Games Workshop has always had a somewhat fearful relationship with the internet. While it’s easy to paint the big company of any market in a negative light, this is not an exaggeration: in the past, Games Workshop has shut down its own forums, has purged every scrap of free rules or hobby content from its website until it became nothing more than a shop, and has served more takedown orders than you’d think possible for a company which literally makes tiny plastic space men.
But whether it’s shutdowns, shutterings or takedowns, one thing is clear. Games Workshop is the lumbering, conservative giant of the miniature wargaming world, and it has approached the internet with the same absolute desire it brings to every other aspect of its business: control.
In 2011, Games Workshop was faced with an unspeakable threat: many of their players (mostly from Australia) were purchasing goods direct from the UK and the US — and in the process saving incredible amounts over Games Workshop’s inflated local prices. Their response wasn’t so much a warning shot as an atomic bomb: a draconian new set of trade agreements that imposed unprecedented restrictions on where third-party retailers could and could not ship their products.
This was just the first strike in Games Workshop’s war against an uncontrolled internet. In 2013 third-party retailers were hit by their next volley: across the US, Canada, and Europe, anybody without a physical store presence was expressly forbidden from stocking Games Workshop product. Some businesses were unaffected. Others looked for ways around it. Others, like MiniWarGaming, had no option but to close.
While Australian players were hit hard by the restrictions on international sales, Australian retailers (who never exported to international customers in the first place) remained largely unaffected. That all changed in May this year, when Games Workshop applied to the Australian Competition and Consumer Commission — without notifying any of their 158 Australian trade partners — for the right to legally discriminate against online-only retailers.
Why are they doing this?
The reasons behind the move match up with Games Workshop’s justification in other territories: in their view, online-only stores (“Distance Selling Channels”) don’t contribute anything to “the community”, and therefore don’t help Games Workshop’s bottom line like physical stores (“Shop Front Channels”) do.
Here’s an excerpt from Games Workshop’s application:
The sale of the Products through the Shop Front Channel is central to the customer experience. The Shop Front Channel offers both new and established customers the ability to engage with other, like-minded hobbyists and create a community within which these hobbyists can engage. A proportion of consumers typically “exit” the hobby when they reach a certain age, so the recruitment of new customers is important to sustain the development of new products by GWG, the expansion of current ranges, and to ensure the long-term sustainability of GWG.
Whilst GWG operates a global business, it is the Shop Front Channels that are key to the establishment of local hobby communities. The same communities cannot be developed solely through sales offerings through Distance Selling Channels. GWOP is, therefore, focussed on driving the establishment and development of Shop Front Channels to ensure that the Shop Front Channels remain the focus of the offering of products.
Games Workshop then goes on to quite literally describe online-only retailers as “free riders” and liken them to parasites. In the excerpt below, Games Workshop claims that their low prices undercut hard-working physical store owners:
Distance Selling Channels are able to make sales of Products with only the bare minimum of service, often at the expense of both consumer experience and Shop Front Channels. The introduction of the VASP model (…) is also designed to reduce the risk of Distance Selling Channels free-riding on the investment made by Shop Front Channels (and potentially other Distance Selling Channel Outlets that offer high service levels), who devote significant investment in providing a broad range of high-level services, as well as an enhanced consumer experience, only to have consumers that choose to buy from Distance Selling Channel outlets that can offer lower prices because it does not invest in such services.
Ultimately, Games Workshop values physical stores above competitive pricing, and believes that these restrictions can create a culture where players will happily pay higher prices because they are forced to physically visit a store.
(Side note: Games Workshop continues to sell its own products online — and at full price.)
Is this legal?
Not only is this move completely legal, but it’s also more commonplace than you’d think. Legal writer Patrick Vuleta explained to us that these “exclusive dealing arrangements” are actually extremely common, and happen “all the time in every industry.”
“They also tend to be an area where the ACCC has a particular interest and is known to go after major international companies, including giants such as VISA, Foxtel and FILA,” says Vuleta. “These agreements can be used to provide consumer benefit such as lower prices or maintaining product quality, or Pizza Hut ordering its franchisees to continue its unholy obsession with Pepsi, but do need careful scrutiny whenever their purpose appears to be to preserve the market power of a large player.”
There are several tests that the ACCC will apply to any company seeking an exclusive dealing arrangement, and the one that Games Workshop hopes to pass is a “substantial lessening of competition” test, often referred to as an “SLC”.
The ACCC’s guide to SLC issues states that these types of deals are only illegal “when the conduct has the effect of substantially lessening the competition in the relevant market.” Broadly, the ACCC must consider:
- whether there has been a real effect on the competition in the overall market for a particular product and its substitutes
- whether the refusal to supply would substantially restrict the availability of that type of product to consumers
- whether consumers are severely restricted in their ability to buy a product or its substitutes because the business has imposed territorial restrictions as a condition of supply
“As a general guide” writes the ACCC, “the more exclusive the product and the more powerful the supplier, the more likely it is that the competition will be affected.”
What does this mean? Essentially, for Games Workshop to establish that their move will not reduce competition in the market, they are required to prove that their products are largely interchangeable and not actually that special. Seems counter-intuitive, for a company that quite literally uses the first paragraph on its investor page to claim that they make “the best fantasy miniatures in the world”.
But that’s exactly what they did.
Why Games Workshop thinks World of Warcraft is a direct competitor
In its initial submission to the ACCC, Games Workshop described its market as “model kits, tabletop games (including miniature wargames), board games, collectible card games, role-playing games and interactive entertainment games”. They then provided a list of “substitutable products” that runs to two pages long.
Here’s a brief selection: HeroClix, Warmachine, Hordes, Flames of War, Ticket to Ride, Carcassone, Dominion, Battlecry, Diplomacy, Risk, model trains, model scenery, radio controlled vehicles, Dungeons & Dragons, Magic: The Gathering, Star Wars: The Old Republic, World of Warcraft, StarCraft, The Elder Scrolls (series) and Fallout (series).
Which is to say, in other words, that Games Workshop believes you can walk into a store intending to buy a new squad of Eldar for Warhammer 40,000 and instead pick up a copy of Fallout: New Vegas and be just as happy. Or perhaps you’d be happy with a nice game of Carcassone or some model trains, instead? They’re basically the same, at least according to Games Workshop’s submission.
“Every company wants their market defined broadly because it’s an important determinant of how the case will go,” explains Vuleta. “If a court were to find that their market was narrow, GW would have a much harder time proving they didn’t have a substantial impact on competition.”
“Games Workshop’s case depends on other products being a viable substitute for its games, and they appear to be saying ‘Someone could spend their discretionary income on World of Warcraft!’ May as well say ‘Someone could spend their money on pizza.’”
“These claims don’t always hold water,” Vuleta adds. “In many cases where a court has found a substantial lessening of competition, a finding that the market is more narrow than the offending company claimed was important to the outcome. Hence why Games Workshop wants the ACCC to accept that Blizzard is a competitor.”
Readers will at this point be shaking their heads: this claim is self-evidently farcical. Games Workshop’s direct business of model miniature sales in no way competes with games like World of Warcraft or even Dungeons & Dragons. But will that matter when it comes time for the ACCC to make their decision?
There’s more at play than just the market
As a major player, Games Workshop’s actions can cause impacts beyond just forcing one or two people to switch to playing Warmachine instead. The ACCC must take into account consumer intent, what (if any) effect this would have on prices, the size of the market, how easy it will be for consumers to find these substitutable products, and perhaps most importantly — whether Games Workshop seeks this arrangement in part to preserve its existing market power.
“I’m wary of Games Workshop’s claims in this case because they’re extremely patronising in claiming that the in-store experience is crucial,” Vuleta continues. “This overlooks that many customers may want other ways to shop, especially busy adults with no interest in visiting a store and no desire to pay for the overhead of a physical store.”
“This is also relevant to deciding whether there is a substantial lessening of competition, as there is a class of customers that wants Games Workshop products but wants to visit online-only stores.”
Vuleta gave an example of a FILA exclusionary dealing case, where a judge rejected the suggestion that fans of a particular sports team could simply wear the jersey of a different team instead.
“Not directly relevant to Games Workshop since no one’s going to be lynched for not liking Space Marines,” he adds, “but it illustrates how social factors can be relevant to customer choice.”
Ultimately, Vuleta believes, Games Workshop’s case is far from watertight. “Games Workshop is such a big player on the market so anything they do will potentially substantially impact competition, and hence deserves scrutiny. Here they’re locking out an entire class of retailers and denying customers one of the main benefits of online-only competition — lower prices from lower store overhead.”
Online retailers left in the dark
Games Workshop’s attempt to secure this arrangement with the ACCC was first noticed by Canberra-based online retailer Black Cultist, well-known among Australia’s Games Workshop community for offering good prices on their favourite products.
Posting on their Facebook page, the trader pointed out that “stores that don’t have a face to face over the counter option (like me) will not be able to have an account”. But with such a massive time difference between May 9 when Games Workshop lodged the application and August 4 when Black Cultist first noticed it, one might have suspected that the company was using the time to discuss the move with trade partners and maybe allay their concerns. It was not.
“We have not received any information from Games Workshop about potential changes to our trade agreements,” confirmed Adam Nordberg of Alpha Hobbies in Queensland. The story was the same at the other retailers we spoke to by email and on the phone: total radio silence from Games Workshop. In fact, the only contact that many could confirm from Games Workshop in recent memory was the advice that they would no longer have a local Australian-based account manager, but instead an overseas one, who was “better suited to service the unique needs of your business”.
Nordberg went on to explain that the lack of contact left him with more questions than answers. “If the proposal goes ahead we are a little concerned about whether our event sales would count as over the counter or online sales,” he explains. “A large portion of our sales are at, or as a result of, the events we run and sponsor across Queensland.”
Several retailers we spoke to were unwilling to give a statement. While some didn’t want to rock the boat and others who had a physical store presence were only watching with interest, the atmosphere of reluctance to publicly criticise Games Workshop was palpable.
Physical store owners less than impressed
It sounds like Games Workshop must really love physical stores, then. But one retailer we spoke to, Drew Van Schoonhoven of Red Griffin Games in Perth, explained that despite his physical store presence, Games Workshop had been dragging their feet on issuing him with a trade supply contract and were giving him “no real incentive” to stock their product lines.
“They ask me to buy in at $4,000, at $10,000, in exchange for pre-stocked fixtures,” Van Schoonhoven explained to us. “I don’t get a say in what’s stocked. I get capped on any extra orders I can do each month, and no access to exclusive products.”
“I know GW product better than the people calling me from GW do!” he adds, laughing somewhat incredulously. “Not many people in retail are willing to spend $4,000 on a whole new product line. You build up a product range slowly over time, otherwise you find you have no money at the end of the month. You spend a little each week until you build up a section.”
“And why would I buy at the Australian wholesale price when this is more expensive than the US/UK retail price?”
A fair question – and while other retailers may have been reluctant to criticise Games Workshop, Van Schoonhoven has no such compunctions.
“The quality of the product has been going downhill with their finecast range,” he says, mirroring player concerns. “It’s at the point where there are now bootlegs coming out of China with better standards of quality, at a quarter of the price.”
“Basically, they are ripping off Australian consumers, purely because of the part of the world we live in.”
What can you do about this?
We spoke to the case officer at the ACCC in charge of Games Workshop’s application, and he informed us that while the case was still ongoing — and may not be resolved for months, potentially — the Commission was very keen to hear submissions from interested parties and members of the public.
Submissions to the ACCC can be made by emailing adjudication@accc.gov.au and quoting the notification number N97404 in your submission. According to the case officer, the ACCC is particularly looking for information that will help them make an evidence-based decision, and not for form letters or emotional pleas.
According to the ACCC petitions can be useful as they help to demonstrate “broad public concern” — so here’s one that you can sign (please share it around). Even if Games Workshop does succeed, however, the ACCC can overturn the arrangement at any time under review, and the case officer in charge stressed to us that such a thing is quite possible.
In the grim darkness of 2014, there is only frustration
Every retailer and every customer we spoke to in assembling this story repeated one key emotion to us over and over again: frustration. Frustration with a company that refused to change with the times. Frustration with a company that insisted on trying to control how they could operate. Frustration with a company that constantly raises its prices, constantly reduces its services, and actively punishes retailers and players who want to pay a fair amount.
Games Workshop just released their latest financial reports last month, and they weren’t promising. CEO Tom Kirby now famously admitted in his preamble that “Games Workshop has had a really good year,” but — wait for it — “if your measure of ‘good’ is the current financial year’s numbers, you may not agree.”
It seems passing strange that, at a time when Games Workshop could be using the new power of the internet to deliver more products to more people for better prices and with better community interaction and post-purchase support than ever before, they are instead doing everything in their power to drive players and retailers away.
Games Workshop declined our requests for an interview, and declined to issue a comment for this story.
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