Hasbro delays new Dungeons & Dragons licensing rules

Dungeons & Dragons fans were ready to roll for initiative against Hasbro after the company attempted to rewrite its two-decade-old open game license in order to boost revenue.

On Friday, though, the Rhode Island-based toy maker postponed its update of its licensing terms in order to address mounting concern from the D&D community, which largely viewed the proposed changes as overreaching and unfair to third party content creators.

Hasbro still intends to create a new open game license, but it said it will not include a royalty structure or give itself access to intellectual property created by third party content creators.

CNBC obtained copies of Hasbro’s reformed licensing agreements — open game license 1.1 and an FAQ section for OGL 2.0. According to the documents, Hasbro had sought to require independent publishers and content creators to report financial data directly to the company’s Wizards of the Coast division, which includes D&D. At a certain threshold, the revised agreement would have forced independent creators to pay significant fees.

The first agreement, OGL 1.1, contained a clause that would have given Wizards access to new and original content created by third party publishers. However, that was retracted in OGL 2.0.

D&D fans rallied around a petition called #OpenDND, signed by nearly 67,000 people, and began canceling their subscriptions to Wizard’s online toolkit, D&DBeyond, in order to protest changes to the license.

Hasbro said the two OGL documents were drafts, and the company always planned to make changes to the text. In a statement Friday, Hasbro said it still plans to revisit the OGL, but the final version will not contain a royalty structure or a license back provision.

Third party publishers told CNBC that Hasbro representatives approached high-profile independent content creators late last year to offer them a “sweetheart deal” if they signed on before the new licensing agreement was launched to the public. A document reviewed by CNBC showed a lower royalty rate than what was included in the proposed OGL 1.1. Representatives from Hasbro did not immediately respond to CNBC’s request for comment on this point.

Leaders in the Dungeons & Dragons community greeted the news of the delay with cautious optimism.

“At first blush, it seems like we won,” said Mike Holik, editor-in-chief of Mage Hand Press. “However, until we can confirm the terms of the license, specifically as it relates to software such as [virtual table tops], it’s not clear if this is a smokescreen or a real commitment to the community and its creators.”

The attempt to create a new game license comes as Wizards of the Coast looks capitalize on a surge in popularity of Dungeons & Dragons. The nearly 50 year-old game has had a renaissance over the last decade, the result of a combination of a new edition of its rules, which made it easier to play and more accessible to new players, as well as a surge in live streamed campaigns on Twitch and YouTube. It is also a major component of Netflix’s blockbuster series “Stranger Things.”

Additionally, a rise in videoconferencing programs, like Zoom, Microsoft Teams and Discord, have allowed players to congregate virtually without the need for a physical meeting.

“I think D&D is approaching a very significant inflection point in its lifecycle,” said Eric Handler, MKM Partners media and entertainment analyst.

The licensing changes come ahead of the release of “Dungeons & Dragons: Honor Among Thieves,” a movie starring Chris Pine, as well as a recent deal with Paramount+ to stream a D&D television show. Additionally, “True Blood” actor Joe Manganiello is set to direct a documentary about the game with Kyle Newman slated for release in 2024 for the games’ 50th anniversary.

“D&D has never been more popular, and we have really great fans and engagement,” Wizards of the Coast President Cynthia Williams told investors in December during a UBS virtual fireside chat. “But the brand is really under-monetized.”

Wizards, which also owns fantasy card game Magic: The Gathering, topped $1.2 billion in revenue in 2021, about 20% of Hasbro’s total net revenue for the year. Hasbro has reported that the division generated around $986 million through the first nine months of 2022. The company is expected to post fourth-quarter results next month.

Williams noted that the vast majority of purchases related to Dungeons & Dragons comes from dungeon masters, the game organizers who create the settling and challenges players face, despite these players only accounting for 20% of the game’s overall user base. Much of these purchases come in the form of source books and campaign modules used to run or supplement long-running campaigns.

Wizards is hoping to use the recently acquired D&D Beyond, a digital toolset and game companion for Dungeons & Dragons’ fifth edition that Hasbro acquired last year for $146.3 million, to generate more cash. It is also planning to launch an online tabletop space for players to use for virtual gaming and is in the process of updating and expanding its game rules.

This investment in digital is a strategy Williams says will allow Wizards of the Coast to “unlock the type of recurrent spending you see in digital games”.

The reworking of Hasbro’s open game license is not an unexpected move for the business, MKM’s Handler said.

“The aren’t doing anything that other large companies aren’t doing to protect their intellectual property,” he said.

Under its current open license, Hasbro allows third party creators to use the game’s mechanics, its dice rolling system and framework for combat, and to develop their own settings, monsters and magical items at no cost. Companies such as Paizo, Kobold Press, Hit Point Press and The Griffon’s Saddlebag, among others, have carved out a spot in the market to sell companion books to D&D players.

These creators could not use Wizard’s intellectual property — characters, settings or plots— but could publish new material that uses the same mechanics without paying the company for the right to use it. This was a boon for these companies because they did not have to develop a new rule set and weren’t likely to enter copyright battles with Hasbro.

With its OGL update, Hasbro initially looked to charge these sellers fees if they generated too much money from their products in a calendar year.

Those that tallied more than $50,000 in revenue would need to report their profits and products, and they would have been required obtain a creator product badge for their work. Those that topped $750,000 would have incurred a 20% fee on every dollar over that amount, according to OGL 2.0. In OGL 1.1, that fee was slated to be a 25%.

“Now, what struck me as was unusual in this agreement is that the numbers spoken of are revenue, meaning gross revenue, not net revenue,” said Noah Downs, a partner at Premack Rogers law firm and an intellectual property attorney. This means that content creators would have been charged the fee based on how much they generated in revenue, not their profit.

The Dungeons & Dragons community balked at this because most of the third party creators in the space use crowdfunding websites to drum up support for their projects and raise capital to produce them. These sites have fees — about 7% for Kickstarter, 8% for Patreon and 20% for Roll20 — that would need to be paid in addition to the licensing fee to Wizards of the Coast if the crowdfunding project topped $750,000.

“It turns every Kickstarter campaign into a coin flip,” said Holik. “If you do too well, it all collapses around you.”

Holik started #OpenDnD, a website to rally D&D fans and oppose Hasbro’s alteration of the open license. Downs is Holik’s attorney and also acts as a legal and media representative for the campaign.

The petition aimed to get Hasbro to completely retract its proposed new open license and educate the greater Dungeons & Dragons community about what a new OGL would mean not only for third party publishers, but for fans of the game.

Prior to Hasbro’s OGL postponement, both Downs and Holik told CNBC that by taxing third party content creators and snatching up their intellectual property, Hasbro and Wizards would destroy the Dungeons & Dragons community.

“It’s bizarre what Wizards is doing,” said Holik. “Either they don’t understand the market that they’re dealing with, which is kind of horrifying in its own right, or they’re intentionally trying to salt the earth and get rid of the third party space.”

There were growing concerns that the community would fracture if publishers were forced to move away from the Dungeons & Dragons game mechanics to develop their own gaming systems.

Holik also feared that a clamp down on licensing would negatively affect the type of content that is available to the D&D community, including products for the LGBTQ community and for people of color. Much of the content that is produced through these third party publishers is often more diverse and less likely to center on a cisgender white male hero.

In 2020, Wizards of the Coast addressed some of these concerns by altering legacy definitions of certain races, including orcs and drow, which had previously been reminiscent of real-world ethnic groups and portrayed negatively within the D&D literature.

The company revamped these groups in a couple of campaigns in order to make them more morally and culturally complex peoples. Additionally, Wizards has updated older modules.

“One of the explicit design goals of 5th edition D&D is to depict humanity in all its beautiful diversity by depicting characters who represent an array of ethnicities, gender identities, sexual orientations and beliefs,” the company said at the time. “We want everyone to feel at home around the game table and to see positive reflections of themselves within our products.”

Hasbro still intends to create a new OGL in order to prevent D&D content from being used in “hateful and discriminatory products” and to prevent people from using D&D in blockchain games and NFTs.

“The license back language was intended to protect us and our partners from creators who incorrectly allege that we steal their work simply because of coincidental similarities,” Hasbro wrote in a statement on D&DBeyond. “As we continue to invest in the game that we love and move forward with partnerships in film, television, and digital games, that risk is simply too great to ignore.”

The company said its new OGL will contain provisions to address this risk, but it will be done without a license back clause.

“Your ideas and imagination are what makes this game special, and that belongs to you,” Hasbro wrote.

While the backtracking may quell immediate concerns about the D&D license, Holik notes that fans were so put off by the company’s actions that there is now a wedge in the relationship between Wizards and its community.

“Wizards of the Coast has disintegrated decades of trust in a matter of days, and the community will approach every one of their moves with skepticism from here on out,” he said Friday.

Additionally, he noted that the company’s attempts to change the OGL shows it does not recognize that the actual product in D&D is the story.

“And if you try and take someone’s story from them, they will fight you tooth and nail,” he said previously. “And that’s what Wizards is finding out.”