Tobold's Blog
Tuesday, September 04, 2012
City of Profitability

I must have seen a hundred blog posts about City of Heroes / Villains / Rogues shutting down today. Of those 100 bloggers there were 95 who expressed regret but hadn't actually contributed a single dollar to the survival of that game in the last 12 months, 4 who expressed regret and had actually played / paid for this game lately, and 1 who wrote a detailed analysis of why CoH/V/R is shutting down.

I do not believe that NCSoft closing down CoH is a sign of financial strain of the company. Yeah, they lost money in Q2 2012. But they released Guild Wars 2 in Q3 2012, a game that is selling so well, they have to limit sales to be able to keep up with the server hardware. My guess is that right now they are doing fine, overall.

What seems to be the problem is the profitability of City of Heroes itself. Revenues of CoH are down to less than a million per month and falling. I don't have numbers for what the cost are of running the game, but profit is revenue minus cost, so it is either low or negative. In the end a game company has to ask itself not just "do I make some money from this game", but also "would I make more money if I put my capital into something else". I think it is very possible that City of Heroes isn't covering it's cost of capital any more. The game is over 8 years old, there are now several other superhero MMORPGs, and the future for CoH wasn't looking all that promising.

Note that while some Free2Play-haters automatically interpreted this as the death of the Free2Play model, I don't think any conclusion about this is valid. CoH only converted to Free2Play very late in its life, when few people were still interested at all in this game. And there are hundreds of different Free2Play models, some more profitable than others. I could imagine the item shop of Guild Wars 2 doing very well, for example (it already got my money for bag and bank slots).

I don't think of City of Heroes shutting down as a "failure". You shut down after a year, your game is a failure. You shut it down after over 8 years, that might be described as a natural death. The very early games might have profited from a bigger nostalgia factor keeping them alive (UO is celebrating its 15th birthday). But I would be surprised if half of the games released between 2010 and today would still be running in 2020.

NCsoft is also very quick to euthanise any properties which are either under-performing, or which they simply don't seem to want to keep operating. I'm still kind of bitter about losing Auto-Assault and Tabula Rasa to those, which... even if their sub numbers weren't high, were still profitable. Such that having the thing running was theoretically a net gain compared to shutting it down.

I'm not sure where their thinking goes in that. Is it that they only want to shift their intellectual talent around internally, and not waste dev resources on older or less-popular IP when they could be spending it on newer or more popular IP? Do they not want the shame of operating merely an 'average' MMO? I don't get it.

Contrast: SoE, or Funcom, who have kept ageing properties on life-support for as long as they have been able to, even if the profit was very low.

Personally, I liked City of Villains expansion, and liked much of its lore/theme/style. But going from DCUO or Champions Online back to the F2P CoH/CoV was highly jarring. The game was clearly showing its age.

At this stage of the game a sequel was probably the better call. If CoH/CoV really has a huge following, surely it would be worth the sequel treatment? New engine, new mechanics, modern features, built around the cash shop. Like GW to GW2. But is that demand there?
I think it's perfectly obvious why they made the move right now - free up resources for GW2.

Peter Drucker has written many books on the subject of allocating the best resources to the new product and how difficult it can be to poach team members away from "legacy" products, considering they have worked together for years.

Simply closing CoH and transfering the whole team to become (or amend) CoH's live team is probably what was planned all along and it's not a function of how profitable the operations of CoH were in Q2. The profit margin could've been as high as 70% and it would still not justify neglecting GW2.

From the launch stutters, it's obvious GW2 needs their top talent (as well as the best long-term potential). They have the load issues and the social features issues, as well as countless bugs that need to be addressed as players or botters can exploit every opportunity for quick progression.
I'm not sure where their thinking goes in that.

I am sure they work exactly like most brick and mortar companies: Projects have return on investment (ROI) targets. And if your ROI target is 15% and your project only yields 2%, you don't say "Oh, it's profitable". You shut it down and put the resources into something with a better ROI.
Just to contrast between NCSoft and SOE a little...

SOE now operate a highly integrated approach to all their titles. Common data centres, user authentication and login systems, customer care teams and micro transaction services all help to drive down the costs of operating an individual title.

Contrast that with NCSoft, who wtill focus strongly on the studio model. Every time they start up a new studio, there's new PR and community guys, new authentication systems, new micro transaction currencies and so on. Their users don't have portability between games - but likewise they don't have any data on which gamers play more than one of their games.

If NCSoft wants to run a large stable of games, they need to become more like SOE.
If it was making 1 mill a month, then that's about $12,500 / employee / month. Granted, most of their employees weren't making that much, but it's probably a fair guess that they cost $5-8k/month including benefits, and the higher ups may have made 12.5k. Assuming that the average is $8k/month/employee (including benefits), they made $320k per year on CoH, out of which server, software, electricity, etc would have had to come. You can't run a studio of 80 on that amount of money, at least, that's my theory (not having been in that business). On top of that, one of those software expenses would have been licensing the CoX engine from Cryptic. Even if they didn't raise the cost on it for the next re-up, I could see it taking a significant chunk of that 320k.

Overall it's too bad, but it seems like the studio was probably expense heavy and the population didn't include enough or big enough whales to make the game viable.

I wish they all could be SOE's when it comes to supporting their games.
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