Tobold's Blog
Thursday, November 10, 2011
Anybody from China?

While I do try to keep up to date on what is going on with MMORPGs, I must admit that the sources I read are all European or American. Thus I completely missed the fact that Cataclysm was released in China this July, until a reader told me. Sorry about that.

But that bit of news makes me scratch my head quite a bit. What exactly is going on in China? According to Blizzard they lost a lot of subscribers in China in 2011, both before and after that Cataclysm release. That would be very atypical. Even if we consider Cataclysm a "bad" expansion, in Europe and America its release still led to a spike in subscription numbers. That spike fell off quicker than that of previous expansions, but that still took several months. Why would that be otherwise in China? To have a continued drop of subscriptions right through an expansion release, Cataclysm would have to have sold extremely badly in China. And I doubt that just because I and other blogger wrote about being bored of Cataclysm quickly it would affect sales numbers of that expansion in China. They probably don't read us any more than we read them.

So why did the release of Cataclysm not stop the slide of subscriptions in China? Was there some sort of protest because the expansion came out in a censored form? Was it released too fast after Wrath of the Lich King in China? Or were there other factors at work of which we are unaware? If you have any real information about that (other than your personal impression that Blizzard is the devil and WoW sucks), I'd love to hear about it. Are there any English-language sources discussing the state of WoW in China?

There was a lot of stupid going on with regards to who the provider was for WoW in China over the past few years. Between that and the whole delay caused by legal matters and having to modify Wrath for Chinese cultural mores lot of subscribers appear to have given up and gone to Taiwan or Oceanic servers. So in reality they may have already flamed out at this point. I also suspect that the Chinese numbers are as reported by the Chinese provider, so it's possible those numbers reflect a number of factors.

There has also been a lot of political tampering by the Chinese government. As a result, they may have given up trying to pander and are meeting with resistance, i.e. the servers just don't get reliable electricity, etc, so sorry.

This may also explain the decision to go with the Pandas. After all, if you can't win no matter how hard you pander, might as well do your own thing anyway! Heck, I would. A final thumb to the nose, as it were.
If you look at the activity numbers in NA/EU, as tracked on, activity peaked 1 month after the Cata release, and then began falling very rapidly.

If China mirrored this experience, then it's not too surprising that active accounts were down by the end of Q3. Also, remember that in China the players don't buy the new expansion or buy time in month+ chunks, but instead pay by the hour. There's less of a sunk cost effect keeping people playing if they aren't having fun.
Another question would be: Will they implement Pandas to win back China or did they finally implement them because they no longer care about the shrinking China market.
The main drag on the Chinese market has been that WoW Taiwan is the same as WoW US/EU but costs more. Chinese players delay renewing their gamecards until WoW China catches up with WoW Taiwan and a fair percentage of those delays simply never get around to buying.
As you rightly said in yesterday's post, China makes up a small percentage of the revenue. I think it was about 8% in the financials released yesterday.

Others have correctly pointed out that China uses a play by hour. Now the fault sort of lies with Blizzard. They took these pay by hour and counted them as active subscriptions to get to 12 million. And there lies the problem.

Couple the pay by hour, with faster leveling with all the F2P games and you get less hours actually paid for in WOW. More players in China are in other games and the time spent in WOW has decreased. So using their 'inaccurate' measuring of what consituits a subscription, it was inevitable to see a decline.

BTW, this isn't really me saying this but a number of analysts that watch the stock have come up with these explanations.

Oh, these same financial analysts are warning their customers to expect a 20-30% FURTHER reduction in subscribers till MoP comes out. That means it could go as low as 7 million active subscribers come late summer.
That means it could go as low as 7 million active subscribers come late summer.

Sounds realistic to me.

Now if we reduce the 385 million dollars that Blizzard made from WoW in Q3 2011 by an assumed 62 M$ for late box sales, and then reduce the whole by 30%, poor Blizzard will "only" make 225 million dollars in Q3 2012. Probably closer to $250 million if there are again more Chinese than others leaving. Thus about a billion dollars per year of revenue from WoW in 2012, not counting the sales and subscription spike from Mists of Pandaria.
Blizzard isn't in financial trouble for a very, very long time - even ignoring the fact that they probaly didn't pay every dime out to shareholders but built a few reserves, too.

The only thing that is in danger is Blizzard's dominiation of MMO gameing. The stigma of being in decline is a very powerful one. But I certainly welcome more competition.

It's time Blizzard actually starts reinvesting their profits instead of buying shares back.
It's time Blizzard actually starts reinvesting their profits instead of buying shares back.


Frankly, I would find it extremely difficult for any company to make more than one triple A MMORPG at the same time. And it would also be very difficult to spend more than $100 million per year on that one game (which would still give you a very expensive game after 3 to 5 years).

I am not always happy with the direction Blizzard takes with their games. But I'd be even less happy if besides updating WoW, working on Mists of Pandaria, designing Diablo 3, building the next Starcraft expansion, and making Titan they would start working on another 5 projects.
Just went thru Blizzard's financials:

Total Online subscriptions from Jan-Sep 2011 = US$1.09 billion

Net Revenue from Blizzard from Jan-Sep 2011 = US$968 million

Net Income for Activision/Blizzard from Jan-Sep 2011 = US$986 million

Total assets in cash/cash equivlent right now = US$2.4 billion

Oh and Europe and America contributed about 300+ million in revenue each while Asia (as a whole) only accounted for 60+ milion. And this would include Australia, India, etc etc not just China.

I would say the China market is really really over rated except for inflating the subscription numbers.

Even ignoring their huge financial position currently, Given the current state of their known projects, they are golden as a company for at least the next 5 years. (D3 + expansion, 2 SC2 expansions, at least 2 more WOW expansions.)
"Now if we reduce the 385 million .... and then reduce the whole by 30%, poor Blizzard will "only" make 225 million dollars in Q3 2012."

But from an investment point of view this could translante into the share price dropping. Of course it's Activision/Blizzard and they have products like MW3 etc.

I'm just approaching it from the standpoint of how can I make money on buying or selling the stock.
Well if you ever find that chinese-english news site on the state of MMO's in China, that would be hugely helpful.

Honestly, Blizzard is a lot like the New England Patriots this year. They have been dominating everything for years, and the first hint that things might be heading to a normal level, and everyone is calling for heads. It's crazy people!

Well I've got lots of ideas, if that's what Blizzard is missing. Somehow I doubt that, though :)

One simple one would start here:

"Q: How will low level balance be fixed in Mists of Pandaria. Right now you can one shot a lot of npcs or players at low levels.

A: We plan to put some additional careful effort into balancing low level combat for MoP."

Apparently they agree that this content required more polishing for Cata, but the team didn't have the time. Now, seems like something you can easily do while normal operation continues: just hire a few more guys to do it already instead of waiting until MoP.
I agree with neowolf2 that it is worth mentioning the different business model in China.

If a subscriber for SEC includes "Internet Game Room players who have accessed the game over the last thirty days" My understanding is none of the players in China "bought" WoW or subscribed to it; it is their use of WoW in the cafe in the month that determines their status. More customers is better; but it is a bit of apples vs oranges to compare USEU subs to Asian.

So even if the player base were identical in China, it seems reasonable to assume that the reported numbers would show more spikes due to their being less commitment to get in or out of the game. Someone who went to a cafe and played WoW a few hours last month and this month plays something else/nothing will count the same -1 as if someone who has been auto renewing since TBC goes to the web site and unsubscribes. It works the other way: a weekend in the cafe next month is a +1.

Obviously, the lowest "spikiness" of any revenue model is annual subscriptions.
I wouldn't be surprised if the Chinese goverment has a hand in it. They could be giving players incentives to play Chinese games with lower prices and longer curfews compared to Western games.

It's also possible that the quality of the F2P games there is finally catching up to WoW. There could be a F2P WoW clone funded by the government. If the two games are similar enough, most players will choose the F2P one.


Yeah, Mike Morhaime even said this during the conference call. The leveling content was too fast and easy while at the same time the endgame content was too difficult. They want to make it a smoother transition. (You can find the transcript if you want his words.)
IMHO, Nils is way off the mark in terms of the business.

1) "has the cash to" is very very different than "can profitably and should" For instance, Google, Apple, Microsoft have the resources to do a half-dozen games, each as big as TOR or WoW. E.g., Apple generates two billion a month in cash which would fund say ten new TOR development efforts every month. But just because they have the financial resources to do something does not make it a wise decision.

2) In a similar vein, if Blizzard were CCP broke, it would limit them to what they could do. But if Blizzard were to have an extra billion in cash, then that has no impact on how much they can invest in WoW. If you spend 100 on a product and it makes 14 in profit and your "cost of capital" [q.v.] is 18% then your decision, while profitable, hurt the value of the stock. Regardless of how much cash you have in the bank.

3) My guess is that if I were in Blizzard, I could find more optimal places to invest the money earned by WoW than back in WoW. (As a customer, I would prefer unprofitably large amounts of money spent on WoW, although probably not using anyone involved in making New Coke or Cataclysm.)

I would be looking at the mobile market (half billion users of Angry Birds; tablet and SP markets growing), unfortunately I would be looking at the Facebook market, I would try to get an entry in the FTP market and I would be looking at acquisitions. In tough economic times, profitable companies with cash can make much better deals than during boom times. i.e. vultures. E.g., there is a tiny chance to desperation being receptive if Blizzard went to a struggling bank that owned the debt of a stressed CCP and/or its shareholders and said here is a check for the WoD IP and/or to fund a joint venture. At a certain point if a corporate lifecycle, the decisions are made by shareholders and banks, not executives.

If Blizzard were going to spend an extra $10mm of development for PC games, then wouldn't Titan be the place to spend it?

At some point, although arguably 2013 or 2014 depending on the economic news, Blizzard probably should invest some of their cash. But I see little reason to think WoW, while it will remain the biggest MMO development effort in the world, would be a significant beneficiary of the extra spending.

P.S., as a software developer, you may not be able to hire a few more guys. The recent WoWInsider podcast even referenced Brooks' seminal Mythical Man month [q.v.] Brooks law is "adding manpower to a late software project makes it later" which gets to Tobold's point about how many games you have the management and personal to adequately manage and promote. Capital/money is not the reason why Blizzard, EA, Sony and Microsoft don't have several AAA MMOs atm.
One big explanation for the drop in China numbers is that Taiwan basically sucked up all the Chinese players during the big void where WoW was basically unavailable in China. China still lags behind Taiwan in expansion content, so there's little reason to leave their epic 85s behind and switch back to China servers, where you'd basically be redoing the hard work you were doing for the last year.

However, I wonder if Taiwan subscriptions are lumped into the overall "China" subcription numbers though; I would suspect that they are.
Good points Hagu, but Tobold asked me 'How?'. I explained how. There are always ways to invest cash. e.g. you can always employ more level designers to create more zones.

At the same time WoW might not be the best choice to invest the money, I agree.
Honestly, if a game like Rift requires $50mio and I made several hundred million a year but couldn't find enough skilled employees to hire, I'd found a university for game design to finally get more skilled game designers.

German car makers do similar things all the time to ensure that they stay competitive in the global market.

Let me repeat: I am happy that there is now more competition. Blizzard has grown satiated. I guess not only with WoW, but also with Titan. The bad numbers WoW is producing right now might have some connection to Mr. Staats. And that's not necessarily bad.

Blizzard needs a Google moment. Or a Bill Gates "We are going to miss the internet"-speech :)
If China really is only 8% of their revenue, then I think that justifies all the "Chinese players don't count" arguments from a few years back. I don't care if there are 7M WoW players in China if they're worth less revenue than 100K in NA or Europe.

So, since I already decided that Chinese-market games were not attractive to NA/European players, and that their gameplay conventions were so warped by the pre-pay business model as to be completely uninteresting for anyone looking at making games for the F2P or subscription market, I think I can safely conclude that there is absolutely no reason for me to care about Chinese games at all.

So, let's stop talking about China. Let's pretend there are no Chinese player of WoW. How many players does WoW have in *real* markets, where real money can be made?

Blizzard stated that most of their 800K loss is from China but never stated the proportion of that loss. It could be 401K from China and 399K from the West for all we know!

In the West, subscriber numbers fell during the first quarter of Cata's release so it's not surprising that this occurred in the July-Sept quarter as well when Cata was released in July in China.

WOW is fighting in a very crowded MMO market in China. There are many Asian MMOs over there that never see the light of day here. Aion was the last one that tried to make the jump into the Western market.
Thing is, if a game's subscribers on average play 6 months then quit for 6 months in a cycle and that game has 8 million subs then in reality it has 16 million - just not all at once.

If the ratio changes to play 1 month and quit for 7 months then it might still have 16 million subscribers (although only just) with only 2 million subbed at one time.

If that's what WoW has done - and maybe that's not it at all - then the decline might be quite precipitous as returning players stick around much less than before.

The reason it's interesting - to me at least - is it fits a theory i have that the p2p or recently ex p2p games focused too much on honing the level 1 to max level journey and not on enough on providing distractions along the way.
Ju: from the revenue numbers, one can infer non-China lost 300-400K. So, the majority of the net loss was in China, but not an overwhelming majority. Of course, with a new expansion, it's notable that China declined at all. Thanks, Cataclysm!
When they mention China, probably miss out the portion of Taiwan (Maybe not political correct).

Taiwan's Service Providing having the same release schedule closely to US and EU. While the Main Land China having censorship and delay release problem.

From the Wotlk release, many china player migrated to Taiwan thru proxy on the GFW of China.

Partly because there was a incident that exchanging the Service Providing to The9 results in months of down time.

So basically the top player in Main Land had already migrated to Taiwan, only the casual player stays in there, which have a much lower sustain play time when fresh content is consumed.
Post a Comment

Links to this post:

Create a Link

<< Home
Newer›  ‹Older

  Powered by Blogger   Free Page Rank Tool