The Games Workshop (LSE: GAW) share price is up 17% in less than a week after some encouraging news concerning its intellectual property. The FTSE 250 stock was down 40% not long back, so this rally will come as relief to shareholders of the fantasy figurine maker.
What happened
Last week, Games Workshop and Amazon Studios jointly announced a deal that will see Amazon make films and TV programmes based on the UK company’s fantasy games. This is only an agreement in principle, but it looks to be an extremely wide-ranging global collaboration.
It will initially involve Amazon developing Games Workshop’s fantasy Warhammer 40,000 universe. There will be a Warhammer film, as well as television shows and further media content. The company has also granted Amazon associated merchandising rights.
Superman actor Henry Cavill is set to star in and produce this initial content. British star Cavill is a diehard fan of the game. He said: “For 30 years I have dreamt of seeing a Warhammer universe in live action. Now, after 22 years of experience in this industry, I finally feel that I have the skill set and experience to guide a Warhammer Cinematic Universe into life… And having a home like Amazon will give us the freedom to be true to the massive scope of Warhammer.“
Why does this matter?
This is quite a big development as it’s rumoured to be Amazon Studios’ largest intellectual property (IP) deal to date. And it’s significant for Games Workshop too because the firm’s success in monetising its IP has been steady if unspectacular.
Full-year 2023 group revenue is expected to be around £425m, but only £17m is expected to be from licensing. The expectation now is that licensing income will head northwards at a rapid clip once this collaboration picks up steam.
Furthermore, there’s a possibility here that Amazon’s global distribution of the firm’s IP could bring millions of new fans into the Games Workshop universe. Needless to say, that extended brand reach would bode well for future earnings.
Back in the real world
Despite all the excitement, it should be remembered that we still don’t know the financials of the deal. This is only an agreement in principle. No contracts have been signed yet. Indeed, the company said it’s making no changes to its financial forecasts for the year to May despite the new deal.
More importantly, outside of Games Workshop’s fantasy world, there’s a real world that’s on the brink of entering a global recession. Yes, Warhammer 40,000 is the most popular miniature wargame in the world and its fans are famously loyal. But this is still a retailer that makes and sells discretionary products that are notoriously pricey.
Will consumers cut back on buying the company’s games and figurines during an economic downturn? We have no idea at this point.
Having said that, I think Games Workshop shareholders can look forward to more lucrative activity around its IP in the years ahead. For example, the long-term possibilities for the Warhammer 40,000 franchise in the developing metaverse seem almost endless to me.
As a shareholder myself, I’m waiting for more details about the Amazon collaboration before deciding whether to add to my position. The company’s half-year 2023 earnings report is due next month.
