On our recent trip to the Seattle area, we sat down with Wizards of the Coast CEO Greg Leeds for a talk about the market and Wizards of the Coast. In Part 1 of our two-part interview, we discuss the overall market for hobby games and WotC’s Dungeons and Dragons brand. In Part 2, we talked about Magic: The Gathering, Kaijudo, Avalon Hill, movies and TV, 2016, and Fat Packs.

What’s your assessment of the hobby games market and how Wizards of the Coast is doing?
The hobby games market from our perspective is going very well. We see that retailers are providing better and better experiences for their customers, and as a result, in general, we’re seeing retailers see increases in revenues.

From the beginning, we have attempted to create what I would call a virtuous circle of success between retailers and Wizards of the Coast. We want to make sure that all of our policies and incentives and encouragement go to retailers who are investing to create the communities which, in turn, helps us to be more successful. We’ve done that in a number of different ways. The most obvious thing we’re doing right now is investing in great storytelling, game design and art that retailers can then use to create those experiences to create communities in their stores.

From our perspective it seems the number of stores and square footage are going up. Are you seeing that trend as well?
Yes, we are seeing the number of stores go up, in particular stores that manage play for Wizards products. We have seen double digit growth for the last several years up to and including this year.

What about channel penetration for D&D or Magic. Is that changing or stable?
Very stable penetration from the digital side to the hobby game store side to the mass merchant side. What we find is our businesses tend to grow in all three areas. There’s a synergy between them. Each has their role in satisfying particular needs of the community, so we don’t see trade-offs in any of our brands.

One thing I would say with regard to the evolving store environment is that stores are getting better and better in the hobby game industry at creating these experiences. If I look back 10 years ago, what would be a great store 10 years ago would be an average store today. And everything we do at Wizards of the Coast is to make the great store of today an average store of tomorrow. So that’s the evolution we’re seeing.

You took a different path with the Dungeons & Dragons relaunch than you had before in terms of the number of products and how you were handling the brand across the channels, particularly in digital. What’s your evaluation of the D&D brand a year into the relaunch?
We’re extremely happy with the results that we had with the relaunch of the tabletop RPG. It’s not surprising, because we had 190,000 people playtest it before we released the new edition of the rules, but the response has been even beyond what we expected. So that part of our business is extremely strong, and we’re very happy with the long tail behind that edition launch.

The other thing on Dungeons and Dragons is that we are becoming a more story-first type of product and entertainment experience. We find that fans want to engage in that story for a significant amount of time before they leave to go to a next story and that’s what determines the cadence of our products.

Can you discuss the strategy of reducing the number of total products released per year for D&D?
We try to optimize what we think the fans are most interested in in terms of when they’re ready to go to the next story or campaign or adventure. So there are less product launches than there have been in the past but what we found is people get more deeply engaged and they enjoy them for a longer period of time. From a business perspective our revenue has gone up.

So you get more people buying fewer products for greater net revenue?
That’s correct.

Can you tell us more about telling the story across the channels and how that helps drive sales of the physical product?
Any well told story or piece of entertainment is good for the Dungeons and Dragons brand and ultimately drives revenue in all categories including publishing/paper categories. For us the expressions of story on digital platforms makes the brand more accessible to a wider audience and therefore gives us the opportunity to have more people buy physical products as well as the digital products.

Is there just one D&D digital game?
No, now there are several D&D digital games and there will be more in the future. That’s not different from the past. If you go back even decades, we’ve often have very successful digital expressions of Dungeons and Dragons. We know fans like to interact that way. It meets needs that the physical product can’t meet, but as I say, I believe it opens our brand to a wider audience which just expands the whole pie.

Do you have research that shows that is a path of customer acquisition for the physical product?
Yes, absolutely. The Forgotten Realms has been a key part of historical and current digital expressions of the brand, and as we execute paper products in The Forgotten Realms we find that fans can easily gravitate toward those products because of their engagement in other forms of entertainment. As long as the story’s the same, they work synergistically.

Given that the market for the RPG physical product is relatively small compared to decades ago, what’s the long-term potential of your D&D products?
I believe that the digital side of the business unlocks the limitations of the brand overall, as we explore partnerships for digital expressions on Dungeons and Dragons in a variety of different platforms. That makes brand growth unlimited, but it also spills over in a positive way to the tabletop RPG as well.

How do you determine which products you produce in-house for D&D vs. what you license out? That’s obviously changed over the years.
We are a fan-driven company so we look to the fans to tell us what ways they want to engage in our brand, and then we access who, in terms of our internal capabilities and our external partnerships, will be best able to meet those fan-desired platforms. That’s how we make our decisions.

So external producers can do a better job than Wizards can?
That makes it sound harsh, but there are areas where we are very happy to collaborate with experts outside of Wizards of the Coast to provide the best fan experience. So in essence, I’d say a meek ‘yes.’

Magic year-over-year sales reports have been negative for a couple of quarters. How have the number of product releases and storytelling during that period affected sales?

The overall Magic business in 2015 will have achieved its seventh year of record levels of business size, so overall our business is strong and growing and continues to grow. The quarter-by-quarter changes vs. the previous year just reflect changes in timing. Because we have such a large amount of our business go in the pre-release and release part of the launch, the timing of those launches can have an impact on those year-in-year comparisons. Our brand is fundamentally healthy and growing.

I think if you speak with any of our retailers they’re not judging our business the way, for example, Wall St. would look at our quarter-to-quarter results. Those retailers are concerned with their weekly cash register rings, and they’re seeing what they want to see.

How many people at this pre-release vs. the last one, for example?

Exactly.

You’re in the middle of a change in the configuration of how you’re organizing your blocks. What’s your assessment of how that’s going?

Honestly, we’re just starting with Battle for Zendikar. That’s the first release where we’ve moved into the two entertainment releases per year cadence. Previous to Battle for Zendikar, we were on a cadence of having one major entertainment release and one core set per year. As we move into the two entertainment releases per year, we think that’s just more goodness for our fans. The early response to the entertainment with Battle for Zendikar is extremely strong.

There are more CCGs in the market now than there were a few years ago, although still far less than there 10 years ago. What’s your assessment of the capacity of the market in terms of the number of lines that are being produced in the CCG category?

I’m not sure what the best number of CCGs are for a healthy industry, but I do know that our industry depends on constant creativity and innovation. As a part of the industry, Wizards welcomes new players, twists on old brands; any kind of innovation and creativity that creates fan interest ultimately is good for Wizards, because we’re going to get a piece of that industry.

There’s a back and forth between consumers of digital and physical product and Wizards has done promotions to drive digital users into stores in the past. What’s the flow of consumers through your brand in these different forms?

The Magic community loves to play Magic both digitally and in the paper format, so we design our plans to allow fans to engage with the brand in the platform that best suits them at any given time. We know from long experience that the digital side of the business is complementary to the paper side of the business.

If you’ll remember back in 2009 when we really started to see Magic’s growth, one of the big contributing factors was the launch of Duels of the Planeswalkers. To your point, Duels of the Planeswalkers opened up Magic to a larger audience. Those people got a taste for the brand and then went to stores and started playing Magic competitively in their local hobby game store.

You were doing promotions for redemptions that would drive them to the store. Are you still doing those kinds of things or is the flow more organic?

I would say the flow’s a little bit more organic based not so much on the specific promotion that we did in the past but more on the idea that once fans are engaged in the entertainment and the basic game play, then they get an interest and they’re driven to their local game store. One of the things that we make sure of is that all of our marketing programs are set up to allow that easy flow from digital to the paper experience. Our Websites are designed that way. Whenever we launch a product, we make sure that people have easy access to the store locator so that as they experience the product they can easily get to their local store.

One of the things that we’ve spent a lot of time on with the WPN (Wizards Play Network) website is working with stores and finding best practices for how retailers can not only create great experiences, but take advantage of the funnel of acquisition we’re creating with our digital experiences. Right now, three-quarters of retailers are visiting our WPN Website weekly and if I was to give advice to the other quarter, I’d say ‘don’t let your competitors get an advantage. Learn how to take advantage of the funnel that’s created with digital so that you can maximize your long term revenue in your store.’

A trend we’ve seen in the game business overall is that people seem to be getting together and playing physical games perhaps more than they have in the past, and that digital games have grown more slowly. Are you seeing that within your brands at all in the mix between the digital and physical changes?

Without getting into details, generally the two move together if you look over a longer period of time. I would also comment that generally speaking, the digital game industry is a growth industry. There are pockets that are extremely hot and pockets that are weak at any given time, but overall if you look at all the platforms and on a global basis, the digital game industry is healthy. But so, of course, is the local hobby game store retailing business in terms of board games and card games and other products.

Duel Masters has been a huge success for Wizards of the Coast in Japan. You’ve taken a couple of shots here in the States that didn’t work out. Why do you think that is?

The reason Duel Masters did not translate as successfully to North America is because we didn’t get the television presence that we wanted to get the brand established. In Japan we have a very strong television presence and that’s led us to some success which we’ve built on. Duel Masters will continue to be a very strong brand in Japan and an important brand for Wizards of the Coast.

Every time we do an interview with you, we ask about Avalon Hill. Is there any truth to the rumor that you are doing something with the Avalon Hill portfolio?

We are proud caretakers of the Avalon Hill portfolio. And I think I can say that ICv2 will be hearing some ideas and initiatives on a couple of the most beloved products shortly.

Before the end of this year?

You will have to wait just a little longer. The plan is for Q1 of next year.

You are in the early stages of developing movies for both Magic and D&D. In general, how do you envision taking advantage of that increased visibility to grow the sales of the physical products?

First I would say that the movies in themselves are something that fans are looking for. Many people want to experience Dungeons and Dragons and Magic in a full, cinematic form. So that in itself is a value. Of course we want to take advantage from a product standpoint of that massive entertainment opportunity. To do that the key is to make sure that our product offerings and the experiences we offer players in terms of in-store or even at large events are tied in thematically with what a moviegoer will see when they go to the theater.

Overall, geek TV has exploded in the past few years. There are so many TV shows now growing out of geek culture. Some of those have been hugely successful at driving sales. So far, the Hasbro strategy has been more movie-oriented. What’s the feeling about television? Is that something you’re planning to look at later; are you working on them in parallel?

We continue to explore options in television; we don’t have anything to say at this point in time. I would say with regard to streaming our brands in video, there is the e-sports side of our business that’s very important to a lot of people in our community. Through our relationships on YouTube in terms of our channel, and Twitch, we’re able to let many of our fans view our brands through streaming services in an e-sports sense.

What products or initiatives over the next six to 12 months are you the most excited about?

The thing I’m most excited about is the way we’ve created big entertainment themes for our brands and used those themes to take our brands to a variety of different platforms that our fans are interested in. So for now, what that plays out in, is Battle for Zendikar, and of course, we’ve got Oath of the Gatewatch coming out early next year. Since Battle for Zendikar has been so strong, we expect that to continue. After that we’ll change thematically to the next release which was just announced.

On Dungeons and Dragons, the same overall approach applies. That’s what makes me so confident into the future—that people want to engage in our storytelling, our art, the design that Wizards of the Coast is able to offer our fans. And if we can do that thematically and allow fans to experience it in whatever platforms’s best for them, then I think we’ll continue to be successful long into the future.

Retailers had a lot of excitement about the Fat Packs for Battle for Zendikar because they have cards that are highly in demand. Their customers weren’t happy because they couldn’t get them, the retailers weren’t happy because they couldn’t satisfy the customers. How did that happen and what’s your message to retailers about that?

We had high expectations for Battle for Zendikar in general, and for the Fat Packs, but frankly, the demand was even higher than we expected and that’s why we had those shortages.

Are you going to make more?

No. We have traditionally just done a single print run on Fat Packs.

So the message to retailers is …?

The message to retailers is keep driving great play experiences and Wizards of the Coast will keep giving you great products and experiences to take advantage of in your stores, and will will all win in the long run.