tum out to be long-term profitable ventures.

On the other hand, an unhealthy TSR causes damage to the entire industry, not just to Wizards shareholders. In the six months during which TSR didn't release any products, sales went down dramatically not just for TSR, but for everyone who participates in the TSR distribution network: distributors, retailers, mail order companies, and so on. This caused retailers to have less cash flow for investments in other game products, possibly hurting other manufacturers as well.

So now I hope we agree it's in everyone's best interests to turn TSR around to become a profitable business, and we'd like to share with vou our plan for doing so. We want you to understand the full picture because we think you deserve to know. You love this company as much as we do, so you're probably very interested in understanding this.

Making a business more profitable is fairly simple on paper. You need to find ways to increase sales without increasing expenses by the same amount, or find ways to decrease expenses without decreasing sales by the same amount. We're considering the following initiatives to do this:

Reduce printing costs. We plan to work very hard at reducing printing costs by introducing a competitive bidding process instead of having an exclusive arrangement with a single printer. By doing this we can always get the best price possible on a given product. This should decrease expenses with no decrease in sales.

Improve inventory management. Many have correctly speculated that TSR suffered numerous financial setbacks from sales returns in the book trade. This is true and these returns cost the company a lot of money, particularly if the returned product can't be resold at a later date. We hope to manage TSR's inventory and sales volumes more precisely to reduce the costs associated with sales returns and overstocking of inventory.

Review product formats. TSR has published products in a variety of formats, including paperback books, hardback books, boxed sets. and so on. Some of these products are more profitable than others, and some are barely profitable at all. We'll be examining this product mix to make sure that each format stands on its own and is profitable in its own right. The company simply can't afford to have some products that don't carry their weight. This move may decrease sales if we make format changes when customers prefer the current formats, but if we do it right, the decreased expenses will more than make up for lost sales. For example, we sold a ton of the Encyclopedia Magica ™ books but lost money on every copy sold because they cost so much to produce. That's why we changed formats for spell compendiums. Yes, the customer gets less for the same money, but that's because the price on previous versions was much too low to maintain.

Review product lines. What I said in the previous paragraph about types of products can also be said about some of TSR's product lines. We can't force highly profitable lines like the Forgotten Realms and AD&D ® products to "carry" lines that continue to perform poorly. If a product line isn't performing, we should reduce our investments in that line to nominal levels and redirect that talent to supporting a line that has more promise. In some cases perhaps a line is flailing but needs more investment in order to succeed. We'll regularly examine the TSR product lines on a case-by-case basis, through customer surveys and reviews of sales data, to determine where our best investment opportunities lie.

All that said, we do have a saying around here: Lines never die, they simply go into hiatus for a while. We'll never completely give up on a line. Rather, we hope to do what Disney does with old properties: bring them back every once in a while for a new treatment and revival.

Increase prices. We're considenng some moderate price increases on a number of products. We understand that this won't be a popular move, but the fact is that most products don't sell in high enough volumes to warrant a low price. The role-playing industry is small, and products that often take one or two years to develop sell only a few thousand copies. Because of this the profitability of the entire industry is dangerously low. The price of roleplaying products simply has to go up if the adventure gaming industry is to remain viable.

Work with a smaller staff. With TSR operating as a product group within Wizards of the Coast, a number of jobs become unnecessary. We don't need two legal departments, two accounting departments, and so on. This will mostly lower expenses related to administrative functions, and it might help somewhat in sales, marl;eting, and intemational functions as well. The need for game designers, developers, editors, and graphic designers will remain constant since this type of work is not subject to the same economies of scale.

In some areas we plan on spending more money, not less. We plan to spend more on market research and marketing. With increased expenditures in market research we hope to ma};e more accurate decisions about what types of products to develop, how many of them to produce, and how to promote them. With increased expenditures in marketing we plan to invest primarily in organized play activities like the RPGA, conventions, and other support for grass-roots play. I expect that these additional expenditures will pav for themselves with increased sales.

TSR Product Lines

Of course, everyone wants to know which product lines we plan to support aggressively and which we plan to keep low kev for possible revivals later on. Overall we'll base these decisions on consumer interest, which is typically expressed in sales. Here's a summary of where we stand on the lines:

AD&D core, Forgotten Realms, Dragonlance ® : These are great product lines with strong sales. We'll certainly continue to invest in these.

Planescape, Ravenloft ® : These are great product lines, but with modest sales. We believe they can be managed profitably and we plan to do so.

Birthright ®, Spellfire ® , Dragon Dice ® : These lines are built on intriguing concepts, but sales have been weak. We have some ideas to try out during the second half of this year to build up these lines. If those ideas don't work, we'll let the lines slip into hiatus for a while and consider relaunches at a later date.

Greyhawk ®: There seems to be a lot of pent-up demand for bringing the Greyhawk line back. We're giving this serious consideration.

Alternity ™: This is an amazing product with great potential. We're delaying the launch till 1998 so it can get better marketing support. As a gamer you may not value marketing, but as a publisher I can tell you that the days of launching a new game and hoping it grows on its own are long gone. If this game is going to have the chance it deserves, it's going to have to come out with a well-planned launch program.

Dragon, Dungeon ® , Polyhedron ® : These are excellent publications that, even though they don't really make money, are important products for supporting TSR customers and products. We'll continue all these magazines

Novels: The book publishing department at TSR is an excellent, efficient operation that produces some outstanding fiction. We'll continue to invest here; the novel lines will generally overlap with the game lines, with occasional exceptions.

Dominia ® Campaign Set: Of course, we're seriously considering publishing an AD&D campaign setting for Dominia, the multiverse in which the Magic: The Gathering ® TCG is set.

Other lines: Some other TSR properties aren't currently supported but are mentioned frequently in emails and such from gainers; the Dark Sun ® line is an excellent example. We'll do some market research to test awareness and interest, and we'll consider relaunch options based on those studies and our own thoughts about where we think the exciting prospects are.

Growth Opportunities

In addition to making TSR profitable once again, we hope to grow the TSR business. We see the following areas as avenues for directing our growth efforts:

International markets. International sales represent only 10-90% of TSR's worldwide sales. International should be in the 50-60% range.

New lines. We must continuously make investments in the development of new games and campaign settings. The creation of new properties is the heart and soul of a gaming company and is critical for long-term profitabiliyv. Our next big push will be the Alternity science fiction roleplaying game.

Electronic media. We must develop a comprehensive strategy for dealing with the Intemet and PC platforms. TSR has tried doing its own software development and has done an extensive amount of licensing. We need to explore all options and develop a vision.

TSR Staff

I consider it one of the greatest privileges of my life to have become associated with the employees of TSR. These people have inspired me personally through their integrity and commitment to TSR. In spite of the hardships they've seen in the first six months of the year, ver, very few of them left the company. Thev stayed on, steadily tending their watch through the most turbulent times. And after the acquisition, those who couldn't come to Seattle could have run off immediately looking for other jobs, but instead, most of them stayed on right up through the relocation to help with GEN CON ® and ensure a smooth transition. In my years of running a gaming company I have seen many heroic efforts in which people put duty above all personal considerations, and this particular case ranks among the greatest of those tales.

Target Audience

TSR made a strategic decision a number of years ago to target a younger audience in its marketing decisions and product content. We're reversing that course. We will market our games as serious products tor a mature audience. We do this not because we don't want young people to buy our games, but because we believe that the young people who buy these games are generally mature for their age and take gaming as seriously as adults. This doesn't mean we're going to go off the deep end and turn the line into a bunch or R-rated products: it simply means that we'll assume our audience is generally mature enough to handle serious topics and perhaps the occasional demon or something.

1997 Release Schedule

Here are the game releases planned for the rest of this year from TSR . I thought you might be curious. Listed by each is the month it ships; you'll probably see it in the stores the month after.

AD&D: Tale of the Comet ™ (Jul), Sea Devils ™ Monstrous Arcana ® (Jul) Evil Tide ™ Monstrous Arcana (Aug), Of Ships & the Sea ™ (Sep). Wizard Spell Compendium II ™ (Sep) Night of the Shark ™ Monstrous Arcana (Oct), Sea of Blood ™ (Dec), Tale of the Comet Novel (Jul).

Birthright: King of Giantdowns ™ (Jul), Book of Priestcragt ™ (Oct), Tribes Heartless Wastes Sourcebook ™ (Dec).

Forgotten Realms: Powers & Pantheons ™ (Jul), Lands of Intrigue ™ Campaign Set (Aug) . Castle Spulzeer ™ Four of the Cormyr ™ (Oct), Prayers from the Faithful ™ (Nov) Novels Finderts Bane, Harpers #15 (Jul); Shores of Dusk (Nov) Passage to Dawn, reprint (Aug) Council of Blades. Nobles # 5 (Sep), The Simbul's Gift, Nobles #6 (Oct); Elminster in Myth Drannor (Nov) Realms of the Arcane (Nov); Tymora's Luck (Dec)..

Planescape: Faces of Evil: Fiends ™ (Aug); The Great Modron March ™ (Sep); Dead Gods ™ (Oc;); Planar Powers ™ , The Blood War Trilogy (Jul). Pages of Pain ™ (Dec).

Ravenloft: Domains of Dread ™ ( Jul), Forgotten Terror ™ (Sep), Ghosts ™ (Nov), Lord of the Necropolis novel (Oct).

Dragonlance: Heroes of Defiance ™ (Jul), Fate Cards ™ (Aug), Last Tower Adventure (Oct), Heroes of Sorcery ™ (Nov). Novels: Lord Soth (Jul), One Dav of the Tempest (Aug), Vinas Salmnus King (Aug), The Wayward Knights (Sep), Fistandantilus Reborn (Oct), Tale of Uncle Trap-Springer (Nov), Dragons of Chaos (Dec).

Dragon Dice: Manual (Aug), Kicker #6 (Sep), Kicker #7 (Dec). Note that these releases are tentative.

Marvel ® Super Dice ™ : Starter Set (Oct).

Spellfire Dungeon! &#reg Booster # 12 (Aug).

Periodicals: Dragon every month Dungeon every other month, Polyhedron every other month opposite Dungeon starting in October.

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