'We Do Not Condone the Free Riders' Parasitic Business Model'

Privateer Press, makers of Warmachine and Hordes, has announced a new sales policy which it hopes will end deeply discounted online sales.

In the letter sent out to retailers, Privateer Press President Sherry Yeary explained the rationale. “Over the last eleven years… online retailers with nearly no overhead and very little meaningful contact with our audience have been undermining the stability of the market by selling product at discounts well below retail value, depending solely on the efforts of our brick and mortar partners who offer services that nurture our audience and grow the market to move their product,” she wrote. “This model of business is widely recognized by experts and the justice system as ‘free riding.’ While this can be a viable business model for many mainstream products, it is common knowledge that in our industry it’s crippling and anticompetitive.”

Privateer plans to create a list of retailers that it views as “free riders,” which it defines as “retailers …offering Privateer Press products at an unsustainable deep discount and offer[ing] very little or nothing in the way of services” and will impose sanctions on distributors that sell to those retailers. The list will be updated by adding or deleting retailers as needed. Distributors that sell to retailers on Privateer’s “free rider” list will have their shipments of Privateer product, including new releases, delayed. The new policy goes into effect on April 4.

“We do not condone the free riders’ parasitic business model and elect to both continue and enhance our partnerships with those distributors that share our point of view and actively work in the best interests of the brick-and-mortar retailers,” Yeary continued. “While we cannot and would not dictate to our distributor partners who they can or cannot sell to, we believe free riders are eroding the foundation of our industry and hurting our business; only with the cooperation of our distribution partners can we prevent that.”

The letter also states online sales can continue, as “(w)e also recognize that online retailers provide access to the product to some customers who do not have ready access to a local brick-and-mortar store. We hope those online retailers with integrity and the foresight to protect the longevity and availability of the product lines providing their income will swiftly adjust any retailing practices that are counterproductive to the health of our industry.”

No maximum discount off retail price or other quantifiable measure of “counterproductive” business practices was outlined in Privateer’s letter, which said only that the process of creating the list would rely on an “internal evaluation process.” Nor was there any discussion of how Privateer will handle brick and mortar retailers that also sell online, for example as Amazon third party sellers, a growing trend.

ICv2 noted the growing channel conflict between brick and mortar game stores and online sellers (many of whom are also brick and mortar retailers disposing of excess inventory as Amazon third party sellers) in its most recent issue of Internal Correspondence #89 (see “Seven Years of Plenty in the Hobby Games Business”). And Privateer’s store support is definitely being affected by the problem, according to the report. Retailer Gary Ray of Black Diamond Games in Concord, California, for example, dropped Privateer products because of channel conflict. “There is a huge demand for the game, but everybody is buying it online at a discount,” Ray said of Warmachine. “It got down to one turn per year and we dropped it.”

Privateer is the latest in a growing list of manufacturers addressing the channel conflict between brick-and-mortar and online retailers. Asmodee NA has a policy going into effect in April, and discusses similar reasons why the “one-size-fits-all” system of distribution has undermined the financial position of Friendly Local Game Stores which offer additional services and community in addition to selling games (see “ICv2 Interview: Asmodee North America CEO Christian Petersen, Part 2”). WizKids introduced a policy limiting preorders on new HeroClix product last year (see “Rolling for Initiative--Kudos to WizKids” and Mayfair Games has a long-standing policy limiting online discount as well (see “Online Discounting of Games - One Year Later”).