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Subject: Is Alliance trying to create a game distribution monopoly? rss

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Jay Larsen
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WizKids has just announced that they will now exclusively distribute through Alliance:

http://www.wizkidsgames.com/wk_article.asp?cid=41192

Alliance is owned by Diamond, a company which has successfully created a monopoly in the comic book industry. It is my fear that this annoucement is the first step in creating a simillar situation in the game industry.

As someone running a FLGS, I feel that this is bad for the game industry. I want to see competition and and have options when it comes to choosing a game distributor.

I believe that this course of action is even worse for customers. It is harmful to the industry for there to be one gatekeeper for new products. (Ironically, Alliance initially refused to carry the WizKids Mage Knight product line). Many game stores will also decide to no longer carry WizKids items, which will limit accessibility to game items.

What is the community's opinion on this announcement? Am I reading too much into this? Do you believe that a distributor monopoly would be harmful to the game industry?

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Paul DeStefano
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They have been trying to for years. This is no new development.
 
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Glenn Drover
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It's not that Alliance is doing anything other than running a well-run, well-financed business. The fact that they are well-financed allows them to survive through the lean times that can occur in the hobby-games business.

The fact that there are no HOT hobby products for the last few years is hurting the other distributors who do not have pockets as deep and perhaps depended on the profits of products like Hero Clix, Pokemon, Magic, etc. It's just another part of the life cycle of a niche market. When times are good, many new distributors pop up like mushrooms in the morning dew, but when times are lean, they wilt away.

The people at Alliance are extremely nice people (with no evil plan) who care deeply for the hobby, and we are truly lucky to have a dependable supplier who can afford to weather the storm and keep the FLGS supplied!
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Robert Wesley
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Re: Is Alliance trying to create a game distribution monopol
angry "I HATE "Ill'n-annoys'n" Monopolies!" robot
revs engine and heads STRAIGHT at the 'group' of GAME-NAZIS!
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W. Eric Martin
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Re: Is Alliance trying to create a game distribution monopol
Tranlin wrote:
What is the community's opinion on this announcement? Am I reading too much into this? Do you believe that a distributor monopoly would be harmful to the game industry?


I managed a comic book store in the late 1980s/early 1990s and saw the disaster that resulted from exclusive distribution deals between publishers and distributors.

If I recall correctly, Marvel Comics created the first such deal with Heroes World, a relatively small distributor in NYC/NJ that was our store's primary distributor. Rather than being a gold mine for Heroes World, the deal was a disaster because HW could not handle nationwide distribution. DC, Image and other publishers signed with Diamond, then everything went to pot. I hope the gaming industry avoids this fate.
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Jay Larsen
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Geosphere:

My FLGS has been open for around two years now, but I do not use Alliance as my distributor so I am unaware of most of their activity. What have they done in the past that has been anti-competitive?

Budley:

I would agree with your first sentence that Alliance is probably making a good business decision. It is in the company's interest to create a monopoly. However, I believe that this decision is harmful to retailers and consumers, just as the comic book industry was harmed by Diamond.

Henry Rhombus:

I would be interested in hearing more about your comic book manager experiences.
 
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Geoff Bohrer
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Re: Is Alliance trying to create a game distribution monopol
OH NO!

It's the evil Alliance!

Where's my brown coat, honey?

(Sorry...we watched Serenity today...)
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Todd Cliffton
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I don't see anything wrong with Alliance's move other than a good business decision (or bad - you never know what the future may bring). Is it any different than "exclusives" (ie., Rio Grande selling Carc: The Discovery exclusively to Funagain and Sunriver Games selling Incan Gold exclusively to Funagain? (just a few examples).

On the other hand, should the question be: Why are these manufacturers choosing to sell ONLY to 1 distributor (or 1 retailer)? It's a 2 sided question that should not solely lay on Alliance (or Funagain per my other examples). What advantage do these manufacturers have in selling exclusively to 1 distributor (or 1 retailer)? Is it solely a money factor?
 
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James Davis
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Re: Is Alliance trying to create a game distribution monopol
every business trys to become a monopoly, if your aim as a business is not to get the biggest market share than you arent going to be a very successful business!
 
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Jay Larsen
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To be honest, I am uncertain what benefits WizKids is receiving to entice them to take this course of action. I would think that by limiting themselves to one sales channel that they would realize lower total sales.
 
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John Goewert
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Re: Is Alliance trying to create a game distribution monopol
Actually... this is really bad for me.

We don't have enough volume in comic books to buy through Diamond due to shipping costs. They will put 1 comic in a box and ship it, costing $20 bucks to ship the $3 comic. I've been upset with Wizkids recently anyhow due to their very sloppy box glueing. About 1/2 of Horror Clix, as well as the latest dc heroes were open because the glue didn't hold. I wasn't planning on carrying any Clix stuff after this set was gone.

Though, my frowny part is now we can't get Tsuro, Oshi, or Pirates. =(
 
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James Stubbs
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Re: Is Alliance trying to create a game distribution monopol
Without going into details, all I'll say is that if you deal with Alliance as a manufacturer you'd BETTER make their "sales goals" (which they conveniently don't tell you what they are) or you'll be dropped quicker than a hot potato covered with lava.


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Jay Larsen
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I must admit that WizKids products have been losing their popularity. They have had several releases that have been duds. I will miss having access to Tsuro.

I am surprised that Alliance does not tell you the sales goals for a manufacturer.
 
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ryokowerx wrote:
Without going into details, all I'll say is that if you deal with Alliance as a manufacturer you'd BETTER make their "sales goals" (which they conveniently don't tell you what they are) or you'll be dropped quicker than a hot potato covered with lava.


If you look at Alliance's online catalog you'll see they have many thousands upon thousands of SKU's. Without going into the onorous details of why warehousing and keeping records for slow or non-selling items is bad for any business, I'd suggest that even the smallest game store uses the same "sales goal" philosophy. If your stuff doesn't sell, then it'll be dropped quicker than a hot potato covered with lava.

Some history on how Alliance does biz:

They are a distributor of games and game hobby products. The name Alliance demonstrates the goal of forming the distributorship to begin with. Alliance was started by Steve Geppi when he purchased The Armory game distributor. Geppi's Diamond Comics is based in Baltimore and so was the Armory. Geppi then proceeded to purchase as many regional distributorships as he could. He bought them for inventory as much as for their customer base.

By melding into his plan strategically placed warehouses, each with it's own sales staff, he set up an "alliance" of locations designed to better serve local game stores. One of the benefits of being an Alliance customer is instant access to any of the four warehouses in the USA. As an example: Alliance has a minimum order and it has a minimum "free shipping" order level. So if a local store buys $500 in product from the West Coast and needs several items that are only in the Texas warehouse, the total order, which meets free shipping levels, can be spread between the two warehouses and the store will receive the products in a timely manner without having to meet the same minimum twice.

Alliance does not set any sales goals for it's customers. What they do offer are "stepped discounts" wherein a store that orders a specific wholesale value in any given quarter can increase it's discount for the following quarter if the total exceeds one of the "steps" in the discount structure.

As far back as 1982 I had accounts with 3 different game distributors so I could cover the products that I wanted in my store. Usually one was a primary distributor and two were secondary sources that I ordered from to keep the account active. When a product crunch did occur, say with MTG or some of the GW products, I had multiple sources to get the items the local gamers wanted. Alliance doesn't negate the need for secondary distributors, but it does alleviate some of the headaches and stress of that system.

From WizKids perspective, I believe this change is good for them because they now have only one hobby account to deal with, leaving them extra manpower to focus on mass-market accounts and other volume outlets.
 
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Christian T. Petersen
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DWTripp wrote:
ryokowerx wrote:
Without going into details, all I'll say is that if you deal with Alliance as a manufacturer you'd BETTER make their "sales goals" (which they conveniently don't tell you what they are) or you'll be dropped quicker than a hot potato covered with lava.


They are a distributor of games and game hobby products. The name Alliance demonstrates the goal of forming the distributorship to begin with. Alliance was started by Steve Geppi when he purchased The Armory game distributor. Geppi's Diamond Comics is based in Baltimore and so was the Armory. Geppi then proceeded to purchase as many regional distributorships as he could. He bought them for inventory as much as for their customer base...

From WizKids perspective, I believe this change is good for them because they now have only one hobby account to deal with, leaving them extra manpower to focus on mass-market accounts and other volume outlets.


With all due respect, I wanted to pipe in here, as a few of the above comments are factually incorrect, and I think the actual history surrounding Alliance's rise would be in the best interest of everyone. That said, I am neutral on the subject of Wizkids/Alliance Exclusive.

Charlie Tyson and Daniel Hirsh purchased The Armory (back in '96, I believe) perhaps with other silent business partners, perhaps not. The business/operations manager of the old Armory, Mr. Dave Cook, stayed with the business, whose name would remain "The Armory" for now. The largest distributor at that time, Chessex distribution, was facing dire straits with the maturing of the CCG market and the stressful cashflow issues that followed (and especially the strain following "MTG: Fallen Empires"). As Chessex was in its last secret throes, The Armory stepped in and took over the operations of Chessex and its three warehouses. Though Chessex's business base was desireable, its inventory and debt-basis was far from it. By stepping in at this point, negotiating with creditors, and stabilizing Chessex, Dan/Charlie/Dave, in hindsight did the industry a huge favor, as it otherwise could have faced complete collapse. A few other distributors (namely Barchetta and Zocchi) grew out of this period of turmoil (and the ownership of industry stalwart, Berkley Game Distributors, changed). Just prior to this time, we saw the harmful failures of both Greenfield and Liberty hobby distribution (whose Southern business would slowly be annexed by what is GAMUS distributors today).

As the old Chessex/Armory (now Alliance) slowly stabilized, there was a few wild and failed attempts to consolidate the industry even futher (one led by anime distribution "enfant terrible" Syco Distribution, now happily thing of the past, and later a second attempt by some dubious outside businessmen whose names elude me).

In the time that followed neither Zocchi or the second-largest of the remaining industry "old boys" Wargames West could get much growth traction (although Zocchi's first year was impressive), and a short time thereafter Alliance moved to purchase both Californian distributors, Barchetta and Berkley, creating here what is essentially "Alliance West" today. Another distribitor, "ACD" had been growing, and made good headway when it gambled heavily on the success of the fledgling Wizkids. At the point WizKids entered a market drained from "Pokemon" fever, other distributors were gun-shy after gambling on the disasterous Harry Potter CCG, and a bizzare action figure game named "Z-G" (I think that was the name, anyway). At this point new distributors Gameboard and Centurion (Centurion may have been earlier) made steps into the marketplace.

Somewhere in this age, Diamond Distributors purchased Alliance (I forget whether this was before or after the Berkley/Barchetta purchases). So this is when Geppi entered the picture (although he may have been involved silently with Dan and Charlie at an earlier time).

A year or so thereafter, Zocchi discontinued business operations due to poor inventory management and resulting cash flow ailments. Wargames West would also close its business, and finally (early last year) Gameboard shuttered its operations (costing FFG a pretty sum in lost recievables) selling its accounts and assets to Blackhawk Distribution (another old-timer with impressive stamina, but not without ownership changes).

That is pretty much the distribution landscape today. Alliance covers about 50% of the U.S marketplace (mileage may vary by publisher), with Blackhawk, ACD, and GAMUS distribution being other good medium-sized national/regional players, and about 4-5 other smaller distributors serving smaller regions around the country.

Alliance's growth has been harmful to some, helpful to others. To me, it is clear that they provided stability and capital when the market needed it the most, and indeed the last 2 years or so have been about as stable as I can remember. Despite a reputation to the contrary, Steve Geppi and the "bank of Diamond" helped float hundreds of comic shops in the mid-to-late 90's, and did some of the same for game stores during the late 90's, early 00's. I don't know Steve personally, but I do know that he sometimes get a undeserved rep.

Disclaimer: Alliance is an FFG's customer, and the above is meant to only communicate the recent byzantine game market distribution history, and is not seeking to promote any bias one way or the other on the tread topic.

I may have neglected a few facts above, but it should serve as a reasonable primer for the rise of Alliance.

Best Wishes,
Christian
CEO
FFG






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Glenn Drover
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Great recap Christian.

The fact is that Alliance hasn't done anything specific in an attempt to achieve a "monopoly" (going back to the topic of the thread). What they have done is to become the most stable, well-funded, well-managed player in the business. Again, this is a huge boon to the business during times of stress and falling sales volumes. Without stable players, a volotile situation could easily jeopardize the existence of many players.

 
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Quote:
I may have neglected a few facts above, but it should serve as a reasonable primer for the rise of Alliance.


Ah. I had assumed that Geppi and Diamond were there from the beginning of Alliance. I thought Barchetta sold to Alliance well after Berkeley Games because they were present at GAMA shows post 2000 and so was Alliance/Diamond. Nonetheless, from a retailer perspective the whole rise of Alliance did give a stability and fill rate that was lacking in the late 1990's.

Perhaps if I'd asked more questions and stayed out of the poker room at GAMA I'd have had all the facts. Thanks.
 
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Jay Larsen
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"The fact is that Alliance hasn't done anything specific in an attempt to achieve a "monopoly" (going back to the topic of the thread). What they have done is to become the most stable, well-funded, well-managed player in the business."

I would definately agree with your second sentence that Alliance is a well run business that has done a lot of good for the game industry. I am grateful for the role that they have played. However, I would have to contend that your first sentence is inaccurate. I would view the creation of exclusive deals with manufacturers as the activity of someone that is attempting to create a monopoly. Even though Alliance may have done much to keep the game industry afloat through difficult times, that doesn't mean that we shouldn't take notice of their current activity or that we should give them a free pass when they do something that may be harmful to our hobby.
 
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Glenn Drover
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Your assumption is that Alliance proposed the deal. Although I don't know for sure, based on my experience, I'd be willing to bet that it was the other way around.

However, let's say, just for discussion sake, that Alliance did propose it. And to take it to the next level, let's say that due to various reasons, a year from now, Alliance ends up with a huge % of the market.

If they do not continue to give good service or if they raise their prices to a level that is not competitive, new competitors will spring up. This will happen for sure during the next Pokemon, Hero Clix, or whatever.

In other words, having a friendly hegemon does not hurt anything (and probably helps), and an unfriendly hegemon will not stand alone for long.


 
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Jay Larsen
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While I would probably disagree on your assessment of hegemons, I think that you are perhaps right that I have perhaps focused too much on Alliance and not enough on WizKids.
 
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Re: Is Alliance trying to create a game distribution monopol
This announcement makes me the saddest because it is not as easy for myself to personally acquire a copy of Tsuro the instant one of my neighbours realizes how bad they want one.

Beyond that selfish fact, though, I have to agree that my understanding of business sense says that owning a monopoly is a good thing for my business.
I also agree that it could be a potentially bad thing for future generations of customers. I guess we just have to wait and see if they are benevolent monarchs.
 
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Jay Larsen
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As I have thought more about the situation, I think the thread should have been, "Why did WizKids create an exclusive distribution agreement with Alliance?"

-Alliance distributes around 50% of the product to the game industry. They probably reach more than 50% of retailers due to many stores using more than one distributor. However, it would seem that WizKids is potentially limiting their customer base by a sizeable percentage by doing an exclusive deal.

-WizKids was given their starting break by a distributor other than Alliance. I would like to think that they were reluctant to drop that distributor.

A few posts have touched on the benefits that WizKids may be receiving from the deal, but it doesn't seem that any of the explanations outweigh the negatives. Did other distributors drop the ball for WizKids? Is Alliance providing a deal that is too sweet to turn down?

Unfortunately, most of these questions will probably remain unanswered.
 
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I'm a small game store owner and I can tell you that choice is crucial to survival. There isn't one distributor who has everything and provides the lowest prices. Competition is a substantial contributor to product pricing at both the retail and wholesale levels. I'm not trying to be an Alliance basher, but I don't particularly like their wholesale pricing structure. It is more geared to large volume customers. If you want to maintain a decent discount then you have to purchase $1,000's per quarter. If you fail to maintain that level, well you a stinky discount for the next 3 months. Other distributors such as Premier Hobby give you the good discount regardless of level. I think there is a potential for loss of business for Wizkids through this deal.
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Re: Is Alliance trying to create a game distribution monopol
The following article,

http://tinyurl.com/y4cg7c

has some interesting predictions concerning the game industry and also some information regarding the recent WizKids-Alliance deal (located at the end of the article in the Q&A section. One of the more interesting predictions states the following:

Quote:
3) One of the top 5 distributors will go bankrupt by the end of 2007. That failure will have a trickle-down effect, taking a mid-tier publisher or two with it, and seriously damaging several more. Unlike previous years, the survivors will not attempt to buy it for its mailing list, or its inventory assets. In the resulting liquidation, a massive wave of recent products will be remaindered via eBay, suppressing used game sales nationally for at least six months afterward. I predict the collapse will occur between ORIGINS and GenCon.

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I had to check, of course... CP is more factually correct than I was, except for the era in which Alliance consumed Berkeley and Barchetta. At least as far as my old checks are concerned. Berkeley was bought out well before Barchetta was founded. That much my check records indicate. As late as 2001, several years after Alliance purchased Berkeley, Barchetta was selling me products and was attending GAMA in Las Vegas.

The point? None really except for the curious involvement of Diamond and Geppi. When did that guy start investing in Alliance? It's really just idle curiousity on my part because I'm with Christian when it comes to the stability that Geppi's involvement has lent to the distribution end of the game business.
 
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