Interview: Andy Payne, Mastertronic, ELSPA

We talk exclusively to the boss of budget gaming leader Mastertronic, who also happens to be on the board at ELSPA. Sizable agenda includes 1990s Sega, Sold Out, console budget space, cash for reviews, piracy, illegal downloads, clueless executives - and Manhunt.

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Selling Out

Kikizo: Our sneaky plan was to call Gary Williams and ask him some tough questions for you - but apparently you're working with them in some way...

Payne: Yes, Sold Out is the official sales and distribution partner of Mastertronic. So Mastertronic at the moment produces £9.99 republished PC games; Sold Out produces £4.99 republished PC games. So there is a sort of synergy, and there is also competition. So it was decided when we set Mastertronic up that we needed to get sensible partners on sales and distribution, and because I've known Gary for a long time, the Producers has worked with Sold Out since literally the beginning. So it made sense for there to be some kind of shared resources in terms of warehousing, distribution and sales. Sold Out effectively does the sales for Mastertronic via Adam Pritchard, who works for Mastertronic and is now leased back to Sold Out.

Andy Payne with Sold Out boss, Gary Williams

Kikizo: It seems like a good relationship, but do you think Gary would ever jump into bed with any of the other budget guys?

Payne: No. I don't think there's any chance whatsoever of that! [It was announced after the date of this interview that Mastertronic bought Sold Out].

Kikizo: In terms of the market and revenue model, what is the difference between the £5 and £10 markets?

Payne: In the £5 market, that is more of an impulse purchase, and at that kind of price, it is much more of a throwaway impulse. At £10 it is not so throwaway; buyers are still a lot more choosey, and may even consider £10 too much for a game that could be a year and a half old. So the Sold Out sales proposition is where you offer the quality of the product which is pretty high; the choice - there's around 150 titles in their catalogue; and the price, £4.99, is not even a pack of cigarettes any more is it? So their business is slightly different from ours.

To the retailer, while the margin is reasonable, the actual pound notes they collect per transaction is less than ours, or indeed full priced software, and the packaging is generally normal DVD packaging, so the return on space for Sold Out products is less per unit than ours - but they sell more than twice what we do. If you compare sales, units-wise, we sell just under half. So in terms of revenue return to the retailer, or indeed profit return to the retailer, generally it's about the same. And that's kind of how the maths should work.

Kikizo: And at the £5 mark, one of the things that I know Gary has build the whole thing up on is an intense focus on unit profit in such a low margin space, but I would imagine it's just as tough at the £10 mark - what techniques do you have to use?

Payne: For at least a year and a half, retailers have started to use promotions, so in other words they'll say three for £20. So the realistic street price is turned on its head - £6.66 not £9.99. All retailers want to do is pull the price down, it's the only business they know, whether it's promotional campaigns like you see on any shelf in HMV who are very good at it. Buy one get one free, that sort of thing. The major retailers have all gone more and more into that campaign style, so GAME, Gamestation, HMV, Virgin, they do it, whereas supermarkets, who are the new kids on the block, they are not necessarily to able to do that mob purchase model yet because they don't have the choice, and also they want to concentrate more on console products and the top ten products, where they'll be selling on single price differential rather than multiple purchase.

'PC Gamer Presents' offers titles that scored at least 80%

So given that GAME and Gamestation account for at least 50% of the PC market in the UK, at least a certain amount of that is in promotional. And the only way around that is that we need to accept that the real price is three for £20, and we need to sell as many of those threes as possible, and make sure we have got as much shelf space as possible. So up against a wall in terms of price, at least people are buying three of our products and not someone else's, so our strong products are driving someone else's weak sales. It is difficult and the Sold Out business is very profitable, because it's run properly.

Mastertronic should be twice as profitable but it never will be, because it's not actually a twice-the-price proposition. Plus the fact there are also licensing issues. If you're going to be licensing products for £10 instead of £5, you need to pay the original publisher or IP holder more, and it works out to be more than twice the amount, because it's actually a more recent product. It's 20% more to have content in that range. We also have to pay a license to Future Publishing, who is one of our partners, for the PC Gamer range. It's the tax from Future! But that's part of the revenue that we deliver back to them from the PC Gamer Presents range, so it's extended their brand and done some marketing for them, without any minus whatsoever.

Continue Through Interview:

• Page 1: Mastertronic
• Page 2: Selling Out
• Page 3: Making Money
• Page 4: Cheap Thrills
• Page 5: ELSPA