Tobold's Blog
Tuesday, January 22, 2008
 
WAR is expensive

Sorry for today's deluge of post, I'm reacting to mails and comments. Due to popular demand from the one reader I have whose name I can't pronounce, I'm linking to some old news from Keen and Graev: Warhammer Online will quite possibly cost more than $14.99 per month. Insert huge outcry and everybody quietly paying up here.

Fact is that $14.99 is a completely arbitrary number. There is no relation whatsoever to cost. From financial data from Blizzard we know that about half of the monthly fee is pure profit. World of Warcraft would still be quite profitable at $10 per month. World of Warcraft would also still be quite profitable at $20 per month, even if that would obviously cause some people to quit. WoW is even profitable at 0.45 Yuan / RMB per hour (about 6 US cents), which is what the Chinese players pay. I pay €12.99 per month for WoW, which at the current exchange rate is $18.86. The choice of payment model (monthly or hourly) and price is done by marketing people based on local customes, economy, and historical developments. There is nothing whatsoever which would make $14.99 per month the one and only possible price for WAR.

Making WAR more expensive as WoW could even be a subtle marketing trick. "Look, our game is better, that's why it costs more!". If the price difference to WoW is small, lets say WAR costs $16.99 per month, EA can probably get away with it and lose only a very small number of potential customers. If you buy a MMORPG and play it for a year, you still pay less money than if you buy a regular video game every 2 months. Counting on a dollar per hour of entertainment basis MMORPGs are extremely cheap. Even watching paint dry is more expensive, if you have to pay for the paint. Movies, books, magazines, everything costs more per hour of entertainment than World of Warcraft does. Total profits of the video game industry are declining, because too many people spend too many cheap hours in WoW instead of buying new expensive video games that can be played through in 10 hours. And then of course there is inflation, prices go up all the time, although if you are young and only interested in the price of computers you might not have noticed. Expecting the monthly fees for MMORPGs to remain stable forever isn't very realistic.
Comments:
The waterline has been established by the top dog - WoW. EA would be crazy to risk any backlash over a price increase. Not when they're going against the most successful mmorpg of all time.
 
if wow would be proftable with half of the monthly fee, why dont they lower it to, lets say 10$ per month(10€ here in europe)
They can do it without loosing a lot of money, but the competitor will have a very difficult start
 
if wow would be proftable with half of the monthly fee, why dont they lower it to, lets say 10$ per month(10€ here in europe)
They can do it without loosing a lot of money, but the competitor will have a very difficult start


First, 10 USD aren't the same as 10 EUR. So if price is 10 USD, I would expect a bit less in EURos

Also, I think that it's always easy to lower price. Nobody would complain if Blizzard decides to lower monthly fees. And that can be done anytime.
Isn't the same if you want to rise prices. At least not that easy once you already had set a price. So I think Blizzard is always in time to lower price if needed. And would be a bad move to lower such fees before. For now they have a cash cow. And lowering prices, could eventually get more subscribers, but more users means also more employers for assistance, more servers and so on. In some cases is better to have a stable customer base that's a cash cow than expanding too fast.
 
Total profits of the video game industry are declining, because too many people spend too many cheap hours in WoW instead of buying new expensive video games that can be played through in 10 hours.

Well, I myself am putting off my next computer game purchase because my computer needs upgrading. I have no money for it, and I'd prefer to upgrade close to WAR's release anyway.

I don't play WoW, but Team Fortress 2 nowdays, but returning to Wow to fill my time does tempt me a little. Mostly because my computer is still more or less good for WoW. However, if my current PC would run the latest games better .... well ... ;)
 
I'm curious what the price in Euros and GBP will be. I expect that the cost of WAR will be on par with WoW in those currencies, while the USD price may go up, simply because of the dollar not being worth as much anymore and declining.
 

instead of buying new expensive video games that can be played through in 10 hours.


I think this is one of the most overlooked stories in the game industry. It's very much a parallel to mmorpgs, except the end game is a quasi battleground experience instead of a raid.
 
well I can understand the desire to recoup the earnings they are losing because many people are not buying the boxes they used too.

I think if EA is dead set on the higher price they better be offering the client for free. I'd pay a bit more if I didn't have to buy the box. But if they want me to buy the box and pay more. Not gonna happen till all my friends leave wow and I have to follow them.

It's a really risky move right now and I don't see any good coming out of it for them.
 
Counting on a dollar per hour of entertainment basis MMORPGs are extremely cheap.

They are also extremely redundant and repetitive.

That doesn't count?
 
EA would be foolish to do this, in my opinion.
 
If WAR costs more than WoW, I'd still buy it. I'd play the first month(hopefully free) and then I'd decide if it is worth the increased cost or not. Personally I planned on buying it and playing until atleast end game. However if the game isn't so hot, then I wont support a company who seems overly greedy. It ends right there.

I might of taken a half decent game that is selling at competitive prices. I won't take a half decent game that seems like a rip off. Although if WAR rocks my socks then I'd be okay for paying more.
 
The exercise of price setting typically involves estimating the the optimum point in the demand curve for maximising profit, and perhaps looking for segementation opportunities, if any. This article explains it well I think -
http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

Keen and Graev ask "Where is all our money going?"; that is an irrelevant question. Software companies (all companies in fact) will charge whatever they think gives them best profit, even if that means increasing the price and losing some customers.
 
...instead of buying new expensive video games that can be played through in 10 hours.

After playing the Wii at a Nintendo booth in the local mall the wife and I bought one for Christmas (sort of), along with a few games like Guitar Hero 3, Zack & Wiki, and my current favorite Ghost Squad.

If you're good you can beat GH3 in an hour or so, if you're not so good it might take longer. But maybe that's on Easy so you turn it up a notch and start working through Medium. Excellent replayability, not to mention being able to just jump in at a moment's notice and play a few songs. You can even get some friends together for a jam session (having a Wii I'll ignore the superior Rock Band).

Zack & Wiki is also a bite-sized game where you can sit down for 10 minutes, or an hour or more, and complete one (or more) of the puzzling levels. Not sure about the replayability but some of the levels are very cleverly done with multiple paths to completion.

Ghost Squad freaking rocks! Beating the game takes less than 30 minutes, but that doesn't mean you've completed it. Beating it once opens up a new area in each of the three zones, plus your toon gets XP and, yes, goes up in level. This unlocks new outfits & weapons for your avatar. The outfits are meh! (except for the Panda, which I haven't unlocked yet), but the weapons have different abilities, magazine capacities, etc, which can help and/or hinder your ability to score higher. A few weapons fire ammunition with "penetration" ability, allowing you to shoot through scenery and hit bad guys hiding on the other side, but you can also shoot through bad guys hitting another bad guy and earning a Double Down. Of course you can also shoot through a bad guy and hit a hostage and that's not so good. I don't know how many times I've played through Ghost Squad but my avatar is only in his low 30s. Apparently I need to get him to level 60 to unlock the coveted Panda costume. I can't wait to storm a villa and shoot terrorists while dressed in a panda suit :)
Replayability? You bet! Long game? Hell no, it's over inside 30 minutes. And sometimes you'll unlock something that makes you say, "Let's go again!" as COWBOYS!!! With Navy Colts! Yeehaw!!!

We bought the Wii when we could track one down, then we got GH3 when it came out, then Zack & Wiki when I heard about it, and so on. I hate to think how much we spent just on this one console and half a dozen games (had to have Zelda, Mario Party, etc ;) but when it's all said & done...I still go back to WoW. My Rogue dinged 66 last night. Just four more levels and I'll have my second 70 :)
 
I don't know why people think the charges per month are some sort of arbitrary thing.

Costs per Player in hardware & bandwidth alone, before including customer services (GMs, etc.) expenses are very high.

Blizzard's numbers demonstrate this effectively, their reported profits to Vivendi show that the original box sales and Burning Crusade expansion absolutely dwarf their month-by-month net earnings.

NCSoft and Sony have positioned themselves with infrastructure to host multiple games on their pool of hardware, but any independent publishers doesn't see this benefit.

For EA, most of their MMO structure is getting dated, I'm betting they're finding themselves rebuilding a lot for WAR.
 
What is Warhammer's recommended System Spec ? if anyone here played or seen WHO beta, is it worth paying US$15 per month (or even more like US$19/m) for a casual player who loved PVE and Crafting and exploring (and off coz alt-o-holic) ??
 
For EA, most of their MMO structure is getting dated, I'm betting they're finding themselves rebuilding a lot for WAR.

Not my problem. If they didn't keep it upgraded with the funds that were coming in and they have to overcharge for thier new game.

Fact is What keeps most people in WOW is thier friends. If Warhammer costs more a lot of people won't go because of that alone. And all of those people will hold back 2 or 3 or more people. A smarter strategy would be to charge the same and when they get good numbers and a happy playerbase then raise the price a bit and see what happens.

But we'll see whether they'll pull this off or end up stunting thier growth.
 
The thing is, more than any other publisher in this industry, EA is hawkish about their markets. They're interested in their margins and any sort of popularity perception is only important to them if it helps their bottom line.

It's one of the reasons I'm not fond of them, but be assured if they've set a price point then they're very confident that people will pay it.

Personally, I'm not interested much in WAR, but I also don't see how $14.99 makes a difference from $13 or even $8 per month. If people want to play that game, they'll pony up and play it. It might be a different story if they pushed it over $20.

I'm still really not sure where Tobold calculates Blizzard's per-player-profit at half, I'd like to see those numbers tabulated since release (if it's based on just recent months after over 3 years of infrastructure, shame on you Tobold for abuse of stats).
 
mmorog, Tobold's numbers are based on Blizzard's reported net profits for 2007. That would be based on retail box sales, monthly fees, and licensing fees from china (keep in mind chinese players do not have to buy the game).
 
Sorry, I should say, "I believe Tobold's numbers are . . . "
 
This is the point though, the only meaningful representation of those statistics would be to include the purchase periods for hardware and network infrastructure contracts, etc. The largest purchases of which Blizzard made in early 2005 and late 2006.

Essentially, 2007 would be looking mostly at profit funded by earlier infrastructure. Hardly a correct comparison to the price points for a yet-unreleased game.

I find it funny that I'm sticking up for EA, but statements based on such a segment are unfair at best.

I know the numbers aren't entirely released, the only thing we have to go by is reported earnings for periods offset by assumed operating costs, but at the very least it would be more useful to chart the entirely of the progress since 4th quarter '04.

It's a LONG stretch to take any of this and round it into one statement claiming 50% profit margins as if it were fact. It's not.
 
In any regular business project requiring upfront investment you'd be right. But all the numbers we have point towards that the whole investment for hardware and network infrastructure plus all the development cost for World of Warcraft has long been paid off by profits in 2004, 2005, and 2006. The reported earnings of $1.1 billion and $510 million of profit for 2007 in any case are large compared to the $50 million to $100 million range that has been estimated to have been the WoW development cost.

And while profits of course can come from box sales as much as from monthly fees, there must be a near 50% profit margin on monthly fees as well, because one year of monthly fees is three times the cost of the TBC box people bought in 2007. If Blizzard wasn't making around 50% of profit on monthly fees, I don't see how they could have a nearly 50% profit margin overall.
 
But don't you see Tobold, that's the point. The infrastructure for WoW is already bought and paid for. So why are you raking NEW ventures over the coals in comparison on price?
 
Raking WAR over the coals? You must have read a different article than the one I've been writing. :) I just said that the monthly fee of WoW is a completely arbitrary number, and that WAR is under no obligation to chose the same arbitrary number.

In my opinion the monthly fee has to somewhat correlate to the amount of entertainment on offer. PotBS at the same cost as WoW is a sad joke. With WAR there is still the possibility that it will be good enough to justify a higher monthly fee than WoW. A lot of people won't really care all that much, because $15 per month is an insignificant amount of money for them, MMORPGs are relatively cheap. Some people are price sensitive in that $15 per month range, and at least will check very carefully whether WAR is worth the price of admission. I have no problems imagining a game so good that I would pay $20 a month for it.
 
I read it the same way Tobold, you might want to make it clearer.

Fact is that $14.99 is a completely arbitrary number. There is no relation whatsoever to cost.

.. at the beginning of a paragraph implies that it's arbitrary, period. Following up with the WoW financial stuff just makes it seem like you're using WoW as an comparison for other games, which apparently wasn't your intent?

What threw me off as well is that my billing for WoW is $12.99, so I didn't see any relation. But I guess that's because I have a recurring subscription, which I expect many people do.

Just FYI.
 
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