|★ GAMES ★ EDITEURS ★ Mastertronic History by Anthony Guter - April 2004 ★|
|Mastertronic - Ends Sega Saga (Popular Computing Weekly)||Mastertronic - We Are the Kings Of Budget (Amstrad Computer User)||Mastertronic History|
Mastertronic was founded in 1983 by three experienced businesmen Martin Alper, Frank Herman and Alan Sharam. Based in London, they had some financial backing from a small outside group of investors. Unlike many of our competitors in the games software business, the company was not set up by programmers seeking an outlet for their creations, nor was it part of an established business with money to spare, dipping its corporate toe in the games industry's rising tide. Mastertronic's founders gave up their other interests and committed themselves to succeeding as publishers by selling games as cheaply as possible. Other publishers seemed to be concerned only with the process of creating the software and marketing an image, a strategy aimed directly at the consumer, with the hope that customer demand would somehow bring the games into the shops. In contrast, Mastertronic aimed its strategy at the distributors and retailers. If the games could be put on the shelves then the low selling price would do the rest.
The core of the strategy was the idea of budget software - games priced at less than £3.00 at a time when most good sofware was £5.99 or more. In fact Mastertronic went for £1.99 as the basic price. I will explain how this worked later on. The founders believed it possible to build up a reasonable market share from their experience in video distribution, in which both Frank and Martin had been active. I'm not sure what the connection was with Alan, who was a partner in a surveyor's practice in London. However the business began in the back room at Alan's office in George St, in the heart of the West End. The company started trading on 1 April 1984. My involvement began in August 1985.
Why was it called Mastertronic? As part of a general marketing plan in which the word Master was going to be used with lots of other words. I think in the very early days it was intended to distribute various electrical products but only the computer games were successful.
We briefly published records under the name Mastersound and videos as Mastervision. These were not particularly succesful ventures. We also used MasterAdventurer for those games that fell under the “adventure” category. This was partly due to early dealings with Carnell Software to publish an elaborate adventure game for the Spectrum called Wrath of Magra. Carnell Software was in financial difficulties and ceased trading in the summer of 1984. We republished two of their earlier releases, Volcanic Dungeon and Black Crystal.
The computer games market in the UK in 1983
The first computer games boom was based on the Atari consoles. This collapsed around 1982/3 but the new generation of cheap programmable computers was emerging. This was led in the UK by Sinclair products (the ZX80 / 81/ Spectrum range) with fierce competition from Commodore's Vic and C64. The retail end was poorly organised. Console games had been sold by a variety of outlets typically electrical stores, photographic shops and some of the high street chains. These pulled out of the market. Mail order was popular for consumers living away from town centres. But in a town centre where did one go for a computer game? There were virtually no specialist games shops. Were games toys, or published products like books and records, or did they rightly belong with consumer electronics alongside the computers on which they ran? There was no obvious answer to this question.
What was certain is that the trade was in disarray. The failure of the first consoles made retailers suspicious. The buyers for the large high street chains of which Boots, WH Smith and Woolworths were leaders, were confused by the different sorts of home computer. They did not know how to cope with suppliers that might produce a good game one month and then nothing but failures thereafter. They were afraid to commit to buying product unless they could be sure of returning it for a refund, but who knew how long the new games publishers would be in business? And how did you sell a computer game anyway? A customer could flip through a book, listen to a record, pick up a toy. Games were slow to load and needed some understanding which counter staff lacked. It seemed crazy to put a tape into a computer, wait five minutes for it to load and then watch the potential customer play with it for ten minutes before deciding not to buy. Retailers were not persuaded that there was any profit in the business.
Mastertronic was started by men who understood distribution and marketing. They knew nothing about computer games and were proud to boast that they never played them (but this is no different to the heads of large record companies who never hear the music of their stars). When programmers came in with demos, someone would have to setup the machines, load the games and even plug in the joysticks for the directors. Mastertronic never employed programmers directly (unlike Virgin Games who at the time we merged had a programming staff of 6). Everything was bought in from outside, either directly from the authors or from other games publishers. Once established, we were deluged with games from enthusiastic amateurs and managed to publish quite a few of them.
Before the company started trading, the business strategy had been defined. The separate elements were each vital to success. These were distribution, sourcing and pricing.
Distribution - the key
Mastertronic's founders had backgrounds in video distribution, another boom/bust trade and used their contacts to set up distribution to retailers. At the beginning the high street chains were not interested. But because the games were cheap it was easy to persuade small retailers to take them. Mastertronic set up a network of self-employed distributors, with some knowledge of merchandising, to reach outlets that the mainstream wholesalers missed. A key figure in setting up these networks was Richard Bielby, ex- professional cricketer with Nottinghamshire. (His claim to fame was that he was the other man at the stumps on the day Sobers hit 6 sixes off an over, at a match against Glamorgan in 1968.) Bielby and his wife kept in touch with dozens of shops and traders, bought in bulk from Mastertronic and broke the stock into manageable units for their sub-distributors and merchandisers. Many had experience of the video distribution business, now rapidly consolidating as big high street operators took over. They were glad to switch to computer games.
They found newsagents, sweetshops and garages, video shops and groceries, even motorway service stations. Shops were encouraged to take "dealer packs", 100 games at a time mounted on cardboard racks. They were asked just to give the products some space. Sale or exchange agreements meant they undertook no risk.
The nervousness of the retail trade about the continuity of computer games product was profound. Buyers did not want to rely on publishers who might not deliver new product on time. They wanted the same sort of assurances that the long established record and book publishers could supply, with guaranteed releases of new titles and buyback arrangements for overstocks. Mastertronic set out to provide these assurances. While other publishers based their marketing strategy on the output of one or two key programmers, Mastertronic cast its net wide and aimed to have a constant flow of new titles.
Unlike its competitors Mastertronic did not entrust the storage and distribution of its products to wholesalers. Determined to control the distribution process, the directors set up their own warehouse. In the early days this was a cellar in Paul Street in the unfashionable part of the City of London. Most of the employees were casual labourers. To take on the overheads of a warehouse was a bold step, one which very few publishers would ever do. But for Mastertronic, the key was to keep promises about delivery. No publisher working through a wholesaler could guarantee when products would be issued. A customer buying from Mastertronic could, if he wished, go to the warehouse and collect his goods there and then. Running the warehouse kept the directors in touch with the physical side of the business. They were forced to understand how to pack games, what sorts of packaging broke in transit, what sort of labelling was required by retailers, and every aspect of distribution.
Mastertronic also notably pioneered the "colour coding" for games by having a coloured triangle on the top right hand corner of the front and rectangles on the inlay spine with the catalogue number and format:, Spectrum games were yellow, C64 were red and Amstrad were orange. This led many software houses to use variations on this theme but keep the colour coding so people could easily identify the format. Retailers, who understood very little about computer games, liked this system and it enhanced the professional image of the company.
Sourcing the product
Because Mastertronic was a publisher not a software house its first big problem was to find the product. One important source was Mr. Chip, a software house run by Doug Braisby. (The business still exists and is now called Magnetic Fields). The games he sourced sold 395,000 copies in the first 15 months of Mastertronic's life (to June 1985). But this achievement was eclipsed by another key source, the brothers David and Richard Darling, themselves destined to become major players in the industry. They had their own publishing company, Galactic Software. Having mastered the art of quickly developing games for the Vic and C64, the Darlings set up a partnership with Mastertronic which gave them both a royalty and a share of the profits on the sales of their games. Some of the Galactic back catalogue was republished alongside newly-written games. The partnership was astonishingly successful. In that hectic first 15 months nearly 750,000 games written by the Darlings were sold, netting them some £85000. Professional programmers would have been glad of such sales. For two boys of school age this was evidence that games were likely to be better than education and as soon as they could the Darlings left school, terminated the deal with Mastertronic and set up a new company, Codemasters.
To put these two sources in perspective, about 2.1 million units were sold of all titles in that first 15 months. Thus the deals with Braisby and the Darlings secured 55% of the early Mastertronic sales. Later on, as Mastertronic became known. many people approached us with finished games, or just ideas, keen for us to publish their work.
The early Mastertronic games were produced for the computer formats that were dominant at the time. The Vic C64 and Spectrum were the main machines. The marketing strategy required a flow of titles so that retailers had compelling reasons to keep the games prominent in their shops, and to attract and hold the interests of the consumers.
Between April and June 1984 Mastertronic launched 32 titles: 13 on the C64 , 7 on the Vic, 9 on the Spectrum, 2 on BBC and 1 on the Dragon. 7 titles were by the Darlings, 8 by Mr Chip and 4 by CME software. Almost all were derivative, based on popular arcade games. Hence we had Spectipede on BBC and Spectrum based on Centipede, Munch Mania on C64 based on Pacman etc. But a couple of titles stood out – the Darling's BMX Racers on C64, and Vegas Jackpot on C64 and Vic by Mr Chip. BMX Racers was not, I think, based on an arcade game and it was the first of a number of extremely successful games aimed directly at young boys, unlike most of the arcade games that used abstract Space Wars concepts. 340,000 were sold. Vegas Jackpot sold nearly 300,000 units, including a rare version for the Dragon. I don't know why. What is the point of playing a simulated fruit machine on a computer when the only point of a fruit machine is to gamble?
Great care was paid to the appearance of the games and to the image of the publisher. Quality artwork was commissioned for the inlay covers. Some of these pictures, particularly those with science fiction themes, undoubtedly helped many an undistinguished game to sell. There was a Mastertronic logo and colour coding to help retailers identify the computer format. The three key suppliers – the tape copier, the arthouse and the printers – were all geared to fast responses. They understood that it was often crucial to get a certain number of titles out each month.
Pricing and profitability
In 1983-4 most computer games retailed in the UK at prices between £4.99 and £7.99. Retailers disliked cheaper games because they made less profit and the public were suspicious of the quality of “budget” games (quite rightly so in the majority of cases). Mastertronic games were priced at £1.99. How could we do it?
At that time all computer games in the UK and Europe were distributed on cassette tape, similar to that used for musical recordings. Computers using floppy disks were available, most notably the C64 and the models aimed at business, such as the Apple, Commodore Pet and Tandy ranges. But these were mainly sold in the US. In Europe the cheaper tape-based models had the overwhelming part of the games market. Games were short, reflecting the limited memory capacities of the computers. The largest was the C64, with its supposed 64000 bytes of memory. In fact the amount available to run programs was about 38000 bytes, the rest being used by the computer for internal operations. Computer code that filled this space fitted onto a short length of tape that could load in about 5 minutes. For a reasonable print run, a tape duplicator could produce copies for about 25 pence each. Mastertronic, aiming for large product runs, bought its tapes at 22 pence (some assistance was gained in the directors having part ownership of the tape duplicator). Inlay cards cost about 3 pence each. The artwork cost anything up to £1000; assuming a print run of 20,000 this reduced to 5p per unit. Other distribution costs might add 5 pence in total.
So a game could be duplicated and put out to market for a total cost of some 35 pence. The other main cost was the software itself. Games could be purchased outright but most authors wanted royalties, not wishing to lose out in case of success.
Having set the costs, the profit depended on the wholesale price. Here the calculations work backwards. From a retail price of £1.99, VAT (15% at the time) took 26p. Retailers expected to make a margin of 30%. They would therefore not buy at prices higher than about £1.30. Between this price and the production cost of 45 pence was a margin wide enough to cover advertising, overheads, the profits of distributors and (provided there were not too many), the costs of failed titles. In practice Mastertronic sold to distributors at about 90 pence a unit, reduced to around 80 pence in the more competitive late 1980s, and at about £1.30 when able to distribute directly to retailers.
This pricing structure would generate good profits provided sales were high enough. If the total sales of a title were just 10,000 units then raw material and distribution cost might be £3000, artwork and advance to author a further £2500 and the receipts about £9000. So this would bring a reasonable gross margin of 38%. But in the early days we easily exceeded 10,000 units per title The 10 C64 titles released at the start of Mastertronic's life sold on average 40,000 in the first year and over 50,000 before being withdrawn from sale. The Vic titles achieved 44,000. Surprisingly the early Spectrum releases did less well but still averaged 28,000.
Budget pricing was proved to be perfectly viable provided that most titles achieved good sales, and in the fast growing market of 1984-6;, at the “pocket-money” price point of £1.99, they did.
The company matures
Rapid growth required more staff and the development of internal systems for accounting, sales, stock control and royalties. The company left George Street for a flat overlooking Regent's Park in a block everyone called Park Lawn (it was actually named Park Lorne). By now there was a games buyer, John Maxwell, with two assistants and some PR, accounting and secretarial staff.
I joined in August 1985 as Financial Controller. I had to put in financial systems and replace a useless computer system with something suitable for such a fast-growing business. Because we relied on outside sourcing for all our games, we were scrupulous about keeping good records and paying royalties promptly (four times a year). This was one of my key responsibilities. It also brought me into contact with many of the programmers.
Park Lorne was too small and in September 1985 Mastertronic found new offices in Paul Street (where our warehouse was situated). We stayed there until merging with Virgin Games in September 1988.
New models of computers began complicating the business, because we now had to consider whether it was worth making conversions of existing hits and what to do about new games. The more types of computer, the less shelf space available for each individual format in the shops so that in a way this reduced the choice of games. The Amstrad, C16, MSX and Atari computers all became established in this year. Few of our competitors took much notice of the C16 and for a while we were the only company with a range of games for this machine. Each title sold in huge quantities. For example Squirm on the C64 sold 41,000 but a year later the C16 version sold 82,000
In late 1985 we launched the MAD label, this stood for 'Mastertronic's Added Dimension' and was the first, deliberate, step away from the "pure budget" game. MAD games retailed at £2.99 and were intended to be better quality. The range was launched with a party on a boat on the Thames where the authors demonstrated the first games in the range -The Last V8, Master Of Magic, Spellbound and Hero Of The Golden Talisman
The MAD launch was an exception to our policy of not spending a lot on marketing. Our competitors spent plenty on advertising, mainly in magazines. We rarely advertised. This probably reduced the amount of editorial coverage about the company and “puffs” for forthcoming releases but I think we got fair reviews once games were released. The press had been fairly contemptuous of us at first. In 1985 there was a grudging acceptance that budget games were at least value for money and some as good as any full price product. In 1986 Mastertronic became “cool”.
We began to be deluged with games, game ideas and propositions. Sample tapes arrived daily and were placed in the "magic postbox" for evaluation. People would walk in off the street and if we liked what they had we would sign them up there and then. I once overheard Frank Herman asking a hopeful programmer if he had an Amiga. When the kid said he did not, Frank told him to take a spare one from our own testing area. The popular TV show "Jim'll fix it" featured us creating a game for a youngster. This was marketed as "Supertrolley" and featured a cover with a cartoon Jimmy Savile.
Some programmers visited us regularly. I enjoyed meeting guys like David Jones (Magic Knight series), Clive Brooker (Empire strikes back, One Man & His Droid, Lap of the Gods), Kevin Green (Skyjet, Flash Gordon, Space Hunter), Jim Ferrari (King Tut, Human Race, Hollywood or Bust). Now and then Rob Hubbard would pop in to hand over his latest tune. We even had the shaggy-haired one, Jeff Minter himself.
Several programmers worked for the company for a while as technical advisors - Stephen Curtis (Nonterraqueous, Soul of a Robot, Into Oblivion) Richard Aplin (Destructo, Fly Spy, Ultimate Combat Mission) Tony Takoushi(Frenesis, Hyperforce).
A few vanished without trace and I was unable to pay them outstanding royalties. Where are you now, Nigel Johnstone (The Captive, Spooks), Paul Ranson (converted Bump Set Spike to Amstrad / Spectrum) Raymond Tredoux (Star Force Nova), Sean DeBray (who sold the same game as Ghettoblaster to Virgin and Streetbeat to Mastertronic)?
(Thanks to this website another missing person, Mark Srebalius (Phantom Attack, Rockman, Rest in Peace), got in contact; alas too late to claim any money due to him)
In 1986 the business outgrew the little warehouse in Paul Street. We outsourced distribution to a packaging company in Dagenham, confusingly called Masterpack (I can't remember if this name was just co-incidence or if the packaging company renamed itself when it got our business). We soon became the biggest customer of Masterpack and eventually had our own dedicated warehouse on the site. In this we continued to be different to nearly all of our competitors who relied upon wholesalers to stock and distribute their product.
Software had been sold in the USA from the beginning by a local distributor. In 1986 Martin Alper, who had the most marketing flair, went to California to set up Mastertronic Inc. This company could only distribute C64 games at the start because all the other 8 bit computers were virtually unknown in the USA. Gradually Martin introduced games for the new 16 bit machines and Mastertronic Inc began to take on a different profile to the UK based business. Links with US software houses provided a new source of games and the label “Entertainment USA” was created to showcase these in Europe. This was balanced by another label, Bulldog ("Best of British"), which took its name from one of our customers who we acquired when they were on the verge of going bust.
We also found exclusive distributors in the major European markets and thus created the impression of a truly international group. In France and Germany we formed Mastertronic SA and Mastertronic GmbH, owning 51% of the shares in each with the local distributor keeping 49%. (When we tried to register the name in France we faced obstruction from the literal minded authorities who protested that the word was neither a real name nor that of a product and was therefore unacceptable.).
The UK company was now managed by Frank Herman, whilst Alan Sharam increasingly specialised in sales and logistics (warehousing, packaging, controlling production schedules).
Around the late summer of 1986, we recruited Geoff Heath as Director of Marketing. Geoff had run both Activision and latterly Melbourne House. He was a heavyweight in the games industry and his appointment marked a step up in Mastertronic's internal development. His long term target was to bring us into full price software.
16 bit computers became popular and for the first time the quality of games for the home machines such as the Amiga and Atari ST seemed similar to those in arcade machines. The 16 bit range was launched, appropriately enough, on a new label called 16-Blitz although the name was not used for very long.
Mastertronic Inc began to develop a range of new arcade games that would run equally well on home computers. We agreed to buy a large number of Amiga chips from Commodore to power the new arcade machines. This venture, called Arcadia, nearly killed the company because the project developed slowly and the games were poor quality and not well suited for arcades. This demonstrated a weakness in our setup - any games player could have explained that a home computer game is fundamentally different in design to an arcade game. But nobody asked games players.
Dominance in UK distribution
The success of the budget range and the growing influence of Mastertronic led to us becoming the main supplier of both budget and full price software to a number of major retailers in the UK, notably Toys'R'Us and Woolworths. Some full price publishers were happy to let us rerelease their older product at a budget price and of course this was easy business for us. The "Richochet" label was born, featuring in particular games from Activision Martech and US Gold. We also created a special label, Rackit/Rebound for Hewson. I doubt if acting as a wholesaler was really in our best interests - it was very distracting and time-consuming for all the staff, quite expensive because we had to a lot of special packaging, and led to a neglect of the budget business.
We had always steered clear of full-price software but changed direction radically in 1987. Mastertronic bought the famous UK publisher Melbourne House, when that company was struggling with financial problems, from its Australian holding company Beam Software. Melbourne House kept its label identity and a few of the staff joined the Mastertronic team, notably Rachel Davies the marketing manager, and general manager Martin Corrall. Ironically they were reunited with their old boss, Geoff Heath.This move meant that we had first refusal on re-releases of games such as the Hobbit, Lord of the Rings and The Way Of The Exploding Fist. However the main justification for the purchase was to provide a vehicle for the sale of full price games, a market from which Mastertronic had previously excluded itself, and in particular as a sales outlet for the home version of arcade games. I disagreed with the purchase because we could have easily launched our label with the £850,000 purchase price (although legal disputes about work in progress meant that we only paid over part of the price).
Virgin buys in
In 1987, following negotiations between Herman and Richard Branson, Virgin Group purchased the 45% of shares held by the outside investment group. In that year Mastertronic's turnover was about £8 million and pre-tax profit £1 million. The deal valued the group at around £10 million. The remaining 55% was held by Alper (25%), Herman (20%) and Sharam (10%) and they sold out in 1988 in a highly complex deal which required their continuing involvement in the business and achievement of profit and cashflow targets. The company was renamed the 'Mastertronic Group Ltd', and later was merged with Virgin Games to create 'Virgin Mastertronic'.
In September 1988 we left Paul Street and joined forces with the Virgin Games staff in their mews offices in a side turning off Portobello Road in London's Notting Hill. This signalled the beginning of the end of the key Mastertronic budget business. Virgin were not really interested in it – they wanted our Sega franchise (see below).
The decline and fall of the budget empire
The graph shows the volume of budget games sold in the UK and European markets between 1984 and 1990. The seasons run from July to June, except 1984.5 which begins in April 1984. (I do not have equivalent figures for USA sales by Mastertronic Inc). We peaked in 1986 and then sales declined almost as fast as they grew. The number of titles released actually increased in 1987/8 so the unit sales per title were falling rapidly, eroding the profitability of the business to the point that there seemed no point in continuing.
The decline had several reasons –
- new competition in the budget market from companies like Codemasters and from full price publishers like US Gold releasing their own budget labels
- The growing market for 16 bit computers. We produced budget games for these but there was never the same buoyancy in this market. Perhaps people felt that having bought a more expensive computer they should only buy more expensive games
- Loss of interest by the management of Mastertronic – the absorption of Melbourne House and the merger with Virgin took up huge amounts of management time (including my own). There was almost nobody to take an active interest in the budget business, even though this was the cash cow that made everything else possible.
- Declining quality of budget games – this a personal view. We had begun to rely heavily on a few software houses – such as Binary Design, Icon Design, Palmer Acoustics – and less on individuals. We paid the software houses large advances (in some cases for games they never delivered) and had less money available to pay to solo programmers. The high pressure and lack of experience in the software houses tended toward formulaic and highly derivative games. These in turn did not impress the customers and the reputation of Mastertronic declined.
- The revival of the games console market, spearheaded by the Nintendo Famicom and Sega Master System. Fortunately this was one development that we were heavily involved in ourselves.
Frank Herman, in early 1987, spotted that Sega had no UK distributor for the Master System range. We applied and were appointed distributor for one year. Martin Corrall, who was somewhat at a loose end after the absorption of Melbourne House, was the ideal manager for this new line of business. We sold all we could get that year, the UK distributorship was renewed and in addition we were appointed as distributors in France and Germany, and thus was born the huge business that was to become Sega Europe. In 1991 the group turnover was around £100 million, a phenomenal growth. Nearly all of the sales, and certainly all of the profit, came from Sega products. Staff numbers soared but the traditional games publishing side began to be neglected. Full price games such as Golden Axe and Supremacy were achieving significant results and making the budget business seem irrelevant.
In early 1991 Sega expressed interest in taking over the business. Virgin Group was happy to sell (probably to raise cash for the airline). Sega had no interest in the games publishing side. As a result nearly all the staff moved over to Sega when they bought the business that summer and only a handful of Virgin games programmers stayed with the publishing side (quickly renamed Virgin Interactive Entertainment). By that time the budget business was dying and nobody cared about it. In any case the competition had become intense as everyone was now recycling their old full price games as budget games. And of course the kids who used to buy C64s and Spectrums were now buying Segas and Nintendos.
After the Sega takeover Frank became deputy Managing Director of Sega Europe and Alan was Managing Director of Sega UK. Martin stayed with Virgin and continued to head up VIE for several years, remaining resident in the US. And I also moved to Sega where I became European IT Manager.
Sometime around 1992-3 VIE pulled out of budget games altogether and the Mastertronic name disappeared from view. Quantities of unsold games came back from the retailers and some are still being sold today. Somehow the name continues to bring back memories. There must be many thousands of kids who could not afford the more expensive games and who were able to enjoy gaming thanks to Mastertronic. The business really was unique -it could not be replicated today. Games are now developed by teams of programmers and designers and typical retail prices are £30 - £45. The days when a teenager could walk unannounced into an office, load up a tape and instantly be offered a publishing deal have gone. But there was really a time when this happened. It is beginning to feel like a legendary era but it was only twenty years ago.
In August 2003 Mastertronic was reborn. The name was used to launch a new range of budget games, all of which had previously done well as full price titles. My ex-boss Frank Herman joined them in March 2004, resuming his old position as Chairman. There is no relation between the new company and the old, other than the name, but I will keep a friendly eye on them anyway.
Anthony Guter - April 2004