Focus On: Mastertronic's Andy Payne

Following Mastertronic's buy-out of £4.99 price point specialists Sold Out before Christmas, his company is now the leading player in this crucial sector of the UK market, with both the £4.99 and £9.99 price points covered.

Payne took the time to talk us through the background to the company, which was originally one of the publishing powerhouses of the 1980s, how its two key £9.99 labels came into being - and why working with a specialist re-publisher is a better option for publishers than handling their own budget ranges.

"Having been a company in limbo, Mastertronic was reformed in August 2003 specifically to address the £9.99 PC market, what some people like to call the value market. Others might call it the budget market; it doesn't matter what you call it, to be honest - it's republishing.

"The reason that Mastertronic was reformed was because I was working with Future, and their Future Plus division wanted to - as they say, in their words - "monetise" some of their brands, one of which was PC Gamer. They had an outline idea for monetising that brand within publishing, and needless to say the first idea that they had - and the second idea and the third ideas! - didn't really stack up, but the concept of creating a budget or value range based on PC Gamer's 'Seal of Approval' seemed to be a worthwhile project.

"In order to do that project, I needed a new company. I already ran a company called The Producers, but it didn't fit with what The Producers do. It's a services company, it works in fulfilment and manufacturing, and it doesn't have publishing skills. So in order to see this idea of monetising the PC Gamer brand through, and possibly others, we needed to really have a new vehicle.

"It wasn't a joint venture with Future or anything like that - there's no complex business arrangement between us and Future. They simply license the PC Gamer brand to us, and we put it into the PC Gamer Presents value brand.

"At the same time as that, we needed to have a sister brand, which we decided later to call MAD, or Mastertronic Added Dimension, which was one of the original Mastertronic budget labels - that goes back to the £1.99 and £2.99 cassettes in 1984, 85 and 86, where MAD was the £2.99 side of the range.

"The reason that we needed a sister label was because, when we were actually going out to talk to publishers to license their products, we had decided on a PC Gamer score threshold. Originally we were going to do 90 per cent - anything over 90 would be put on the label - then we realised that actually, there aren't that many games that get past 90 per cent in PC Gamer! We thought about going down to 70 per cent, but realised that it was too much, and a lot of stuff that wasn't that great was in there. So we ended up at 80 per cent - if Gamer gave it 80 per cent, we would then attempt, if the deal was right, to put it on the PC Gamer Presents label.

"So for that label, the threshold of quality was the score from PC Gamer. Now obviously when you're negotiating with any publisher, the minority of their label will be qualifying, and the majority won't, because the majority of titles just don't score over 80 per cent. So we had to create a sister label in order to take the products that hadn't scored over 80 per cent, but were also very good products - so for example, Praetorians and Hitman 2, both good games for both gamers and the general public, but they didn't score over 80 per cent. So we needed another brand to put those on, hence the MAD brand.

"The qualification for this label was different - for the MAD brand, we needed to prove to ourselves that 100,000 units had been sold, worldwide, of that particular product. That's the tagline - "100,000 gamers can't be wrong" - whereas on PC Gamer Presents, the tagline is "It's a must if it's 80 per cent plus". So they're the two qualifications for the two different brands.

The Ten Pound Dilemma

"£9.99 as a price point on any format, but specifically on the PC, is a difficult one, because the original publisher tends to write their product down. If you take an example, say Championship Manager 4; when that came out, it would nominally cost £34.99. So it comes out about a year ago, let's say, and £34.99 is the SRP. From day one retailers, because of the margins, will always look to discount as much as they can in order to get the competitive advantage. So for example, Dixons may have gone to £29.99, GAME may have stayed at £34, or whatever.

"Before you know it, you're down to probably £29.99 baseline, maybe even further down the line - and the mail order guys, they're working off this thing of "ah, we don't need a real margin because we're not really a retail business, we're just a pick-pack-ship-it operation", so they've always gone ultra-aggressive. They're not selling on service or product knowledge, they're just selling on "here is the box shot, we've got it, it's cheap, if you want it, buy it from us". The after-sales is geared around delivery and handling things that didn't turn up, rather than customers who don't think they want the game or don't understand it. There's no shopkeeper interaction, it's just simply "got that, that's the price, here, order it", so mail order has always believed that it can work of lesser margins, and it probably can.

"The difficulty in this industry is that because of those margins, the difference between full price day one in retail and full price mail order is sometimes ridiculous. A good example of that is some of the mail order guys selling GTA San Andreas at around £27, when they didn't need to do that - and all it does is confuse the hell out of the consumer. It's good from a gamer's point of view because they're getting the game cheaper, but from a business point of view it just doesn't make sense at all.

"So the publisher probably starts at £34, and realistically, it ends up at £29 pretty quickly. Then, for most releases they have that key four to six weeks after which, if it hasn't sold, it isn't going to sell. Whatever the reason may be - the game may be rubbish, it may not be distributed properly, it may not have any shelf space, it may not be properly marketed... A whole lot of factors come in there, but you know as a publisher, in that four to six period from launch, whether you've got a product that's going to make you money or not.

"Retail also know that, and if it's not selling, they'll want to be shoving that product away and getting a new one onto the shelf. So what tends to happen is that the publishers will start to write down. Let's say we're at £29.99; we'll see a write down towards maybe £19 next, and even then they can bring it down to £14.99 or something like that. Bottom line is, they can take it right the way down to £9.99 over a period of time, and they can still make some money at that £9.99 price point.

Retaining Brand Value

"If they license that product off for £9.99 specialist publishing to a third party, then they will get less money for that £9.99 product per unit than if they do it themselves - but they always underestimate how much work there is involved in doing it themselves. Also, of course, the brand itself also starts to get devalued, because consumers go "that's the original box, it was £35, and now three months later it's £10 - what's happening?" So I've always believed that you have to move things into a different range and present them differently, in order for the brand equity not to be spoiled, basically.

"So we needed to have high brand values, and we needed to convince the publishers that it was worth coming to us, because we'd actually sell more than they would themselves. They will never believe that until you start to get a chance to show them, but the simple reason is that if you've got a company like ourselves that's focused on a price point and a type of offering, then we should be doing a better job of arranging the stock than a company that's got a whole range of products and formats and price points. In their mindshare, as the marketing guys like to say, they've got a load of things to do - the sales guys are busy doing full price PS2 stuff, Xbox stuff and PC stuff, and if they're also managing a £9.99 range, it won't give them the sort of revenues and commission that they want so it just gets forgotten about.

"Once it's forgotten about, it just trickles away from sale because it's not on the shelves. Their sales suffer, and they go "well, it didn't sell because it must have sold all that it was going to already" - when in fact, it's just that they haven't focused on it. So it comes back to that thing of always having companies that are specialist in certain areas; you know, if you look at EA, they've had a reasonable amount of success with their EA Classics range, but they've moved around on pricing a lot - it was a £7.99 price point, then it became a £9.99, then £6.99 - it was all over the place.

"Retail also comes in to queer the pitch a bit, because they like to do two main promotions on budget ranges of product - they like to do three for £10 on the £4.99 ranges, or three for £20 on the £9.99 range. When you look at it that way, you're only getting £6.66 for the three products. So it's far better to be in a position where you can say, "okay, if we're going to have to go down that route because that's what retail are forcing, then we may as well sell somebody three of our products rather than three of anyone else's." So if a publisher comes with us, we've got more of an offering, which means that everyone gains.

Cautious Expansion

"Only over time can you actually prove this, by presenting to the publishers your headline brands, concepts and delivery, and you follow it up with sales. We've spent a year now - just over a year, really - getting the two ranges out there. We've got 23 titles in the market in the UK, and at the moment we're UK only - because until you know what happens in your home territory, and what you can and can't do, you can't really take it elsewhere. You can end up with a real mess going on if you start to sublicense out to partners in France or Germany or Spain. What we need to do is test the market here, establish what works, and then work out how to roll the strategy out in Europe, and beyond. It's a patience game, especially for Future, because they're very keen to monetise their brand everywhere - and we have to pull back on that because you know, you can't just go out and monetise things until you know what you're doing.

"Similarly, right at the moment Mastertronic is only concerned with £9.99 PC titles. We do have designs on other formats, but only as and when we can actually prove that those models work. In PC publishing the risk to reward ratio is around two or three to one - it's like backing a three to one horse, you put a pound in and you might get three back, but the chances of it going wrong are three times. In console publishing, it's closer to ten to one. You've got to be certain, and the way retail is at the moment, it's just harsh. You've got to get your product properly positioned, or retail won't take it, and even if they do take it, you've got to put a lot of marketing pounds behind it. You've got to assess your risks sensibly, otherwise it just becomes a waste of time. It's easy to chuck a load of products out there, but if you don't actually make any money out of it..."