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29 August 2014 Dr Richard Chadwick General Manager Adjudication Branch Australian Competition and Consumer Commission GPO Box 3131 Canberra City ACT 2601
Attention: Mr Luke Griffin Dear Mr Griffin Exclusive dealing notification N97404 lodged by Games Workshop Oz Pty Ltd: your reference 54573 I am writing to make a submission in response to the subject exclusive dealing notification (notification) by Games Workshop Oz Pty Ltd (GWOP). Summary of submission
• The notification confuses hobbies and markets.
• Miniatures gaming might be regarded as one hobby. Other hobbies referred to such as scale modeling are not the same hobby.
• Miniatures gaming is divided up into different parts. Different markets
support these different parts of the hobby. GW products form a relevantly (in terms of the market in which lessening of competition and detriments or benefits to the public occur) distinct market and non-‐GW products are generally not substitutable for GW products.
• Therefore the availability of non-‐GW products does not obviate the
detriment of lessening competition and higher prices that would result from the proposed conduct set out in the notification.
• The putative benefit of shopfronts supporting the hobby is overstated and
may be more about GW’s practice of turning over young players with brief involvement in the hobby than benefiting the hobby at large.
• Therefore the ACCC should not allow the proposed conduct as there are
no benefits to the public, or insufficient benefits to the public, to outweigh the lessening of competition that would result from the conduct.
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The miniatures gaming hobby The notification conflates different hobbies, and hobbies with markets. An explanation of the hobby of miniatures gaming will assist in understanding the markets involved in miniatures gaming. Starting with my personal experience: I am now 49. I have been wargaming, or more acceptably “miniatures gaming”, or more accurately playing rules-‐based games with toy soldiers, on and off since I was about 13. The members of the various circles in which I play tend to be about the same age, give or take a decade. Our interests span both GW and other games systems. We are generally typical of a broad section of the miniatures gaming community – which is, I will note now, is in frank contradiction to GWOP’s contentions about benefits to the public to the extent they are predicated on the gaming community being made up of teens that give up gaming after a “certain age”. I also, pertinently to GWOP’s claims about substitutability and the following discussion of the hobby markets, also build scale models, play eurogames, had a brief interest in model trains, and tried but failed to become interested in collectible card games such as Magic: the Gathering. The miniatures gaming hobby as it is now dates from the mid 1950s to the early 1960s. In essence, miniatures gaming involves fighting battles with scale model soldiers and vehicles, usually on a tabletop with representations of real world objects like trees, buildings and roads, using rules that govern how models are moved, interact with each other and terrain, and fight. Subsidiary to these games are activities such as collecting and painting miniatures and making the terrain over which the toy soldiers ‘fight’. Picture 1, below, shows an example of part of game in play. Miniatures gaming is divided up in various ways depending on different kinds of games and the differing interests of its participants. A primary division relevant to the present matter is between games that aim to represent different historical periods (for example, medieval warfare, or the wars of Napoleon, or World War II), and those that represent fictional situations in fantasy (of the magic and wizards and goblins kind) or science fiction universes. As well as different historical periods and fictional universes, there is a plethora of rules and miniatures suppliers for each. Consider games based on the French revolutionary and Napoleonic wars of 1792 to 1815. These were actual events that occurred in our world. There are many competing sets of rules and miniatures for gaming this period, but they are generally attempting to represent the same things and events.
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picture 1: ‘Soviets’ from my collection representing soldiers from 1944 advance up a ‘hill’ on the other side of which are some ‘German paratroopers’. In the background is a Soviet ‘SU-‐76 armoured vehicle’, a small ‘wood’ is further in the background. The dice and tape measure – as it happens, from GW -‐ are paraphernalia used to give effect to the rules governing the game. I lost. Games set in fictional universes – that is, the part of the hobby into which GW sells -‐ are not like this. Apart from licensing of intellectual property, each fantasy or science fiction ruleset, and most ranges of fantasy and science fiction miniatures, relates to their own distinct fictional universe. This will become important later in relation to substitutability of products. All that said, from the perspective of ‘what is the hobby’, miniatures gaming can reasonably construed as one broad hobby. It contains a variety of interests and emphases: different players like different historical periods or may have a preference for historical over fictional universes or vice versa; may be focused on competitions with strangers or games within a small circle of friends; rigid attention to historical accuracy or not caring about the same; or spending more time painting miniatures (or reading history) than playing, or not painting them at all. Nonetheless the essential elements of miniatures gaming set out above tie these activities together. Finally, I should for completeness address the notification’s further assertions that activities such as collectible card games, scale modeling, certain kinds of board games, model trains, etc are part of the same hobby as miniatures gaming. There are some overlaps and similarities, and for reasons that probably don’t need explication (unkind people may link the hobbies via the word “nerd”),
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people interested in one will often be interested in others. However, for example:
• the game element of miniatures gaming does not mean that all games and miniatures gaming are the same hobby, grey areas like Zombicide mentioned in the notification notwithstanding. Bridge and Monopoly are not miniatures gaming, and neither is collectible card gaming even if the cards have pictures of monsters or wizards on them.
• miniatures gaming, scale modeling and model trains have shared aspects
and techniques of modeling, but the objects are separate. In scale modeling (which may include using miniatures gaming products) the process and the model is the object of the hobby. Most miniatures gaming players do some modeling, but with the goal of playing; miniatures painting services exist for those players who don’t want to do it themselves.
These do compete for individuals’ time and money, but so do motor vehicles and holidays. In any case, whether or not these activities are the same hobby as miniatures gaming is not necessary to establish to discuss the relevant market in which GW products are sold. Games workshop As already noted, GW produces products for miniatures gaming in fictional universes. They have fantasy and science fiction universes of their own creation, for which the primary game systems are Warhammer Fantasy Battles (WHFB) and Warhammer 40,000 (WH40K) respectively, and make products under licence for the Peter Jackson versions of the worlds of J.R.R. Tolkien’s The Hobbit and Lord of the Rings. GW was established in the 1970s but first produced WHFB and WH40K in the 1980s. In the first instance the universes were somewhat derivative. The WHFB world was populated by medieval French and 16th Century Germans (both with added wizards) with a conventional fantasy-‐archetype menagerie of dwarves, elves, orcs etc. The WH40K universe was (and is populated) with space-‐elves and space-‐orcs, and “space marines”, now trademarked and fiercely protected by GW1 but a long pre-‐existing trope in science fiction with an added touch of R.A. Heinlein. In the thirty years between then and now GW grew to be, arguably, the most significant company in miniatures gaming to the benefit of the entire hobby.
1 Perhaps tangentially relevant to the present matter, GWOP’s claims in the notification about their concern for the gaming community might be weighed up against, for example, their approach to online communities of people that play their games and that talk about and display their products, even positively. Instances are too many to list but one might google the terms [games workshop cease desist].
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Others have narrowed GW’s lead but it is still an organization against which others are compared in terms of quality of product. Strengths of GW, and ways in which GW has benefited the hobby include:
• notwithstanding their derivative beginnings, the GW fictional universes now have considerable depth and richness, with characters and histories, alliances and enmities, adding significantly to the gaming experience. Of the 532 pages of the the current WHFB rulebook, for example, about 110 pages are devoted to background to the Warhammer Fantasy world (noting that part of the balance relates to broader aspects of gaming using GW products – there are not 400+ pages of rules!)
• while what constitutes a good miniature is a matter of preference, a good
case can be made that GW’s miniatures have consistently been at least the equal of any other, and frequently superior, which has also provided benchmarks for other manufacturers to aspire to. A number of important miniatures sculptors have worked in GW
• similarly, GW publications are of consistently high production standards
and have led the industry; and similarly, a number of prominent games designers or business people have previous experience in GW
Miniatures gaming markets Miniatures gaming involves, aside from having a large enough flat surface to play on, acquiring a range of products, most importantly:
• rulebooks, to govern games; frequently also supplemental books to provide advanced or variant rules, or to assist (or prescribe) how one organizes one’s miniatures for play
• miniatures, ie the toy soldiers, including individual soldiers or vehicles, or
aircraft or ships, depending on the game
• ‘terrain’, such as buildings, hills, trees, roads, etc, and/or materials to make these on a DIY basis
• paint, glue, modeling tools
• gaming aids such as dice to govern outcomes of actions in games, and tape
measures for movement of miniatures, as prescribed by rules. (GW are the only company which attempts to meet all of these needs. An increasing number of companies provide both rules and miniatures.) An important matter for the decision maker in the current matter is to form a view on what is or are the relevant market(s) in which competition is being
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lessened with respect to s. 47(13)(c) of the Act and in relation to which the notification is made. Some possible perspectives on this are that:
• there is a single broad hobby market including computer games and scale models; this is the view put and relied upon by the notification
• there is a single market for miniatures gaming products
• there is a market for each of the kinds of miniatures gaming products
listed above
• there is a market for each of the kinds of miniatures gaming products listed above, and furthermore some of these products fall into further markets.
The last point is the nearest to correct. I argue that the relevant view for the present matter is that there is a market just for GW products, at least insofar as the key products of rules and miniatures are concerned. Establishing what is the market relevant to the decision rests in part on substitutability of products, noting s. 4E of the Act. That section refers to products that are “substitutable, or otherwise competitive with” each other. The notification links the two elements in the phrase by defining substitutability in terms of products with which GW products compete, but with a very broad idea of competition of products for players’ time and money. This is an incorrect view. As I have already noted, the ‘competing for time and money’ test does not hold up; if it did, then all goods in the world would be in one market. The notification, however, attempts (albeit perhaps not stating it as explicitly as this) to point at a commonality of interests draw a circle around the miniatures gaming and other hobbies to say something to the effect of ‘it’s one hobby, they’re model soldiers and rules, one buys them from the same places and players buy from across brands, therefore they are one market’. This is also an incorrect view. Substitutability defines what products compete in the same markets. What “substitutability” means in a plain language sense is not necessarily complex but I will go do some pains to support the possibly counterintuitive idea that one toy soldier is not necessarily the same as just any other toy soldier. Products might be considered substitutable is they meet at least these criteria:
• they meet the same practical need or purpose
• they provide roughly equivalent satisfaction of those needs or purpose, subject to trading off price, and quality and utility.
In a simple case, two cars may be substitutable in this sense if they both provide transport out of the rain and on roads; one may be more comfortable, but the other may be cheaper and so be more attractive to some consumers on that
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score. To the extent one’s criteria are transport on roads and while doing so staying out of the rain, cars that meet those needs are substitutable and could be considered one market. Consider also cycling. Cycling is, aside from a form of transport, in a sense one hobby. Road cycling and downhill mountain-‐biking , however, require different kinds of bicycles. It is, strictly, possible to downhill mountain-‐bike on a road bike, so long as one doesn’t care about enjoyment, discomfort, or an increased likelihood of breaking one’s bike or oneself. All other things being equal, road bikes are not substitutable for mountain bikes for the downhill mountain-‐biking part of cycling. In that sense, mountain bikes form a market, notwithstanding that there exist shops that sell both kinds of bikes and that there are consumers who buy both kinds of bikes. Applying this to miniatures games: consider picture 2, which shows a range of miniatures from GW and other sources from my own collections.
Picture 2: from top left, anticlockwise: GW Lizardman for WHFB; GW ‘Legolas’ for Lord of the Rings games; GW Space Marine for WH40K; Bolt Action Soviet infantryman c. 1941; Gripping Beast Viking warrior; North Star Miniatures ‘desperado’; Battlefront Miniatures/Flames of War British infantry c. 1941 (note that these are a different scale to the other figures); Perry Miniatures Russian Infantryman c.1812. This picture illustrates an intuitively obvious point: miniatures for different historical periods or nations, or from different fictional universes, are different. The relevant point being led to is also on reflection an obvious one: generally speaking, players will want figures appropriate to the forces and to the historical
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periods or universes in which their games are set. To put it simply, if one is collecting miniatures to represent a Russian force in 1812, one is not going to want or be satisfied with the Viking or ‘cowboy’ figures for inclusion in that collection. They are not substitutable. Because of this, there is a market for Russian infantry of the Napoleonic wars, sitting within a broader market for figures from the Napoleonic wars. Within those markets there are different brands which are substitutable and choice of which depends on preferences over metal versus plastic, detail, style and so forth. As noted above, however, each fictional universe is unique and in practical terms fictional universes are brand-‐specific; consequently, miniatures of different brands are not on the whole substitutable. This is not absolute: sometimes there are similarities which may enable this or that particular kind of miniatures to be substituted (for example, more than one company makes ‘skeleton warriors’), but on the whole substitutability is not feasible unless one is willing to put up with the equivalent of Miss Marple joining Law and Order: SVU or, again, riding a road bike down a rough mountain track. Looking more specifically at examples in the notification, it is suggested that Privateer Press Warmachine and Flames of War (FoW) miniatures are substitutable with GW products. As noted above, WH40K is based on an elves-‐and-‐goblins-‐in-‐space plus pulp-‐sci-‐fi humans aesthetic. Warmachine is based around steam-‐powered, magically-‐directed robots. Picture 2 includes an example of FoW miniatures which, like all FoW miniatures, are in a different scale to GW products and are located in 20th Century warfare. Simple inspection of the picture shows that the suggestion that these FoW products are substitutable with GW in the sense relevant to the decision for the ACCC is nonsense, leaning towards risible. Account also needs to be taken of the place of GW in the hobby. As also noted above, the GW universes are rich and detailed having been constructed over three decades. They produce rules around their miniatures, and miniatures around their rules, and both around worlds. This is highly attractive to miniatures gamers. There are significant numbers of players who play only GW games, and plenty of gamers for whom GW provides their only excursion from historical games (I would be one of the latter). Notwithstanding their ‘we are just one of many equally good products’ approach to the notification, GW themselves recognise and proudly state that they provide a holistic gaming experience: “(w)arhammer is a game unlike any other because it is so much more than a game. It is an engaging and engrossing pastime – a full-‐blown hobby with a lot of different aspects. There are armies of Citadel miniatures to collect and paint, fantastical battlefields to model, a rich history to explore, and an unending list of gaming challenges” (WHFB rulebook page viii, my emphasis; “Citadel” is the main brand for GW miniatures).
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In simple summary: GW gaming is a distinct, popular and enjoyable part of the miniature gaming hobby. GW games are not simply interchangeable with other games. If one wants to play GW games, on the whole one will want GW products. Therefore GW products are not substitutable, and therefore the presently relevant market is GW products. Lessening of competition and benefits/detriments for the public Lessening of competition Preventing online-‐only businesses sales will reduce competition and increase prices. There is significant variation in prices with retailers, both ‘bricks and mortar’ and online, offering discounts of ten to twenty per cent on GW retail prices. Eliminating online-‐only businesses, which would remove retailers on the face of it able to provide the largest discounts, will reduce downwards pressure on prices. It should be noted that online sales are an important part of the market for GW products in that retailers without an online presence are unlikely to have a comprehensive range of GW products due to their number and diversity. In this regard GW themselves ceased some years ago to stock all of their products in the their own shopfronts. According to their website, about 850 items are ‘web store exclusives’. Some of these are bundles the components of which are ordinarily available through the GW shopfronts or other retailers, but many of them are not. Consideration may be given to the costs of inventory for physical compared to purely online shopfronts, and the extent to which removing online-‐only retailers will on average narrow the range of products available from non-‐GW, and therefore cheaper, retailers. It will be noted that the notification proposes that retailers not be allowed to break down products. In case the import of this is not clear, some online retailers specialise in breaking down sets of miniatures and selling the components. This is major benefit to players. If I want to buy just one ‘tactical’ space marine, or perhaps just one arm or gun etc, I can do so. Under GW’s model I have to spend $65 (at their prices) for a set of ten miniatures to get one or a part of one. It will be noted that the notification is consistent with GW’s past efforts to maintain high prices in Australia, and to protect their regular retail prices in other parts of the world. GW standard retail prices are significantly higher than world prices. The WHFB rules book is AU$124, US$74.25 and GBP45, putting the RRP margin at about 50-‐60 per cent for the same product in Australia. Other non-‐GW brands have much smaller margins in Australia, of up to ten or twelve per cent, but sometimes less than that and sometimes nothing, over UK standard retail prices.
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Until 2011, many Australians sourced GW products from the UK thereby obtaining substantially reduced prices, anecdotally landed in Australia at about the same wholesale cost to local retailers from GWOP. In 2011 GW restricted sales to retailers in the EU and US markets to selling in those markets. It will be noted that the notification proposes to apply this to the Australia and NZ markets. It will also be noted that in 2013 GW introduced arrangements in the UK that align with the conduct proposed in the notification. One might suspect that the purpose of the proposed conduct is to support these previous efforts to maintain high Australian prices; that would certainly be the effect. Benefit and detriment to the public The notification asserts that there will be no detriment to the public due to availability of alternative products. Why this is incorrect has been explained sufficiently above. The notification also rests benefits to the public by the existence of physical shopfronts. The benefits set out in the notification do exist, but are much overstated and irrelevant to many people in the miniature gaming community. There are relatively few shopfronts as described in the notification, providing gaming spaces etc. It is not clear that a significant number of players make regular use of these facilities; as I have already described, players are a very diverse group and can’t be categorized as wanting to hang out at the game shop. GW’s business model of turning over young players may suit its cashflow purposes, but it is obscure how this benefits the broader, mature (in interest in gaming, not always in years) gaming community. Summary The conduct set out in the notification will reduce competition, raise prices, and provide no discernable benefits to the public, notwithstanding benefits to GWOP. Therefore there are no benefits to the public, or insufficient benefits to the public, to outweigh the lessening of competition in the market that would result from the proposed conduct. Therefore the ACCC should not allow the proposed conduct. Damian Coburn
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