Tobold's Blog
Wednesday, August 27, 2008
Investment in MMORPG development

Mark Jacobs from Mythic borrowed some content from Dr. Seuss, and posted the following rhyme on Warhammeralliance (via Waaagh!):
I meant what I said
I said what I meant
I don’t need to get WoW’s subs
Not 100%.
There are a lot of good reasons why this is true, why he doesn't need 100%. One major reason is that half the famous "10 million" subscribers of World of Warcraft aren't actually subscribers paying a monthly fee. In China WoW is paid for by the hour with gamecards. The rate is much cheaper than in the US or Europe, and the local distributor The9 takes a big cut of the money. So a Chinese "subscriber" is worth only a fraction of a western one to Blizzard. Mythic is only going for the western market (plus Australia). So if instead of getting 100% of WoW's subs they only get, lets say, 10% of 10 million, they still get 20% of the more valuable market from Blizzard. Which comes down to a whole lot of money.

Blizzard made over $1 billion of revenues in 2007, of which half a billion was profit. A typical western MMORPG subscriber paying monthly fees and buying all expansions is worth about $200 per year. So if Warhammer Online: Age of Reckoning manages to keep an average of 1 million subscribers over the coming years, Mythic's revenues will be around $200 million per year, and assuming similar profit margins than Blizzard they'll make nearly $100 million a year of profit. I don't know how much exactly the development of WAR did cost, but it was probably less than $100 million, so getting your whole investment cost back in just one year is pretty sweet. Assuming Mark Jacobs has some company shares, he'll be a rich man if WAR gets to just 10% of WoW's subscription numbers.

Anyone who invested in Blizzard has made big bucks. Anyone who invested in Mythic will probably make big bucks. Even Age of Conan, with 800,000 copies sold and 400,000 subscribers left, might have disappointed shareholders dreaming of Blizzard-like profits, but certainly made some profit; Funcom announced their next MMO already. In short, the idea that only Blizzard has the magic sauce recipe which allows them to make piles of money with a MMORPG is going to be very much discredited very soon. It is clear that Activision CEO Bobby Kotick only said that you'd need to invest $1 billion to make a competitor to WoW to scare away the competition. It is very much possible to invest $50 to $100 million into making a MMORPG that'll pay out a billion dollars or more over it's lifetime. That isn't a bad investment if you can get it.

Of course investing in a MMORPG is like investing in a movie: You never know if you get the next Titanic or the next Waterworld. It is totally possible to lose a lot of money by investing in a MMORPG. But once that the illusion has broken that only Blizzard can do blockbuster MMOs, other companies will try it, and more investors will be willing to risk their money. And for the players that can only be good, because among a flood of bad games, there will be some that are actually good. The more good games we get to choose from, the better for us.

One reason why there is hope for even better games as soon as there is more serious money flowing in is that there is definitely room for improvement in the production values of MMORPGs. The game industry isn't exactly known for their excellent project management. There is far too much focus on creativity and innovation, and far too few focus on making games that are bug-free, and are released on time and in budget. We are talking about an industry here where Blizzard managed to rise to the top by having somewhat better quality control, and making games with few (but not zero) bugs, albeit at the cost of being much slower than the competition. But just like the movie industry grew up and learned how to produce blockbusters every year, the MMO game industry will one day arrive at the same level. Good games will come out faster than once every 4 years. And that is something I'm looking forward to.
"Mythic is only going for the western market (plus Australia)."

Stopped right there. I think I even commented in your blog before that WAR is being marketed in Asia.

I was mkaing the point back then that EA has more control of the marketing in Asia than Mythic and seem to be advertising the game as WoW 2.0 unlike Mythic which tries to avoid those comparison here. You could've done 10 seconds of google just to be sure of this fact.

Korea –
China –
Taiwan –
Japan –
One thing I like is that Mythic has found some angles to offer enjoyable entertainment without running up the development tab. The big centerpiece is RvR (build system once, players create content forever), but consider PQs, for example.

Many of the PQs are fairly low in the required resources department: reuse mobs you've already got, add in a PQ loot table and some writing, make a boss mob. Bam, done. Compare this to Blizzard's PVE crown jewels, the instances. It boggles my mind how many hundreds of thousands of dollars Uldaman probably cost in man hours, and that was probably seen by 1% of the population for on average 3 hours. By comparison, for the same amount of effort you can make twenty PQs, which will be seen by almost every player (because the PQ system is truly, deeply accessible where instances were only "more accessible than raiding, at least"), and which will be interacted with multiple times because they're quick, repeatable, and fun.

My best times playing MMORPGs were well-tuned 5 mans into instances we hadn't wtfpowned a million times yet... but some of the greenskin newbie zone PQs come pretty darn close.

You can also look at achievements (tome unlocks, etc) as another high bang for buck strategy: its trivial to bolt on an extra achievement, but as long as you don't make it grindy it adds grossly disproportionate fun value to the game.

I think the future is going to see games aping WAR as much as aping WoW: find features which allow you to generate vast amounts of fun for (relatively) small amounts of dev time, rather than hoping you can outclass Blizzard in developing metric truckloads of polished content.
"Mythic is only going for the western market (plus Australia)."

I know it's not intentional mate, but Australia IS a Western market. And by Australia that also means New Zealand, Singapore etc etc. The fact we have our own local servers indicates that.

The continent of Australia isn't some backwater, or did you not see the Olympic medal tally? Regardless, Mythic is marketing to Asia as the Warhammer hobby has a large following in SE Asia.

I know you weren't being facetious Tobold, but you have more Aussie/NZ readers then you think, and many more are active MMO players.

/parochial hat off
Hehe:D yes i guess Australia is part of "the West" too, used in the economic/political context. Even traditional East (Japan, Korea et al.) is part of West in that sense...Maybe we should invent a new, less confusing label :D

The continent of Australia isn't some backwater

I didn't mean to imply that. I have relatives in Australia, and I've been there, so I know what a nice place to live that is. But while the income and spending habits are definitely "western", geographically Australia is closer to Asia.

The reason I specifically mentioned Australia is that I'm aware that WAR will have Oceanic servers right from the start, while WoW still doesn't have any.
This is really a minor point on another minor point of that post, but I actually liked Waterworld. I guess I'm odd that way. :)
Haha Tobold, no dramas, I returned from a long day at work and my radar picked up 'Aussie bashing!'.

Agree with your points, and I find it strange that WoW players have been calling for Aus/NZ servers for so long....yet a new game is able to produce them straight off the bat?

And I like Waterworld too! WTF!
Well written and I agree. I have been saying for a long time that WAR will be the game that shows other MMO developers that they don't need to jump ship from the traditional market to play in the kiddie pool. They just need to be smart about what they put millions of dollars into.
"The continent of Australia isn't some backwater, or did you not see the Olympic medal tally?"
Yes I did, thanks. Two places below us Poms, weren't you? ;)

Seriously, though, although Australasia is wealthy, its lower population means it's likely to be a lower priority for developers than North America or Western Europe.
As a reader from Japan, I can assure you that western-produced MMOs are virtually nonexistent here. The WOW playing population (once you discount Western-born expats) is likely much, much less than 10,000, with everquest 2 doing slightly better. Lord of the Rings has a (poorly localized) Japanese version, but only two servers, each of which is a ghost town.

In fact, the Western MMO with the biggest subscriber base is actually the venerable UO. WAR is pretty much a non-factor in the Japanese gaming scene.
Ultima Online's history in Japan is quite a good statement to show that Japan can't be lumped into "those grind-loving Asian countries".
but I actually liked Waterworld

Waterworld would have been a good movie if they cut out about 30-40 minutes of it. It would have been Road Warrior on the sea, instead of Kevin Costner selflovefest.
I wrote about this issue in comments under your "Wow Killer" post a couple of weeks ago. I am glad to see that it is finally dawning on you bloggers that WAR will likely grab up a significant percentage of Blizzard's Western market.

It's nice to see that bloggers are finally realizing that WAR won't get 10 mil accounts, and it does not NEED to get 10 million accounts to severely harm WoW in the West.

At best Blizzard has currently 4.5 million subs in the West. It may be lower because anecdotally and as best we can tell from outside census sources, the percentage overseas has been growing for 2 years while the Western percentage has been shrinking. The West is their oldest market, and at 4 years, there is definitely some "WoW fatigue" amongst Western MMO players. Blizzard certainly has not had any cause to make any announcements about growing subscriber numbers in quite some time now.

There is rumor rampant that they plan to release a 3.2 patch concurrent with the release of WAR, a sort of pre-LK patch that will do what the 2.0 patch did before BC (skills and talent revamp, etc.). I would imagine that they are extremely nervous about how many subs WAR is going to pull away, even if it is for only a few months.

I find no sympathy for them. They have taken most of their half billion profits and plowed them into other endeavors, instead of keeping WoW updated as well as it should have been. They kind of earned a kick in the financial teeth for a few months. :)
I am glad to see that it is finally dawning on you bloggers that WAR will likely grab up a significant percentage of Blizzard's Western market.
But for how long? Until Wrath is released or long term, that's the question. In the short term I'll certainly keep up my WOW subscription, even while I try out WAR. Having been played many "WOW killers" before, I'm somewhat sceptical about how long the novelty will last. Will it make a nice change for a month or so? Probably. Is it good enough to make people switch over for good? Well, I'll believe it when I see it.
I'm personally betting WAR's expansion will dictate whether or not Mythic's game will continue to gain subscribers. I'm biased with that opinion considering how much TOA affected DAOC's growth.
the MMORPG market will probably start excelarating once WAR goes live and people do the analysis of AOC. If it is true that AOC has made a profit (small though it my be) then venture capital will start flooding in.

Because even Waterworld eventually made a profit. and venture capital love a low risk, High reward environment.

But one thing that WoW has done that probably no other single MMORPG will ever do, is expand the MMORPG user base. Because the user base will eventually say how many MMORPGs can be supported.
@ Sven - Long enough. Look at it this way. Age of Conan is admittedly a pretty messed up game for reasons I won't list here. And yet - and YET! Blizzard's Morhaime has gone on record admitting that of all the people who cancelled WoW to go play AoC, only 40% of them returned to WoW.

What happened to the other 60%? Either Funcom is still making money from them, or they are doing something else entirely - but they aren't paying Blizzard anymore.

Assume that WoW has 4.5 mil Western subs (which is what they had before AoC so they have something less than that, now). Assume that 2 million of those try WAR. Assume, being genererous, that WoW gets 50%, or 1 million of those back. WAR is a raging success with 1 mil subs (and 2 mil boxes sold), while WoW's Western subs are further deteriorated.

There will never be a single WoW killer. Just the loss of market dominance. And that is nothing but GOOD for those of us who like MMOs; competition breeds improvement.

If WoW did not feel threatened, you would not be getting this in WotLK: consolidated gear stats, more dps on tanks and healers, all tabards, pets and so on converted to spells instead of using inventory slots; all marks, badges and other quest tokens using counters instead of taking up inventory slots; and many other improvements designed to eliminate some of the sheer annoyance of playing WoW. It dawned on them that releasing a few new zones, some unbalanced raid content, and broken itemization scaling was not going to be enough, this time, if they want to both keep the people they have and lure some of the cancellations back.
There will never be a single WoW killer. Just the loss of market dominance. And that is nothing but GOOD for those of us who like MMOs; competition breeds improvement.
That seems a likely outcome - death (well ok, not death, but weakening) by a thousand cuts as individual games do better in particular niches that suit specific subgroups, with WOW remaining the largest overall player.
Sven, I don't even think they will remain the largest player by any great amount. Shedding half a mil subs to this game, a mil to that game, quarter mil to this other game - eventually I expect there to be 2-3 good games with relatively equal market share, and a bunch of smaller ones. And ALL of them will be profitable. As Tobold pointed out, in spite of the fact that AoC sucked, Funcom made money. And as long as the MMOs, even the sucky ones, make money, investors will see a return and therefore keep funding new game development.

Good for US. :)
Also for Sven - remember I discuss this only in context of the Western market. No offense to Asia but their pricing structure is so different that profiting from them as a whole different animal than how these gaming products compete for subs in the West. Add to that, many of the new MMOs don't go into Asia so they are ONLY competing for North America, Europe, and Oceania customers.

If we include the 7 million Asians, then yes it's likely WoW stays on top. But it's a bit unfair to say they trump West-only games based on world-wide stats.

I am thoroughly amused that my scuttlebut about a WoW 3.x patch coming the week WAR releases turned out to be true. LOL!
WOTLK is having a powerful effect on people; I know a friend of mine who isn't budging because of it.

But its a double edged sword. The new xpac means all your gear is going to be crap in 6 months. Your guild probably fell apart or at least is severely hurting.

All the BC work you did is down the tubes. Guild is gone.

Now is a better time than most to switch.

The only think holding WAR back from stomping WoW is that everybody remembers the long line of WoW killers that flopped. AOC is just the latest (possibly the worst), so there's deep skepticism about any new MMO.

WAR should demolish that skepticism with time, since by its nature its going be more compatible with most peoples schedule (and desire not to spend 30 hours a week playing a game)... I think it'll end up sapping a lot of people over time as people burn out, go to WAR, and end up bringing their friends with them, then their friends, and so on.
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