| Software Report |
In the last part of an investigation into the software industry, Clare Edgeley talks to the distributors
SOFTWARE HOUSES are falling into the hands of liquidators like there's no tomorrow - and in many cases there isn't. They do not know where the money for their next game is coming from, and when they do produce a game there is a high chance that it won't even reach the public. They blame the distributors - the middlemen in the industry - for creating this climate.
The distributors claim the fault is not theirs. They, too, are suffering cash flow problems and those problems are irritated by delayed programs, cancelled launch dates, limited shelf space in shops and poor quality games. They are caught in a vice with the software houses on one side and retail outlets on the other.
It is the distributors' job to evaluate the games sent by the software houses and then sell the best into as many shops as possible. Shelf space in shops is limited for the huge number of games available and so distributors can choose only a small number for their catalogues. John Forrest from Thorn EMI explains, "We are selling into an amount of space so we have to decide what game is going to move fastest", and adds, "the retailer can't evaluate and order from dozens of small publishers - he wants to buy from as few suppliers as possible." The same can be said of the software houses - they do not have the resources to contact each shop separately.
However, the job the distributor has to perform is not as cut and dried as buying from one area of the market and selling to another.
Last Christmas, the high point of the seasonal market, distributors were inundated with software to evaluate. Loretta Cohen, from Lightning Records & Video, distributors, explains that they couldn't cope with the number of games coming in for evaluation. "We experienced a lot of rudeness from software houses about the evaluations - but the volume was almost too much. If they sat on this side of the fence ..."
If, as John Forrest suggests, software houses had presented the games earlier in the year, some companies would have succeeded in winning one of those much prized places on the shop shelves.
Distributors are very cautious about the games they take on as each game constitutes a risk and the gamble is in choosing the one piece of software which will sell better than others of the same ilk. If a mistake is made the shops will not buy and the distributor is left with unwanted software on his hands.
Clive Digby-Jones, of Websters, states, "In the past software houses sent us a tape and expected us to send an order in advance. We are now at a point where we see a product and try it out on people first." That attitude is shared by most distributors. One recent exception concerned Legend's The Great Space Race.
Months before release adverts for the game littered the computer press warning of its impending arrival. "The Great Space Race was hyped to such an extent that demand for the product was coming in from the public before the stores had got the game", reveals Loretta Cohen. "The retailers phoned us and we didn't have it as Legend kept changing the launch date. Demand was so great we had to order copies without seeing the game. It hasn't sold. We won't ever take on a game without first seeing it".
Terry Blood Distribution also got its fingers burnt in this incident and Joe Wood sums up, "It is assumed that distributors manipulate the market, but in fact it is probably the other way round and the market manipulates the distributors. The market dictates - if the software produced is of poor quality it won't sell, no matter how many copies are bought by the distributors and sold to retailers".
Before last Christmas, Websters received around 400 games a month and from that number chose 50 - a frightening waste of time and effort on the part of the software houses. "We look at a game and decide if it is a copy and whether a game similar to it is doing well. If that is the case there is no point in removing it to make way for another of the same", says Clive Digby-Jones.
The rapidly decreasing number of software houses is also a cause for concern. It has been pointed out that one of the reasons behind the demise of many software houses is the huge discounts they have to give the distributors on their games - as much as 60 percent in some cases - and the long payment terms when those games have been accepted - up to 45 days.
It is true that those terms are creating cashflow problems for small software houses, yet the blame cannot be laid at the distributors' door alone.
On that issue the distributors are caught firmly in the middle. The retailers demand a discount of up to 40 percent when taking on a game. The distributor needs payment for handling that game and will ask for a discount of between 50-60 percent from the software houses, keeping only 15-20 percent.
Those margins have to be met. As Joe Wood puts it, "If the margins on a game aren't sufficient it won't get into a distributor".
A similar situation arises with payment terms. "We pay 30 days from the end of the month after receipt of goods - that is, on average, 45 days", explains John Forrest, "We buy and sell on those terms".
Automata's Deus Ex Machina is an example of the failure of this system; the game has been widely acclaimed and yet Automata experienced great difficulty in getting it into the shops. Automata insisted on payment when the distributors' orders were placed, and consequently many distributors refused to handle the program as they would be out of pocket while waiting to be paid by the retailers. Of course, the system as it exists means that the software publishers are often out of pocket while they wait to be paid by the distributors.
As there is no standard discount, the software houses are able to negotiate terms on each game. John Forrest states, "If the retailer is taking a larger volume he can sometimes demand a larger discount. If the publisher has a fantastic product he might suggest a lower margin because of the greater quantities sold".
The packaging of a game can be one of the deciding factors in its selection to a distributor's catalogue. Games in cassette-sized packaging tend to stand a better chance of being chosen than a similar game in a large library-style case. Though the larger case is certainly more eye-catching, some retailers are loath to take such products when they could display two or three smaller ones in the same space.
Andrew Denning of Lazer Distribution agrees, "I've seen it happen, retailers take fewer copies of a game when they find out the size of the packaging." However, Adrian Fisher from Tiger Distribution disagrees, "So long as a game's packaged well, we haven't refused to take less because of its size. Games packaged well, sell well and with a good retailer it shouldn't stop a library-case packaged game getting onto the shop shelves".
Nevertheless, games do suffer from unwieldy large packaging and software houses must take that into consideration, and realise that far from gaining more visual coverage, they might even get less.
Distributors are more business conscious now that the industry is going through a shake-up than they were two years ago. The market is carefully evaluated and different ranges of games are sold into different sectors. Clive Digby-Jones explains Websters' policy, "We have the responsibility to pick the best sellers first and tailor our range to fit different customer bases. For example, Boots is a predominantly female store relying on family purchases and is more likely to take on a range of best sellers. Their range differs from newsagents who will take on the budget ranges, others will take only chart toppers. We try to meet the needs of each outlet".
Loretta Cohen adds, "We don't encourage the shops to order large numbers of games - in that way they should never be embarrassed with overstock. If we feel they are ordering too much we'll tell them".
All are agreed that they would like to see a standard release date from each company - as in the record business. Tiger's Adrian Fisher comments, "Launch dates which have been moved around cause a problem when selling into the shops."
When the games industry started four years ago, there were few distributors in evidence and business was mostly by mail order. As computer games increased in popularity, large chain stores like W.H. Smith and Boots entered the market. Small, independent computer shops sprouted and suddenly distributors were necessary. Andrew Denning of Lazer points out, "Some businesses wouldn't exist if they weren't with us as very small retailers demand about five of each product and software houses, like Ultimate, wouldn't be able to cope with small orders like that.".
Briefly, then, the system works for some and not for others. Whether it is the best system in the circumstances is arguable, and something that the months and years ahead might decide. At the very least, it allows publishers, distributors and retailers to lay the blame for occasional blunders at each other's doors.
One last point - did you notice how often you, the customer, figured in the arguments detailed in this article? Why not add your still small voice to the debate by writing to Sinclair User with your opinions on the marketing of software? We look forward to hearing from you.