Earlier this week, 4Kids Entertainment announced that its new Chaotic TCG and the associated Website would be marketed by separate companies established for the purpose (see '4Kids Announces TCG Initiatives'). In this two-part interview, we talked to 4Kids CEO Al Kahn and TC Digital Games CEO Bryan Gannon about their plans. In Part 1, we talk about the business structures being used, the way the online and offline aspects of the game interact, and what 4Kids will look for in additional licenses for the game engine. In Part 2 (see 'Al Kahn and Bryan Gannon on Chaotic, Part 2'), we discuss the role of the TV show, the distribution of the game, how additional licenses might use the game engine, and more on the relationship between the online and real world game.
You said in the announcement that you wanted to enter the TCG market directly. Why did you decide to enter the trading card game market directly -- in what ways will more direct control improve sales?
Kahn: First of all, we don't get the gross margin as a licensing entity. If we license a card game, we get a royalty. If you're manufacturing, you have the opportunity to take the gross margin as opposed to just the royalty, which certainly in the trading card business can be significant when you realize what it costs to manufacture and the pricing that these things achieve.
So it's basically to pick up another layer of margin?
Kahn: Yes, to pick up another layer of margin and to control totally how the card game is marketed because unlike other card games, this also incorporates a Website and the Website we control as well -- you upload the cards to the Web. So you want to be able to control the entire situation.
Help us sort out the ownership -- other than 4Kids, who are the other owners of TC Digital and TC Websites?
Gannon: Those companies are owned by 4Kids and by Chaotic USA.
What is Chaotic USA Entertainment, and who owns it?
Gannon: Chaotic
We thought 4Kids was acquiring the rights directly?
Gannon: They acquired them through us.
The announcement described this as the first time the company had entered the manufacturing business. How is it different from the way 4Kids handles the Yu-Gi-Oh! DVDs (see '4Kids To Do Home Videos')?
Kahn: For Chaotic we're going to be distributing the card game ourselves at retail and we'll be manufacturing the cards as well. Everything that we do we're controlling: we're actually manufacturing, we're actually distributing, we're actually advertising.
The release said you hadn't made anything before...
Kahn: We've never made anything before. Even the DVDs, the third party was manufacturing and distributing them. For Chaotic, we are controlling every part of the process, and we are taking on the inventory and advertising position for Chaotic.
As you enter the TCG market, what's your perception of the state of the TCG business, and how do you see that changing in the near future?
Kahn: Obviously it's been a very, very significant category. If you look at the most successful trading card games, which are Yu-Gi-Oh! and Pokemon, no one has been successful at combining the online activity with traditional trading card game play. We believe that there's a tremendous opportunity to create a way for kids to play the game not only on a one to one basis, but also to play online for free. Each card has a code that can contain everything that you need to upload those to the Web.
Gannon: We're calling the codes CNA, similar to DNA, for 'Chaotic NA,' if you will. What happens with the codes on our cards is that they bring the cards to life for an online gaming experience -- it's much more than a Website. We feel that based on how much we're putting together here for both the cartoon and the online game experience that we were the best people to bring to market the marketing plan and the advertising of the Chaotic game, and we felt it was the right time to bring this game to market together.
There is a variety of models for having cards interact with online gaming. What distinguishes the way in which Chaotic cards and online play interact?
Gannon: That's a great question. Our online game play is actually seven levels of play and the Chaotic online game experience was built at the time the original trading card game was built. It's not something that's been added on later; it's part of the complete experience of the game. So while we have a really robust trading card game that you can play physically, we have an even greater experience that occurs when you upload those codes and cards online. We are able to move the cards tactically just as you would in a poker game, but you also have some of the videogame experience in terms of the screen shots and the action and what happens when one attack is placed on another. The creatures come to life on the Website and actually enact in Flash some of the transactions that are occurring. So it's very much like an online videogame vs. just a Website. And most importantly, it was intricately part of the design; it wasn't added on later.
The draw and attraction to us is that we're bringing to retailers the ability to sell trading cards and the ability to participate in the online game experience rather than excluding them from that. In some circumstances, for the really good online games there's not a lot for the retailer to do after they sell a pass to get online. All the activity then occurs on the Website. We're going to draw people back to retail over and over again for the booster packs and the next releases of the game so there's always a reason to be involved with your retailer and with our trading card game.
In addition to that, our other licenses such as the videogame license will enhance and bring to life more of the experience of the online game, and you'll also be able to work backwards and bring more to life in the videogame. So it's all integrated into the design rather than add-ons that have occurred after the trading card game was designed.
It sounds like you plan to have organized play through retailers?
Gannon: We plan to have leagues through retailers, and organized play through hobby, and we will also have organized play online. You'll be able to play our game online in leagues and receive scores that way as well.
Will 4Kids look for TCG licenses for properties other than those 4Kids is involved with in other ways, or do you see this primarily as a way to bring games into the portfolio of things that 4Kids can do on its own for the properties that it handles?
Kahn: We believe that there's a terrific collision between television and the Web. And that collision will be used more and more by our target audience because they're kids that use the Web in two ways: They use it to download or watch streaming content and they also play games. So the idea that television and the Web are colliding is an important aspect of what we plan to do.
Games that incorporate aspects of both television and the Web-based play are something that we're very much interested in. We want to do more of those. Those could be generated internally, or they could be generated through acquisitions or through licensing arrangements. The ultimate thing that we're looking for is things that can use our engine in the most significant ways, and the technology point of our engine is also that we will have a point of difference and garner support among our target audience.
So to answer your question, it's wide open. It could be internally developed, or it could be licensed. Also remember, that since we started this company, we're already working on extensions that we believe will be very important in terms of how we go forward with other products under this umbrella.