Email: Questions…

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My answers are embedded inside your email, preceded by ***
-Ken W
From: Timothy Munn [mailto:tim@pixamation.net] Sent: Monday, December 22, 2003 12:35 AM To:kenw@seanet.com  Subject: Questions…
Hello Ken, I am emailing you direct because I felt these questions are not interesting enough to post anywhere on sierragamers.com. I appreciate you answering all my questions since I too at one time was very interested in developing games for the masses. I currently own a company that installs and maintains web/email servers and I am able to make a nice living doing so…in the past I invested in a children’s game title that was poorly executed and in my opinion was doomed to fail from the start. That was then and now I would like to invest in a new title someday that is easy/unique/addicting and I will only do so when I feel that I have a grasp on this industry. So here goes the questions.
1) Since Sierra played the role of both developer and publisher of there titles, when a title was ready for release, what are the steps to get that title into a store such as Target or Wal-Mart? Do you have a contact at each company that is responsible for purchasing?
*** We had a sales force of approximately 15 people who covered the US market, plus approximately another 25 who handled the non-US market. The sales force were supported by probably an equal number of people who did things like making sure the sales people had proper literature, demo versions of games, figuring out co-op advertising, etc.
*** Each of our customers was assigned to one sales person. In some ways, selling these large accounts was more like relationship management, than it was focused on selling any one product. Sierra had a string of hits over many years. The buyers for the major retailers would build part of their sales projection, and would allocate shelf space to Sierra based on their past success with our product line. In other words, if the retailer had been doing $2 million per year with us, they would automatically give us shelf space appropriate to a $2 million product line. We would allocate them marketing dollars, appropriate to a $2 million sell-through. I don’t mean to imply that we didn’t have to sell the retailer on the value of each title, but it was secondary to the overall relationship.
*** It is virtually impossible for a small company to sell the major retailers, without going through some larger publisher or distributor. It’s a huge deal to get authorized as a supplier to the large retail chains. It isn’t going to happen for any one title, no matter how good it is.
2) And when you do sell to Target or Wal-mart, Typically how many units do you sell? Is this number calculated from your marketing department based on consumer feedback or does Target and Wal-Mart through a starting unit number at you…such as 50,000 units?
*** We look, and they look, at the volume of units previous units of the product moved through their store. Generally, we would rank titles as AAA, A, B or C (unofficially, there wasn’t an official system). Based on this we knew the potential of a title. If we thought something had triple-a potential, the sales people would fight for a huge amount of shelf space for the product at retail. This could mean sell-in of 20-50,000 units at a major retailer.
*** If we were wrong, which happened sometimes, and a title we thought was a triple-A was instead a B, all of that excess inventory had to be bought back from the retailer. This was a VERY expensive proposition, but a regular part of business. It isn’t good for the relationship, and can damage your ability to sell in large numbers of a title in the future.
3) If a game does not sell-through…do these stores literally ship the product back to you? If so, what do you do with all the boxes? Do they go to the landfill? How long does a company such as Target give your product before they determine that they can not sell anymore?
*** Product has a very short shelf-life – perhaps weeks. Part of the job of our sales force was to keep product on shelves, after the retailer has decided to send it back. This usually means dropping the price, or putting together creative bundling strategies (like “get one of these free if you buy one of those”). Most often the product is “price protected” at retail, and blown out — meaning, if it takes lowering the price to 99 cents to move it, that is preferable than paying to ship it back to us. Retailers don’t like slow moving inventory clogging their shelves – so, it’s a constant battle, and where the sales force really earns its money, to keep titles on shelves as long as is humanly possible.
4) Do the retailers only pay based on the sales…or the order they placed with you…such as the 50,000 unit example I placed earlier.
*** They pay based on what they order. However, keep in mind that they get to take LOTS of deductions, for price protected inventory, co-op allowances, and returned inventory.
5) Just because you make a title, do retailers have to sell the product? I mean, with such limited shelve space, can they refuse a title? Do you pay for shelf space and if so what does shelf space cost. *** Retailers can always refuse to take a title, and frequently do. If a game gets a bad review, it may never get shelf space.
*** How shelf space is acquired varies from retailer to retailer. Some are MUCH tougher than others, in particular Walmart. Selling to these retailers was expensive in that we almost always had to give them marketing allowances based on what they thought they could move of our product. For example, a retailer might estimate that they could move $2 million of our product. For this, they would ask that we give them a marketing allowance (co-op) of 8%, or $160,000. This money they will use to run ads promoting our product. This $160,000 is gone, no matter if they move any product or not.
6) Lastly, do you really need a publisher in the industry or can a well funded game development company sell direct to Target or Wal-Mart.
*** You need a publisher. Absolutely, positively. If you want to sell at retail, there are under 10 publishers with the clout to put your product on retail shelves at the major retailers. Sierra was one of these, which was what made us such a valuable company. *
** That said, it’s a new world. We are starting to see companys side-step the retail distribution channel with the internet. I see there as only two possible strategies. Sign with a publisher, or sell on the internet. Selling on the internet is tough. So is getting a top publisher. It’s a tough business overall….
Thanks for clearing my confusion on this. Thank you Ken! I appreciate it if you could answer these questions. I can’t seem to find these answers anywhere. It is almost like no one wants to talk about it. Sometimes, I think companies like POPCAP.COM have a great business model in which they sell the games to you via download only and make a pretty 19.95 per unit.
*** I visited POPCAP.COM recently. The company is a couple of guys who worked in our marketing department at Sierra. Very nice guys, who deserve the success they’ve seen.
GREATLY APPRECIATED!!!!!, Tim Munn From Upstate New York http://www.pixamation.net 
Link:tim@pixamation.net 

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