Asmodee to acquire F2Z Entertainment

The Great AcquirerSo it looks like F2Z Entertainment is about to be purchased by Asmodee.   For those of you who don’t know, F2Z owns Z-Man Games & Plaid Hat Games, which means they own the IP for Pandemic, Mice and Mystics and Dead of Winter.  In addition, they have the rights for Carcassonne in English & French and the french Catan as well as distributing a ton of Asmodee games in Canada as well a a bunch of other things.

As many of you know, I’ve written about the exclusive arrangement with F2Z that came into play a few years ago. Let’s be clear, distribution in Canada in general is significantly more expensive than the US. Our costs of FFG games from Lion Rampant is at least 15 – 20% higher than it was when we purchased from the US directly so it’s not just a case of F2Z. It’s a systemic problem.

With the acquisition, I don’t know if it will improve.  There are a few scenarios that are likely to play out, in order of short to long-term:

  • Once the acquisition is completed, I don’t expect any major changes for a few months.
  • At some point in the 6 months after the acquisition, I expect there to be a MAP program to be put into place just like the FFG program.
  • I also expect a number of new reprints of good selling games will begin production, so expect there to be a significant increase in-stock for these items in 6 – 9 months.
  • Distribution via F2Z might actually shut down in the next few years as contracts expire and Asmodee moves to using distributors completely, reducing their repetitive cost of managing both a distribution and retail arm at the same time.  This might bring actually have the advantage of providing more funds/ need for opening a 2nd warehouse in the West which would lower our costs.

Outside of that, I expect everything else to be business as usual.  It’s unlikely Asmodee will try to undertake the same kinds of policies that they’ve taken in the US (i.e. restricting sales of products to only a few online retailers) due to our differing laws, but you never know.

Overall, I’m actually cautiously optimistic that this might be good for us in Canada.  In the long, long term there’s some concern that Asmodee will use it’s new leadership position to drive margins even further down, but I do not expect that to happen anytime soon.


The Asmodee North America Anncouncements

For those of you who haven’t heard, Asmodee has made a large pair of announcements. A summary of the first one is here and the second (clarifying) one here.   Today, ICv2 has an interview that clarified matters further.  In short, Asmodee is consolidating DOW, FFG and Asmodee operations in North America as Asmodee North America as well as restricting their American distributors to 5 distributors and restricting online sales to retailers of “significant scale, unique service, or other exceptional differentiation”.  They have also clarified that B&M stores and online retailers will be provided different discount levels.  It should be noted that nothing here affects Canada (yet) as Canadian stores are not under the purview of these changes.

Let me preface this all by saying that my analysis is as a retailer.  I don’t have any special knowledge of anything that has happened, just an analysis of what is happening.

Why Are They Doing This?

At a guess, I believe Asmodee has decided that they need to support the development of their Living Card Games and miniature game lines in X-Wing and Armada via brick & mortar stores. By consolidating their distribution in a few distributors, they are able to get access to more data while keeping most retailers happy by keeping the ‘spread’ of distributors wide.  Certainly, it’s unlikely that any serious retailer in the USA doesn’t have access to at least 2 if not 3 of these companies at the very least.

It’s not a bad move at all. Miniature games (and LCGs to a (much?)smaller extent) require the introduction of new and interesting players regularly to keep the game ‘alive’.  While there are numerous ways to develop these gaming markets (gaming clubs, game cafes, etc.); game stores are certainly the largest and most easily located group. As I’m sure the executives at Asmodeee and FFG have heard again and again, B&M stores do not necessarily want to support these games because their games are being discounted online and as such, the players aren’t bringing any revenue to the stores. How much of this is an excuse will be something we shall have to see.

It also sounds like B&M stores are seeing a reduction in the discount that they can receive (hearsay says it’s 45% normal with an additional 3% based off various other incentives).  This is different from the starting 45% to 48% maximum that you can get for FFG and definitely a lot worst for DOW & ASM (by 2 to 5%). At least, it’s worst than when we used to buy it in the States (again, my data on this may be old).  There has been no indication of what the rate will be for online retailers.  I would assume that the discount level for online retailers will be in the 30-35% range.  In other words, Asmodee is increasing their profits from online sales significantly, especially since they are limiting online sales to direct sales only.  That’s another 10% that they are getting that they no longer have to pay distributors.

What’s it mean for Canada?

None of this of course affects Canada immediately. However, there can be no doubt that they will put some of this in-play in Canada sooner rather than later.  I’d expect an announcement in mid-July of 2016. One thing that Asmodee (and it’s distributors) will have to be very careful about is that our laws are rather different from the States and differentiation (especially of prices sold) based off channel of sales might actually not be legally viable. I am not a lawyer, so I’ll leave it to the lawyers to argue that one out.  Or in this case, the Competition Tribune I guess.  Either way, it’ll be years before they make a judgement which means we’ll be waiting years to

My Personal Thoughts

What do I think about this? Overall, I’m not particularly surprised by this move. The continuing consolidation of the industry and the move to exclusivity has been something that has happened in the last 8 years.  The increasingly hostile environment to online businesses is not particularly new either.

A lot of it is a mis-perception or a disagreement about the value of online retail provides to customer, over and above a lower price. That’s not just the only things we do though as an online retailer to add value. I’d also add that we do work on generating demand in our own way – from e-mail lists and blog updates to video reviews and social media out-reach and recommendations, those all target our customers to drive additional demand. On a pure customer service basis, just like B&M stores, we answer numerous questions from customers asking us what games to buy next. That all this happens via e-mail and phone, in a way that can’t be seen by a publisher doesn’t mean that it doesn’t happen.

I’ve spoken about the lie about infinite shelf-space, and more, the fact that most game stores just aren’t going to support board games anywhere near the level that a specialised online retailer will.  Yes, B&M stores may do demos – but the vast majority of game stores provide at most a single-night for board games a week. 1 gaming night a week to demo 1 game each week works out to 4 new games demoed a month.  This is compared to a release schedule of over 100 new games each  month easily.  Yet, the fact that we will take a chance and stock numerous games from small independent publishers to FFGs entire line (literally, we’ve carried every game they’ve ever released since 2010 at least though we’ve obviously discontinued sales of some of those games due to lack of demand) means nothing. How many B&M stores brought in Winter Tales?

Which leads me to a point about demo’s. As much as Asmodee North America (ANA) says it wants to support B&M stores who provide “local presence, instant product availability, new customer generation, and crucially, in-store gaming events, demonstrations, tournaments, and organized play facilitation“, the fact stands that the best way to ensure that would be to have equal discount levels (50%) as most other publishers and to provide free demo games and demo material (ala Wizards of the Coast & Games Workshop) to stores that request it.  This would be much more targeted, much more useful rather than a decreased discount level and paid organised play material.