The Business of Games

If one goes over to the forums at bg.battletech.com you can find a thread that is declaring that the sky is falling, the game is going to “die” again, and how—yet again—Catalyst Game Labs is a terrible company who should be ashamed of itself. The last time we saw this was in 2010 or so when Catalyst ran into a cash flow problem that saw a large number Shadowrun contract authors unpaid, and numerous releases delayed. Fingers were pointed, blame was assigned, assumptions made, and to date there are less than ten people who know what “Really” happened.

Back then, as now, we have people who say the same tired song. That Catalyst Game Labs and its parent company, InMediaRes Productions, should release MORE information to the public, should be more open with its financial health and release its sales numbers. These calls come from an era and a public that has access to a wide amount of information for free with little trouble. The era of open access to just about whatever we want to know has led to the public by and large treating anonymity, secrecy and confidentiality as bad things. These presumptions are ill placed, and come from minds that lack a fundamental understanding of business structuring and operations.

To begin, let me establish my background. I graduated from Columbia College in 2005 with a Bachelor’s Degree in Business Administration, with an in major emphasis in management, and a minor in Communications. I have worked in the finance industry from 2005 to present day and I am currently taking classes for an MBA. As a disclaimer… I AM NOT IN ANY WAY ASSOCIATED WITH CATALYST GAME LABS OR INMEDIARES PRODUCTIONS, LLC. BEYOND SOCIAL INTERACTIONS WITH SOME PERSONNEL. THE FOLLOWING IS A COMBINATION OF SPECULATION AND PERSONAL EXPERIENCE AS A BUSINESSMAN AND EDUCATION.

So let’s start with some stuff that you can learn in any “Introduction to Business” classes available at your local community college (MGMT-105 at my Alma Mater). InMediaRes Productions, LLC. is what is called a Limited Liability Company (LLC). What this means is that it is a legally recognized company separate from the “Owners.” What this means is that though the company has many of the structuring options available to a Corporation, the ownership is protected from actions or debts accrued by the company. There are many other advantages and disadvantages to this structure but for now that is what you need to know.

Let’s compare this to another, significantly larger company. Electronic Arts is what is commonly called a “Corporation,” more accurately it is a C-Corporation. Under this form of structuring, a Corporation can raise capital by selling its ownership and credit on a common marketplace, diffusing ownership. The Internal Revenue Service and Securities and Exchange Commission regulate this power by demanding that these companies make their financial statements open to all potential investors, in other words open to the public. Any individual can go to EA’s website or contact their financial department and request a copy of their “Annual Report” or if they want a more detailed analysis their “Form 10K.”

Already through a very brief summary we can see that one company is by law forced to share much more information than the other. Under an LLC model, so long as InMediaRes Productions pays their own income taxes on time, generally they are under little to no scrutiny beyond the occasional IRS audit (the results of which would be kept confidential).

So right off the bat demanding to see IMR’s financials is the equivalent of asking to see the same of your local car mechanic. It would be considered rude and intrusive, and they hold no obligation to inform you of the health of their enterprise. The reason they hold no obligation to you is because you are not a stake holder. What does that word mean?

Broadly defined, a Stake Holder is an individual or entity that has an inherit interest in the health of an enterprise. However, while you give the company money and they give you stuff, your interest does not extend beyond making sure you get your merchandise. Stake Holders often include business owners, business operators, investors, license holders, etc. In general, these are individuals and corporate entities have a financial stake or “interest” in the company’s fortune.

Broadly defined, a Stake Holder is an individual who has an inherit interest in the health of an enterprise. Of course some of you in the back of the classroom are saying “but I am a customer of their products, products I love, so I DO have a stake.” Yes, you are of course correct. In every business customers, especially repeat customers, are considered to have a stake in the company. But if you look at the situation from the perspective of “how important is the company’s health to you?”, then you realize your stake in any company as a customer ends at the cash register. You give the company money and they give you stuff. Your interest is not extended beyond making sure you get your merchandise. Suppliers, Distributors, employees, contract workers, investors, license holders, and owners are all more important then the almighty customer in the grand scheme of things.[/one_half_last]

Now who are the stakeholders at IMR? Well of course there are the owners: Loren Coleman, Randall Bills and other partners (which we will forgo an explanation of for now) they may have. There are their employees, both full time and contract. What about their Licensors?There is something to talk about!

Topps holds the primary license to the BattleTech and Shadowrun franchises (arguably IMRs two biggest assets), and they have sub-licensed (or contracted) these licenses to IMR to produce products for these intellectual properties. This saves Topps from having to take the time to develop them in house—saving time and money. In return, as license holders Topps receives a fixed amount of money (a license fee) every year. Since Topps makes money off of IMR, they DEFINITELY have a right to know whether or not IMRs sales and finances are strong enough to continue warranting an extensive or use of the license. During contract negotiations between these two companies Topps would certainly ask for IMR’s financials.

Going back to the 2009-2010 crisis, we DID receive press notices from both Topps and Catalyst Game Labs that they were negotiating for an extension of the license to those two game properties. Some people thought that given the circumstances of CGL “going dark” that Topps was getting ready to pull the plug. While no doubt there is a clause in their contract that permits Topps to revoke the license, such a process would be long and drawn out, and need to be for cause. For example, weak sales would be on that list. If I had to guess though, what happened was that the negotiations were simply up for a renewal at the worst possible time for IMR. Under such circumstances Topps would have the right to ask about sales and financing, and IMR would have to give it to them or risk losing their biggest assets.

The only indicator that Topps was satisfied was when we, the public, learned that the agreement was renewed—first for one year—and then for a long term deal after that. Clearly Topps was satisfied that IMR had a plan they were satisfied with. Remember, this was a discussion between two LLCs—two privately held ventures—two stakeholders. Neither company was obligated to disclose anything to the public.

If you want to see what would have happened had this been between two publicly traded ventures I refer you to Vivendi and Activision, specifically the split in 2013 that made Activision its own company again. In keeping with (mostly) American Law, every detail of that split had to be known to the public. This was especially true when a handful of Vivendi Stock Holders threw a massive wrench into the deal by trying to claim it was bad for the company—and forced other holders to halt the deal. As a result of these legal and business dealings Activision stock took a dive, as did Vivendi on the French Exchanges. Public discourse can often cause publicly traded companies to collapse under their own weight if a significant number of investors feel finicky. Had Catalyst been publicly traded the 2010 event would have been a death sentence rather than a difficult challenge to overcome.

So IMR’s structure as a company really is about maintaining long term survivability. Their records are kept private enough that they are not subject to the whims of a finicky public who are worried about whether they will get their own monies worth from financial investment. The more people a company has to answer to, the more headaches that can be caused, despite the money to be made. And InResMedia Productions is not alone either. Fantasy Flight, Mayfair, Wizkids (both past and current incarnations) and Privateer Press are all LLCs, and are all operating under the same veil of secrecy and privacy as IMR. The only indication of the company’s health is whether or not they continue to make product, which gives us a very much “alive” or “dead” image.

We do get a lot of information from Catalyst Game Labs though. Between the forum, email addresses to multiple employees, release news—including pending releases, previews through social media etc. etc. etc.—we get a lot going for us. Under their own aegis, CGL only communicates about things they are committed to releasing. Compare that to the old FanPro days when we had a lot of announcements, but not a lot of product. We also, in an uncharacteristic display of honesty, get told when a product line dies due to lack of sales. Just look at the Starterbooks and House Handbooks. CGL is not required to tell anyone this information. In fact, most company’s typically refrain from showcasing a product failure, instead opting for the failure to quietly disappear.

The long and short is that running any business is a juggling act between making your company look healthy to the public, while constantly teetering on the brink. In any business, a bad month, flopped deal or receivables not paid on time, can be potentially catastrophic to all but the most well capitalized businesses. Thanks to the way IMR is structured they are able to control a large quantity of that public perception. While some may say silence looks bad, the truth is that when you have the livelihoods of employees and obligations to stakeholders on the line, it’s better to be safe than sorry. As an old quote by Mark Twain says:

“Tis better to be silent and thought the fool then to speak and remove all doubt”