Don't look now, but gaming giant Hasbro (HAS +0.89%) may have just failed a critical dice roll.
For the past several weeks, Hasbro's been embroiled in a brouhaha of its own making. Under the leadership of new(ish) CEO Chris Cocks -- former head of the company's fast-growing Wizards of the Coast role-play gaming unit -- Hasbro has been moving to better monetize its intellectual property under the Dungeons & Dragons brand.
It's not going well for Hasbro, however.
NASDAQ: HAS
Key Data Points
It's hard to overestimate how important Wizards of the Coast is to Hasbro. According to data from S&P Global Market Intelligence, it accounts for just 22% of Hasbro's annual revenue -- but produces a staggering 72% of Hasbro's profit.
The problem is, Hasbro wants more.
Late last month, news leaked that Hasbro has been mooting a new open gaming license (OGL) for use of its D&D intellectual property. Characterized as an update of the company's current OGL 1.0, which was first published in 2000, this new OGL version 1.1 would focus on table top role-playing game supplements such as printed materials and .pdfs, which Hasbro notes are "by far the most common form of distribution" of D&D content.
Under OGL 1.0, Hasbro granted a "perpetual, worldwide, non-exclusive license" to "copy, modify and distribute any Open Game Content originally distributed under any version of this License." OGL 1.1, however, voids this license. Under the new terms, anyone creating content with use of Hasbro intellectual property, and selling that content for profit, would need to report to Hasbro on everything it is selling -- and inform Hasbro of its annual revenue from such sales if it exceeds $50,000.
In so doing, they would essentially be tipping Hasbro off to any new revenue opportunities they discover, so that Hasbro could move in and claim those areas for itself. (And to make this even easier for Hasbro, anyone signing on to OGL 1.1 would automatically grant Hasbro a "nonexclusive, perpetual, irrevocable, worldwide, sub-licensable, royalty-free license to use that content for any purpose.")
On top of that, anyone making more than $750,000 a year from such sales would furthermore need to pay Hasbro royalties of either 20% or 25% on these sales beginning in 2024.
And just to be clear, yes, I said royalties on the revenue, not just on any profit earned.
Why would Hasbro do this?
Dungeons & Dragons fans are upset by the move -- and some much more than others. In particular, as Gizmodo pointed out last week, start-up companies such as Kobold Press, Green Ronin, and Paizo (maker of the Pathfinder D&D spinoff RPG) essentially built their businesses in reliance on the original OGL. Now, under the terms of OGL 1.1, the updated rules will force those start-ups to make massive modifications to their product lines and business practices.
That may even be Hasbro's intention. As the new OGL 1.1 states: "OGL [1.0] wasn't intended to fund major competitors and it wasn't intended to allow people to make D&D apps, videos, or anything other than printed (or printable) materials for use while gaming. We are updating the OGL in part to make that very clear."
And if the switcheroo in licensing agreements happens to kneecap a few Hasbro competitors in the process -- well, c'est la vie.
Brave Sir Robin bravely ran away
Or so Hasbro thought. On Friday last week, Hasbro pulled an abrupt volte-face and had its subsidiary D&D Beyond publish a mea culpa on its website. Arguing that its only goal in revising OGL was to protect players from "hateful and discriminatory products," control usage of its intellectual property in NFTs and blockchain, and prevent "major corporations [using Hasbro IP] for their own commercial and promotional purpose," Hasbro lamented that "it was never our intent to impact the vast majority of the community."
Faced with backlash from that community, however, Hasbro now admits that "we rolled a 1" (i.e., the company failed -- critically). Now Hasbro is confirming that content already released under the original OGL will "remain unaffected." Many other uses of the company's intellectual property will similarly remain permitted. Most importantly, Hasbro confirms that OGL 1.1 will not contain any royalty structure. It also will not include the license-back provision mentioned above.
What it means for investors
Putting a brave face on the fiasco, Hasbro argues that this solution is actually a win-win for itself and its customers, saying, "They won -- and so did we." But in fact, if you assume (as I admit I do) that the primary goal of redrawing the OGL was to better monetize the company's Dungeons & Dragons properties, grow revenue for Hasbro, and earn more profits for Hasbro shareholders, then it's hard to see this outcome as anything but an abject failure for Hasbro's business.
The company may eventually come out with a new OGL, but the chances of this document generating significant income for Hasbro now appear to be nil -- while the damage to the company's reputation is considerably more than nil.
For the time being, this doesn't seem to have affected Hasbro stock, which actually gained 15% as the tempest in Hasbro's teapot brewed. I suspect, however, that this is mainly because the issue has remained below most non-D&D-fanatics' radars. Once the effects of the fiasco start showing up in Hasbro's financial results, however, I expect investors may come to the same conclusion that I already have:
Hasbro's critics won this round. Hasbro didn't.
