Fantasy miniatures maker Games Workshop (GAW) delighted investors on 16 December after announcing a tie-up with Amazon (AMZN:NASDAQ), potentially one of its biggest licensing deals to date.

The two parties have agreed ‘material commercial terms’ which involve developing Games Workshop’s Warhammer 40,000 universe into film and TV productions as well as granting Amazon merchandise rights. The productions will star actor Henry Cavill, best known for appearing in Superman, The Witcher and The Tudors.

No financial details are known but given the deep pockets and reach of Amazon, the deal could represent a step change in licensing income for Games Workshop.

Jefferies analyst Andrew Wade said: ‘Licensing income has built strongly in recent years, from £2 million in the 2015 financial year to circa £17 million estimated for 2023, but we saw more limited progression ahead, believing that only a major film deal would support another step-change. With the latest news, that is now a very real possibility. Moreover, a mainstream TV/film product could be game-changing in terms of Warhammer’s brand reach and awareness.’

Licensing revenues include minimum royalty guarantees for use of the group’s intellectual property and royalty income earned as a share of the licensee’s sale of games and products.

Games Workshop has steadily built up an income stream from licensing since 2015, monetising its vast intellectual property portfolio. Although small relative to overall revenues at around 5% it is almost all profit, which elevates its importance to around 16% of total operating profit.

Having built up a loyal fanbase of hobbyists over many decades it is paramount to keep them engaged and happy. Any licensing deal which threatens or tarnishes the Warhammer brand’s value therefore needs to be carefully considered.

It has already signed over 90 licences for the Warhammer brand including a deal with Marvel Comics, home to Spiderman, X-Men and The Fantastic Four, to create Warhammer comics. Games Workshop has also sold licences to video gaming companies including Frontier Developments (FDEV:AIM) and Japanese virtual worlds specialist Nexon.

Arguably the Amazon deal is a step-up in scale and will have broader appeal beyond the company’s historical roots of hobbyists. The move may pay off in the long run and increase brand awareness. But does it run counter to the firm’s own stated business model?

On the company’s website, it states: ‘We don’t spend money on things we don’t need, like expensive offices or prime rent shopping locations or advertising that speaks to the mass market and not our small band of loyal followers.’

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