Publicly, members of Wizards of the Coast’s Dungeons & Dragons team never discuss sales numbers. Privately, they dispute the notion that the Pathfinder role-playing game ever outsold fourth-edition D&D. But at Gen Con, late in the short life of fourth edition, evidence of D&D’s collapse seemed glaring. Pathfinder players filled the massive Sagamore Ballroom that had once hosted D&D play. Meanwhile, D&D players became exiles in a much smaller space. To be fair, Paizo made a bigger financial commitment to the con, but Pathfinder players filled more tables. And Paizo boasted a long line of customers waiting to pass the velvet ropes into the Pathfinder sales area.

If big-shot Hasbro executives had seen this difference, they would have rehired the entire fourth-edition team just to sack them again.

At Gen Con 2010, fourth edition seemed like a catastrophe, but the game’s designers deserved less blame then they got. They had simply created a D&D edition that tried to match the appeal of online role-playing games. During development, the edition seemed like a savior the D&D needed. Their plan had suffered some tragic, and unimaginable setbacks—and D&D designers boast pretty good imaginations.

Most of the blame for the collapse lay with the executives who needed to wring as much revenue as possible from the D&D brand. They had made the one decision that crushed the edition’s chance for modest success. Of course, these planners never imagined that their decision would lead to an upheaval. That came from unintended consequences.

And the decision proved lucky for gamers, because we benefited from the blunder.

Fourth edition’s chance of success died before the edition even reached stores. It died when Wizards of the Coast chose to prevent Paizo Publishing from staying in the business of supporting D&D.

Paizo started in 2002, when Wizards of the Coast decided to focus on its core competencies by selling its periodical business along with 5-year licenses to publish Dungeon and Dragon magazines.

The new publisher endured a rocky start. When the harsh economics of magazine publishing led to the end of their Undefeated and Amazing Stories magazines, the cancellations forced layoffs. Paizo founder Lisa Stevens took the setback hard. “The people at Paizo are my friends. With just a few keystrokes on a spreadsheet, I was potentially destroying lives, or at least changing their trajectories forever. The stress took over while driving home and I had to pull over to the side of the road and started bawling. I knew in my heart that I needed to make some drastic changes to give the company a chance to survive.” (For much more on the history of Paizo, including the quotes from their staff in this post, see the series of blog posts called Auntie Lisa’s Story Hour.)

Paizo continued to build publishing expertise. In Dungeon, The Shackled City launched a series of multi-part scenarios that Paizo called adventure paths. The paths plotted an entire campaign, from 1st to 20th level, from a series of linked adventures. “The reaction to The Shackled City was nothing short of fantastic,” Stevens recalled. “Little did we realize that the Adventure Path would eventually become our flagship brand, and our salvation in our most difficult time.”

In 2005, the company started seeing profits and won the silver ENnie award for best publisher. Stevens saw validation that Paizo had finally found the right course.

By 2006, the license to publish Dragon and Dungeon neared its end, but Stevens and publisher Erik Mona felt sure a renewal would come. “With subscriptions on the rise, and powerful wind in our sails from the Shackled City and Age of Worms Adventure Paths, there seemed little reason for concern.”

But Wizards made other plans for the magazines. Their fourth-edition business strategy depended on luring monthly subscribers to D&D Insider. Electronic versions of Dragon and Dungeon would add value to that program.

On May 30, 2006, Stevens learned that she would lose the license. “After the call, I brought Erik in to my office and told him the news, tears streaming down my face.

“I don’t think any of us ever really thought that this was much more than a remote possibility. Dragon and Dungeon were finally firing on all cylinders and were enjoying critical acclaim that hadn’t been seen in years. So this news struck us to the core. In one meeting, the last large chunk of the company that we started not quite four years before was going away. We were numb. How the heck were we going to cope with this? Frankly, it seemed impossible at the time.

“I have to give Wizards of the Coast a lot of praise for how they handled the end of the license. Contractually, they only needed to deliver notice of non-renewal by the end of December 2006; without the extra seven months’ notice they chose to give us, I’m not sure that Paizo could have survived. Wizards also granted our request to extend the license through August 2007 so that we could finish up the Savage Tide adventure path. This gave us quite a bit of time to figure out how we were going to cope with the end of the magazines. It would have been very easy for WotC to have handled this in a way which would have effectively left Paizo for dead—all they would have had to do was follow the letter of the contract. Instead, they treated us like the valued partner we had been, giving us the ability to both plan and execute a strategy for survival. For that, I will always be thankful.”

Paizo forged a survival plan based on replacing the magazines with monthly adventure path installments. If successful, the plan would save the jobs of all the company’s employees. “To transition the company into its new form in 2007,” Mona explained, “We needed all hands on deck.”

Paizo’s new Pathfinder Adventure Path brought success. Sales were brisk, and the number of Dungeon and Dragon subscribers who switched to Pathfinder subscriptions surpassed targets.

But at Gen Con in August 2007, Wizards of the Coast announced that fourth edition D&D would arrive in 2008. Paizo’s plan depended on lines of products compatible with third-edition D&D. Suddenly these lines seemed doomed to obsolescence and obscurity.

“After talks with our colleagues at Wizards of the Coast, we were cautiously optimistic,” Stevens recalled. “There was talk of getting together when we were back in Seattle and running through a playtest of the current rules. We were also promised that there would be a third-party license, similar to the OGL, really soon.”

Meanwhile, Paizo employee and D&D freelancer Jason Bulmahn saw his assignments from Wizards disappear as the company turned to in-house development of fourth edition. Suddenly, he had free time. For fun, he wrote a set of revisions to the D&D 3.5-edition rules. “My first document had the title ‘3.75 Rules Set’ in the margin.”

In the months after the fourth-edition announcement, Paizo anxiously waited for a chance to playtest the new edition, but the preview never came. Worse, the third-party license failed to reach publishers.

Inside Wizards, the D&D team wanted to launch fourth edition with something like the Open Game License, but they lacked the clout to get another generous license approved. In an interview, D&D designer Andy Collins summarized the situation by saying, “Legal opinions change; legal staffs change.”

By the start of 2008, Paizo ran out of time to wait. “The lack of a firm commitment or any kind of schedule from Wizards was stretching our patience—and our deadlines,” Stevens wrote. She called a company summit to discuss options.

Bulmahn recalled the meeting. “We struggled most of that day to come up with a viable plan. I kept thinking back to my rules document, even though it was little more than a mishmash of rules ideas and notes. Late in the afternoon, I brought it up to the folks in attendance.” By the end of the meeting Bulmahn ranked as lead designer of Mon Mothma, the new code name for a potential Pathfinder role-playing game.

Wizards’ decision to end the magazine licenses had turned Paizo upside down and now made the company willing to explore a daring plan based on a mishmash of ideas and notes. “We were beginning to think that forging our own path forward might be a valid choice,” Stevens explained.

“Nevertheless, we dutifully sent Jason Bulmahn to Wizards’ D&D Experience in Fort Wayne, Indiana that February. Jason’s mission was to learn as much as he could about 4th Edition, play it as much as he could, and report back with his findings. From that, we would ultimately make a decision that could make or break us. The tension was agonizing. I could barely sleep at night as my mind wrestled with the options. If we made the wrong decision, it could very well mean the end of Paizo.

“From the moment that 4th Edition had been announced, we had trepidations about many of the changes we were hearing about. Jason’s report confirmed our fears—4th Edition didn’t look like the system we wanted to make products for. Whether a license for 4E was forthcoming or not, we were going to create our own game system based on the 3.5 SRD: The Pathfinder Roleplaying Game.”

The cheap hobby of table-top role playing makes selling RPG games a tough business, but selling print RPG magazines in the Internet age is even tougher. Still, Paizo had learned to thrive. By fourth edition’s announcement, Paizo stood as an experienced publisher with an expert team of D&D designers, including many former Wizards employees.

When Wizards chose not to renew the Paizo’s license to publish Dragon and Dungeon, they led Paizo to compete with fourth edition. Paizo combined a lower cost structure and the nimble size of a small company with the resources to win against a giant like Wizards of the Coast.

As a result, gamers benefited from a choice of games. When asked about the split between Pathfinder and fourth edition, D&D designer Andy Collins said, “I think they’re both great games, and if they were more similar the hobby would be worse for it. I think it’s better to have games that are more distinct from one another that gives people clear choices. ‘Well this is the style of game I want to play, or this other one is the style of game I want to play.’ Nothing wrong with that.”

If you loved fourth edition, you can still play games based on a shelf full of titles released for the game. Wizards even continues to offer D&D Insider to ongoing subscribers. If you favor fifth edition, many of the lessons of fourth helped make the new game so good. And if you love Pathfinder, the game continues to thrive. Is it okay to love them all?