Over the Hill: Paintball is Hurting! Part 2 of 2
article by Jason Casebolt
If you have been too busy playing paintball rather than analyzing paintball (I have no life) then you might not have noticed that the paintball industry is in a downswing right now. At first this might seem like a lie, with paintball sports participation breaking new growth records every year. Unfortunately, this is a textbook business example that could have been predicted. Here are the details…
The signs are there. Rumors are floating around that some major paintball companies have scaled back their magazine advertising. K2 (the parent company for Brass Eagle, Viewloader, JT and WGP) blames its lower-than-expected earnings on its Paintball Division. Worse yet, have you tried selling a used marker? That is the biggest punch in the gut yet!
Here in part 2, Professor of Paintball Jason Casebolt is here to explain what is going on and the last two parts of the cycle: Maturity and Decline and makes predictions for the future. Check out the earlier part 1 for the Introduction and Growth stages.
Maturity is the stage we are just now in. It started within the last couple years and is rapidly rolling toward the 4th stage, Decline. I like to call this one the “where did all my money go?” stage. At Maturity, the strong sales growth starts to decline. Competition starts popping up with similar products. Business in this stage starts to get more aggressive as companies attempt to defend market share and maximize what it can obtain in profit.
Companies start making their products stand out from one another during this stage. Prices start to drastically drop due to increased competition and from imitators emerging trying to gain market share from cloned and (usually) lower quality products. Distributors start being more aggressive. They offer creative new incentives that they had not done before. The most common incentives for a store/field to continue buying from a particular distributor are to give rebates or sponsorships to store/field-owned teams to stay “loyal”. Advertising focuses on using a particular product to separate it from the knockoffs.
During this time period, the “Spyder Clones” were marching. The innovators of barrel designs were bombarded with upstarts. Also during this time was when companies like Smart Parts and Worr Games Products started defending their patents through litigation.
One thing that has caused this decline is the spread of products across companies. In the past, certain companies made barrels, others made harnesses, others goggles . . . you get the point. That was not enough, the “there is so much money to go around, lets start manufacturing our own” mentality has taken over. Now you can find many companies that sell everything needed to play, made by them. Instead of having a few companies that specialize in harnesses, you now have over a dozen companies that offer them, along with the matching pants, jerseys, head bands, goggles, loaders, tanks, markers, etc.
This has caused the market to saturate. Even with all the growth in paintball (participation), there are so many products on the market now, that it is tough to keep the comsumers’ attention. Retail companies trying to undercut each other for market share didn’t help either for the financial growth during this time period. To make matters worse, the “used” market outnumbers the “retail” market. There are so many used markers on the internet that your shiny new gun takes about a 15-25% price drop once you open the package. This is reminent of another market that has already gone through the cycles, the automobile industry.
Prices have plunged. A few years ago the cost of a case of paintballs was over $80. Now you can find lower end brands for $40 or less for a case of paintballs. During this period, high performance Autocockers dropped in price from $1000 vertically fed slide trigger frames to $189 fed slide trigger frames to get more to the mass market. Features that one would have paid hundreds of dollars for the Spyder in the Growth stage were now standard for around $60. Most of the upgrades for the Spyder marker now come standard killing off the smaller companies that made Spyder upgrade parts. With everybody making everything, they have essentially hurt each other, or at least those with no brand name.
Unless there are more innovative products, then the market is going to progress lower than it is now. The products or their performance are so similar, that price and perceived value is the only thing to keep selling equipment.
What about the features on these great starter markers. These have to stay fresh to survive. The sear tripper design rocks! It also rocked back around 2001 when it came out. Since then, Centerflag, Kingman, National Paintball, Tippmann and others have had a crack at it.
Want a barrel? Everybody hones. Everybody has porting. Want a barrel system with sleeves? Even the innovative Freak Kit has been ripped off by people too.
The bubble has popped. Unless there is a new revolution that shocks the system, we will soon be in the Decline stage. It is obvious in the Decline stage that sales decline. When this happens, companies usually make one of a few different choices.
First, they can stick with their products and try to refresh them. This is usually done by finding new uses for existing technology or by adding additional features. A second choice is to harvest the product line. The companies go through and slash costs associated with producing the product. They start looking into efficiency and eliminating waste. The last choice is to liquidate the product. They either sell off the brand name and/or remaining inventory to third party companies who will find some use for the obsolete left overs.
If the paintball industry is indeed following this model, where will it be going based on the Decline stage? It is always tricky to make predictions, but here is a shot.
The number of new product companies entering the market will drastically slow down or almost stop all together. While it is getting cheaper to make products, the market already has an over abundant number of competitors. Here is an example.
Instead of introducing a new barrel company into a market containing two competitors, it would be introducing itself to a market containing 12. At best, if you assume that you all would have equal market share, would 8% of barrel sales entice you to take the risks to start a new barrel company? Of course that is an optimistic assumption. In reality, the early risk takers like Dye and Smart Parts have such a huge presence, that you would be lucky to get 1-2% of barrel sales.
Companies that cannot rapidly change to meet new consumer needs will go out of business. Companies will need to convert into operations with value priced equipment and have the ability to rapidly distribute it. High priced custom operations are now a dinosaur. One casualty of this is Cobra Paintball. They recently announced that they are closing their doors. In today’s game of multiple great shooting, high performance markers at value prices, a $1,800 Angel no longer appeals to the elite (nor the wealthy elite wanna-bes).
Even the paintball media has an example. As the number of Pro events have doubled (thanks to a split between the NPPL & PSP), each event is no longer looked as a sacred occurrence. There is too much tournament paintball to go around.
720 Video failed to follow the trend away from event coverage and into documentaries. This also happened at a time where there were so many events going on that by the time a video had come out, there were already and event behind. Each paintball tournament has lost its relevance. The final nail in the coffin had to be free downloadable videos from event matches that usually are available in chat forums on the internet the week following the event, some that very day.
The number of team sponsorships on the national level is going to drop. When the bubble was expanding, there was the extra money to devote to tournament team promotion. Now that things have slowed down, companies are going to be more selective with the teams that they sponsor. In addition, look for some pro teams to drop out of the scene. Sponsorship is advertising. Traditional pro players on teams that fail to generate publicity might find themselves being issued a pink slip for their services.
I personally think that this will be great for the spectators. It creates a situation where there are more highly skilled players than available spots. You should start seeing the Pro paintball battlefield evening out. Teams like Dynasty and XSV might not be nearly as dominant in about 2 years with out their current sponsorship support.
The little guys will start being gobbled up. As the smaller companies will struggle, they will start being bought out, as a product line, for the bigger fish. This has already been happening for a time. The prime example is K2 buying Brass Eagle (which bought Viewloader out JT in the late nineties) and Worr Games Products recently. This is also happening in other areas. Tippmann just bought Straight Shot and Tippmann is no longer owned by its original founders. National has bought Unique. PMI bought out Extreme Rage.
Who is next? Just based on their small size and no longer being in the limelight, there are some companies that I could see being bought out in the next 2-3 years. Centerflag and Pro Team Products are just a few that come to mind.
Companies will exploit their niche. Companies have started falling into stereotypes and will seek to dominate their sub-group. Dye has become the high status Tommy Hilfiger of paintball. Look to see their logoed products to stay expensive and flashy to adhere to the image. Tippmann dominates the D Day invasion. They control the recreation market with a choke hold. They will continue to push their existing products with more opportunities to add camo and make their markers look realistic and lethal.
Someone will have to answer the ION. The ION is the only revolutionary new product of the last year. Every electronic paintball marker sold seems to be compared to the Ion before purchase by the consumer. “Why spend $800 on this marker, when the Ion is only $289”? I am sure that most marker manufacturers have felt the sting from this one marker alone. This product will force them to find something up to par or fold.
In conclusion, the good times are over and the big kids that run some fun companies are going to have to grow up and make some difficult choices. I personally hope that many of the knocked off products disappear to give the sales back to the people that have taken risks. The good news out of all this though is that things will keep getting better and cheaper for us players.