Tobold's Blog
Tuesday, May 10, 2011
Blizzard is doomed

I just wanted to get this commentary in before the rest of the blogosphere jumps in on it: Blizzard is doomed, doomed I'm telling ya! They are losing subscribers to World of Warcraft! In yesterday's investors earning call they had to admit that instead of having 12 million subscribers, they are down to 11.4 million. That is a full 5% drop from the peak!!!! If they continue losing 150,000 subscribers per month, the last player will leave in summer 2017.

Clearly Blizzard is on the way to ruin, and the devs will soon have to sleep under bridges and warm themselves on campfires. Fortunately Activision has a lot of paper they can burn: 1,450,000,000 crispy dollar notes, their revenue for the last financial year. That should keep them warm for a while.

Oh, and the Diablo 3 beta will launch in Q3 of this year.
Well put.

Those numbers are annoying anyway since they lump in the Chinese players who experience a radically different WoW (and pay Blizzard far less). I'd much rather see NA/Euro numbers.
I dig this post, but there is ONE thing that is completely wrong about it.

You lumped in news about Diablo III as an afterthought.

How dare you show such irreverence when our Lord's coming is so close at hand.
There were recently a few posts on the EU forum that there seem to be more people about, so this might be the Rift effect. I know some people have tried Rift but are now returning to WoW.
Damn Rift tourists!
Ghostcrawler must fall, he is to blame for the failure of Cataclysm,
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600k drop in the ~5.15 million WoW West market is a 12% drop. While the Chinese will always keep WoW the most successful MMO ever made, that means relatively little to anyone that reads your blog - our game experience will continue getting manifestly worse over time (emptying servers, ect) on top of Blizzard's asinine design philosophy this expansion.
Blizzard is not going to continue to dominate the market just as much as crappy pop music dominated the market. Blizzard is a successful company they make quality games. I love their RTS games, they are the best of that category. I love their Diablo branch it is an action game that you can enjoy for a little while.

However, I despise their World of Warcraft MMORPG but that doesn't mean they are not capable of making a better one (Titan). World of Warcraft is the most successful MMORPG in the history of this genre. Anyone who thinks WoW is doomed or mention a WoW killer doesn't understand how WoW actually became a success.

WoW success has nothing to do with the quality of the game in my personal prospective. WoW belongs to a specific MMORPG sub-genre that I don't like. Nothing wrong with that, I just don't like that sub-genre. Hoping to play an MMORPG that plays different than WoW (unlike Rift which is WoW 1.5).
There is also the typical pattern that sub numbers drop over time, then are replenished when an expansion comes out. This drop seems rather large and rather soon on the heels of Cataclysm.

It isn't the end of the world, but it is rather unpromising. I personally feel that Cataclysm has been a disappointment, but there is a lot of ruin to be had from a success as large as World of Warcraft.
There was a typo. I wanted to say Bizzard WILL continue to dominate the market. (I'm not sure how the "not" was put there).
Wow may be going downhill but I believe that an money they lose they are going to more then make up with their new mmo. I know several artists on the team and can tell you its going to blow shit out of the water.
As Eteocles says, we don't know which regions these subscribers are from. It's too early to call this the 'Rift effect'.

That said, it's clear that there are fewer new players joining that old players leaving/on a break.

Blizzard needs to do something different to turn this around and I would suggest new mid-expansion content (dungeons/dailies) will not be enough.

I expect numbers to stagnate until the WoW movie.
The earlier WoW is losing ground the earlier Titan will be finished. That's great.

Now, let's discuss whether Titan will require facebook. ;)
Oh, and the reason for this is, obviously, that players suddenly and without warning speeded up their consumption of content. Nobody knows why.

Reading the official version is fun ;)
Only Tobold could put a positive spin on this :)

Invester: "How are the subscribing numbers looking since the new expansion Tobold?"
Tobold: "Great news sir, we're losing them at a rate of 120,000 per month!"
Investor: "A word in my office please..."

Assuming the numbers haven't miraculously stabilised it's safe to assume that's 600k and rising. It'll be interesting to see what they are at the end of the year, maybe better to get them out now before they start to look really bad.
There are quite a lot of aspects to this. To the extent that the subscription loss is concentrated in the West, that may mean that the attrition rate is higher (up to 12%), and if sustained, might mean some servers getting a bit empty by year-end. But who knows if this reduction is the start of a trend, or just one quarterly blip. Only time will tell.

Anyway, the conference call transcript and presentation materials make quite interesting reading.

Revenues are up YoY, and although in the Q&A on the call the company dodged the question about revenues per user (ARPU), there are some hints that ARPU is up, i.e. selling more "value added" services. China value add is specifically mentioned for WoW. So maybe it's better for them to have 11m players with higher ARPU than 12m players with lower ARPU.

Finally, Blizz comment that players are consuming content faster. As a statement that's quite weak, but there is some additional comment in the transcript, Morhaime cites "increased player engagement and higher daily concurrency". I think in this context he means that in Cata players are logging on in more concentrated bursts at the same times. That might be consistent with people "consuming the content", in the sense that they are rushing through group content in a very determined way, but have less to do outside of that (few gameplay opportunities in non-concurrent time). I'm not sure if I interpreted that right though.
Even if Blizzard loses WoW customers they will more than make up for it in the new MMO or in Diablo III (with the 7 episodes they have in store ;)) so i really don't know to whom this post is intended...

At least wait until someone do "attacks" Blizzard before stepping up to defend it.

If I didn't know better I would say that you are actively fighting the slightest risk of negative perceptions on WoW.
1) I did not quite understand the "came during a slow point in the expansion" These are the numbers for the first full quarter after the expansion was released. I am not sure why people would think the second or third quarter after the expansion would be better. Wouldn't the first quarter be the peak for the expansion?

2) I was taught in business school that the first or even second derivative of market share provided more insight than absolute numbers. So it's not a significant decline, but declines are not good things.

3) During the night after last quarter's announcements, Activision shareholders lost a billion dollars of value. So clearly this was not as bad of an announcement as that. Tune in in 3 months for the Q2 announcements.
If we assume that thew grew subscriber numbers with the newly released WotLK in china then we could conclude that they've lost more then 600'000 in the western world. The sum of new subscribers in china and lost ones in the west is 600'000.

And the scary thing is that they don't know what to do. They just continue their failed way.

Do you really think a legendary weapon will bring anyone back? Not at all, it's exactly the elitist crap people don't like. Why should Blizzard invest time to create a lore rich story line and only a handful of people can see the quest line?

The quest line should be doable by everyone in the game, even if they won't give out the weapon to everyone. That was always a problem with those items. Not only can't you get the item, you're also locked out of the lore and quests.

And why give the whole raid a pet? Wouldn't it then make sense to give a legendary weapon to everyone with 130 pets? :) Why is there a need to devaluate pet collecting by giving special "pet collector loot" to raiders? With that they've just added pet collecting in the "raid or die" category...
"Assuming the numbers haven't miraculously stabilised it's safe to assume that's 600k and rising."

I'm not sure why this is a "safe" assumption. A lot has happened since March - PSN down, 4.1 launch, 4.2 detailed. We also don't know what the elasticity of subscriber numbers is generally like.


"If we assume that thew grew subscriber numbers with the newly released WotLK in china then we could conclude that they've lost more then 600'000 in the western world"

Not sure I agree with this assumption either. We don't know the exact breakdown of the 12m in October, nor the 11.4m in March. Unless I've missed something?
We know that WotLK was a huge success in the western world. We can only assume that it's a success in china.

Of course, it could also be that Cataclysm won 400'000 new players in the western world and china lost 1'000'000 because of WorLK. That would also equal a subscriber drop of 600'000.
I wonder what the numbers are for when subs dipped after original release, TBC, and wrath, especially compared to cata.

If I had to hazzard a completely uneducated guess, I would say that Blizzard is pretty smart to be working on titan. I think that, ultimately, each new expansion has diminishing returns in interest because you have two options, a lot of the same old with new spin or going completely outside the box. And that latter option, instead of slowly killing your game, very, VERY quickly kills it.

There is probably some ideal cycle where you only make X expansions before it is no longer worth it because you just won't get enough out of the hard work and you are better off making a new game.

I'd bet money that the next wow expansion will be the last one. The question is will it be a radical change, or will Blizzard try and give WoW a dignified death by just making it a normal expansion, still improve what they can but don't get radical, and try and plan the final content patches to provide a story "conclusion".

Which still won't be the death of wow. God knows there will be millions of players far into the future, and more importantly, I guarantee they will keep providing content patches every now and then even after they reach the point where WoW becomes their second priority after titan. What they did with Diablo 2 1.10 patch shows that if nothing else: They are committed long term, far past when the game is no longer the focus.
I'm not sure why this is a "safe" assumption. A lot has happened since March - PSN down, 4.1 launch, 4.2 detailed. We also don't know what the elasticity of subscriber numbers is generally like.

Clutching at straws there Bernard, deary me, it's a lot safer to assume they are still dropping rather than somehow stabilised, let's take a look:

PSN down - how has that had any significant impact on WoW sub numbers? Where's the link? I can't imagine PS3 players rushing to the shops to snap up a copy of WoW if they don't already have a sub.

4.1 - Call to Arms, rehashing of old content? I think the word is 'meh'.

4.2 - it that even on the PTR yet? Dumbing down CC? Yet another tier? Sounds great.
The real question for me is the timing of these losses. My "gut feeling" (with, unfortunately, no date besides doing lots of /who commands on my own server) is that the losses have been growing lately rather than a steady trickle. A 12% decline of Western players is pretty scary... one that is a slope getting steeper is more worrisome. I'm seeing lots of what were "every night" players transitioning to "raid night only" players, and many of these raids are going only occasionally, unable to sub in replacements when primaries don't show.

I think saying "600K" is truthful, but is the best spin that Activision could put on the numbers. We'll have to see how many 6-month and 3-month subscribers drop out over the next period... someone can go totally inactive but still be "subscribed," at least until his sub runs out.
> They are committed long term, far past when the
> game is no longer the focus.

D2 1.10 was pre Activision. We don't know if the merger will make Blizzard behave differently or not but we can't just assume that it'll stay the same for sure.
"Clutching at straws there Bernard, deary me, it's a lot safer to assume they are still dropping rather than somehow stabilised"

I just don't see why that's a safe assumption. As previously discussed, we don't know what region these subscribers were from or why they didn't subscribe in the month of March (!).

I agree that the 4.x patches are not the silver bullet Blizzard needs, but I think it's too soon to jump to 'safe' trends.

OK, let me rephrase it: I'm not surprised subs have fallen, everything post-cata and leading up to the announcement suggested they were falling, and I haven't witnessed or read anything to suggest they will stop falling.

Can you point me to anything to counter that?
My basic theory is that these numbers are probably a bit doctored. I know in the week before this statement both of my WoW accounts received "come back for 7 days" emails. Wondering if they are counting those people too. If they are willing to fess up to 600,000... I have to think the real number missing is probably higher.
Well, it's still better than Sony Online. They will have a serious drop next reporting period.
We'd have to know more about who those 600,000 players are. If they're hardcore raiders, then I don't see much doom and gloom since they're a minority anyway. If they're casual players, that could be trouble. Worst case might be if they were perfectly normal average typical players which perfectly represent the population as a whole. In that case, the entire population could notice a downward trend and nothing kills a market faster than expecting it to go down.
Subscriber numbers lag behind player numbers too. I paid for 6 months back in January, but quit the game 2 months ago. I still count as a subscriber though.

The player decline seems to be steepest at the raider level too. There aren't many raiding guilds left on our server, whereas we had dozens in WotLK.
You really need to learn to read a financial statement guys. (like the difference from a Balance Sheet to an Income Statement)

Their stock price has not moved in a A YEAR folks. If things are going so swimmingly why has the investment community ignored them???

Couple of just casual things I noticed why Blizzard is doing poorly.

Could be things like this item:


Total current assets (millions)
2011 4,349
2010 5,365

Whoa whut how does a company that is making zillions GO DOWN in total assets? [especially after drawing down 500 mill in receivables???)

still doomed
Personally for me Cataclysm was a disappointment. The linear level 81-85 zones are only fun once, and have lousy replay value for alts. Heroics and raids are twitchier than ever, and just not fun to me any more.

Having said that, this complete "failure" called Cataclysm probably earned Blizzard around half a billion dollars, counting the box sales and 6 months of added subscriptions on average for just the American and European players. I don't know why pointing out facts is considered as "defending Blizzard", but I just find it interesting that they make more money with a "failed" expansion than other companies with their whole game.
Well, Tobold, the way you wrote the post seemed more an anticipation of criticism rather than a 'here's a funny thing' post.

I was just pointing out that nobody except perhaps the guy whose girlfriend was stolen by a Blizzard employee would equate those news as the beginning of the end for WoW.

That said, I still don't understand why Cata is considered a failed expansion. The linearity of Cata is a problem granted but the dungeons were great!
Despite obviously not being a sign of doom since they're bigger than the rest of the industry combined, it is a rather monumental event in WoW's history. They're probably on a long glidepath to their next MMO release.
@Angry Gamer: Maybe the stock is realistically priced for the demand and therefore could not be expected to move much. Or the markets are awful at evaluating tech companies.

Maybe their assets are going down because they're pouring money into Titan, which will not be a valuable asset, probably not even declared, until they're ready to show it to the world. Pay a programmer and you're losing money, despite him producing a valuable asset with his skills.
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@ Klepsacovic said...
"notoriously bad at evaluating tech companies"

That is true on the surface. But Activision reports itself as a "Multimedia & Graphics Software"

company not really a "tech company"

in any case I have reviewed many company's financial filings and ATIV is pretty dense on what they are doing.

I always assumed the low stock price was because the analysts could not interpret their WOW revenue model. Now I'm not so sure because their Dec 10 filling was a disaster. They seemed to write off a lot that quarter now they are writing more off and announcing record revenue.

It just doesn't figure.
ok now I get what they did

from this...


Accounts receivable, net (millions)
2011 95
2010 640

Deferred revenues (millions)
2011 1,043
2010 1,726

So this appears to be a write down of about 600 million in future revenue that they were counting on...

Hmmm... I wonder what could cause that...

Let's go to the 8-K filing folks!

The non-GAAP financial measures exclude the following items, as applicable in any given reporting period: the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games;

AND this... we recognize revenue attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year.

So... Blizz thinks people will play 6 months LESS going forward than they thought 3 months ago

EDIT fixed the year error - sorry RSSers
Regardless of the downward trend in subscriber numbers, Blizzard can easily "coast" on WoW's profits for the foreseeable future, certainly until "Project Titan" is in place. But I don't think even Blizzard can duplicate WoW's success. WoW became what it is because of a coming together of many factors, several of which had little to do with the game itself. I don't think we'll ever see another game with ten million subs, Titan included.
But Blizzard is doomed!

They'll either eventually go out of business, or the sun will finally burn out. Either way, totally doomed.

Oh, you meant doomed soon, not Soon(tm).

My mistake :P
I sincerely hope blizzard is not doomed. i hope they continue to pump out content that occupies the masses for years to come and keeps them happy in their nice warm tubs of goo. i for one do not miss the taste of steak. long live WoW!
Oh, and the reason for this is, obviously, that players suddenly and without warning speeded up their consumption of content. Nobody knows why.

It's because we've always been at war with Eastasia.
Sure Blizzard made a lot of money on Cataclysm, but that was due to riding off the reputation of past expansions. WoW's sub numbers will likely continue to decline, and they'll make much less on future expansions. Wow will remain profitable, so it's not the end yet. But after Activision/Blizzard literally killed the game's charm, this decline in players was inevitable.

The question is how low the western subscriber numbers will go before blizzard fixes their mistakes? And will they bother fixing their mistakes? Or will they just keep riding off their past reputation until Titan comes out?
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