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Will digital content lift Hasbro and Games Workshop share prices?

Tabletop gaming is a hobby for millions around the world, but inflation is weighing on consumer demand. Both Games Workshop and Hasbro are focused on growing their businesses through digital content, licensing and intellectual property (IP).

– Amazon is in talks to develop Games Workshop’s IP into streaming content.

– Hasbro has co-funded the upcoming film based on Dungeons & Dragons, which is owned by subsidiary Wizards of the Coast.

– There are no ETFs focused on tabletop gaming, but Hasbro is held by consumer goods funds.

A deal to bring popular tabletop battle games to screens could put Games Workshop [GAW.L] and Hasbro [HAS] on the radar of investors.

Back in December, Games Workshop announced it had reached an agreement in principle with Amazon [AMZN] to produce TV and film content. The British manufacturer of tabletop miniatures previously signed a partnership with Sega Sammy [6460.T] to develop Warhammer video games.

After years of delays and legal disputes, a film adaptation of Dungeons and Dragons, one of the world’s most popular tabletop games, developed by Hasbro subsidiary Wizards of the Coast, is set for release in the US at the end of March.

The Games Workshop share price has been surging since news of the Amazon deal, setting a 52-week high on 3 February. The stock is up 9.9% year-to-date. The Sega Sammy share price has jumped 16.7% since the start of the year, while Hasbro’s is down 8.3%.

Opportunities in intellectual property

Games Workshop boasts a loyal following, and monetising its IP is a way to retain loyalty with minimal capital outlay.

“Our strategy is to exploit the value of our IP beyond our core tabletop business, leveraging multiple categories and markets globally. We intend to ensure Warhammer’s place as one of the top fantasy IPs globally,” stated the company in its half-year report in January. The three key areas it’ll focus on are media, video games and licensing.

While there’s no word on the extent to which a deal with Amazon could raise revenue and profits, investors can look at the impact Netflix’s [NFLX] The Witcher had. US sales of the game increased 554% year-over-year in December 2019, the month the first series was released.

Film and TV content could also pique viewers’ curiosity in tabletop gaming, enabling Games Workshop to extend its reach and customer base and boost its core revenue.

Games Workshop’s own subscription service, Warhammer+, which offers access to animations and digital books and magazines, launched in August 2021 and currently has 115,000 subscribers. However, its revenue of £3m for the 26 weeks to 27 November is minimal compared to the total revenue of £212.3m for the period.

Dungeons & Dragons owner key to Hasbro’s performance

Hasbro’s Wizards of the Coast and digital gaming business are seeing strong growth. The division brought in $339m in the fourth quarter (Q4) of 2022, a 22% increase on $227.9m in the year-ago quarter. Meanwhile, the consumer products segment had a dismal holiday season, with sales slumping 26% to $1bn.

Operating profit from the Wizards of the Coast and the digital gaming business is also healthier. The margin was 30.7% for the three months to the end of December versus a 7.8% margin in the consumer products business.

With Hasbro expecting inflation to weigh on toy demand and consumer product sales until Q3 2023, the “company outlook is going to be determined by how strong Wizard is”, UBS executive director Arpiné Kocharyan told CNBC following the earnings report.

Hasbro co-funded the upcoming Dungeons & Dragons: Honour Among Thieves film with Paramount [PARA], and thus “will participate in the box office and associated entertainment revenues”, said chief financial officer Deb Thomas on the Q4 2022 earnings call.

Funds in focus

Unlike video gaming stocks, there are no specific ETFs targeting tabletop gaming. The best option to gain exposure to games and toy companies is through consumer-focused funds.

Hasbro is held by the First Trust Consumer Discretionary AlphaDEX® Fund [FXD], with a weighting of 0.46% as of 24 February. Paramount is the fund’s top holding, with a weighting of 1.66%, and Netflix is held at 0.54% of assets under management. The ETF is up 10.2% year-to-date but down 4.8% over the past 12 months.

The stock has been allocated 0.17% of the ProShares Ultra Consumer Goods ETF [UGE] portfolio as of 27 February. The fund is up 12.7% year-to-date.

As of 24 February, Hasbro makes up 0.14% of the iShares Global Consumer Discretionary ETF [RXI], which also holds Amazon as its top holding and is up 10.9% year-to-date.

Games Workshop is held by the Avantis Responsible International Equity ETF [AVSD], making up just 0.09% of the portfolio as of 24 February. The fund is up 6.5% year-to-date.

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