Games Workshop/Amazon: video deal suggests lucrative brand expansion

The world of Warhammer 40,000 is, by its nature, cinematic. What began as a way to sell tabletop figurines has become a long-running byzantine tale of hubris and heroism, contributing to the more than £400mn in annual sales for creator Games Workshop.

The London-listed company has sealed a deal with Amazon to turn the franchise into films and TV shows. Its share price jumped more than 15 per cent on Friday. Licensing is the right way forward, generating revenues and exposing wider audiences to the company’s products.

A deal with Amazon could deliver lucrative royalties. Although no figures have emerged, as an idea, the ecommerce goliath spent $250mn on the TV rights for Lord of the Rings. Streaming should help it win more fans, particularly if noted Warhammer nerd and actor Henry Cavill is involved.

Amazon’s involvement should also encourage viewers to sign up for Games Workshop’s own online subscription service Warhammer+ and to buy miniature sets.

In turn this could lead to more licensing revenues, still less than 10 per cent of the total at £28mn in the year to May 2022. A highly profitable area, almost all revenues flow into operating profit. Last year it signed a deal with South Korea’s Nexon, one of the largest publishers in Asia, which will open up a vast and underpenetrated market for its franchises. Last year Asia accounted for a mere 3% of core revenues, excluding licensing.

Games Workshop’s growth potential explains its earnings multiple. It trades at 21 times earnings following the Amazon news. Its market cap of £2.8bn puts it ahead of WHSmith and Marks and Spencer.

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There are some risks that licensing deals can create “bubbles” of demand. Profits fell 85 per cent after 2005 when demand for the Lord of the Rings miniatures petered out after Peter Jackson’s film trilogy concluded.

Nevertheless, Games Workshop looks set to take advantage of good forward planning. War may be good for absolutely nothing, but the same cannot be said about Warhammer.

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