Tobold's Blog
Wednesday, November 09, 2011
Predicting Blizzard's doom since 2005

If you ever get a job in management, you are quite likely to be given some sort of training course in which the difference between stating a fact and making a judgment is explained. Usually with lots of funny exercises to teach you to talk in facts and avoid judgments. Of course facts only would make for rather dry blog writing, so people on the internet deal nearly exclusively in judgments, rumors, and speculations, with very little regard to facts.

The current facts about Blizzard are that the official World of Warcraft subscription numbers are down to 10.3 million, down 1.7 million from the peak shortly after Cataclysm was released. And 8 Blizzard employees changed their Facebook status from "working at Blizzard" to "worked at Blizzard". So this being the internet, and Blizzard being very much hated by some people, the headlines go something like "Massive Layoffs at Blizzard. Titan in Trouble. Company Doomed."

There is a lot of journalistic dishonesty involved in that sort of reporting. If you get a number like the 10.3 million WoW subscribers from a source, the Activision Blizzard earning call, then why not also use all the other facts cited in that source? It turns out that most of the lost subscriptions were in China, and because Chinese subscriptions aren't all that profitable for Blizzard, the loss of those subscriptions didn't have a major impact on quarterly profits. What did have a major impact was not having release any new games lately, a situation which will obviously change in Q1 2012 with the release of Diablo 3.

The selective reporting is due to people wanting to connect their personal dislike of Cataclysm with the drop in subscription numbers of World of Warcraft. Thus if they would be honest and mention that the drop is primarily Chinese, their argument would weaken a lot. Cataclysm isn't even released yet in China. [EDIT: Ooops, it was released on July 12 2011 in a censored form in China.] Personally I don't think that Cataclysm was a great success of player retention, but that is based on personal opinion and anecdotal evidence, and we don't really have all the numbers on the matter.

The prediction of Blizzard's doom and rumors on massive layoffs on the Titan project are pure asshattery. The earnings call made it clear that World of Warcraft is still an extremely profitable product, and that Blizzard overall is an extremely profitable part of the Activision Blizzard company. The idea that Blizzard is running out of money and can't afford people to work on Titan any more is ludicrous. People are let go in all companies all the time, and laying off 8 people is at best a minor reorganization in a team of hundreds of people in a company of 5,000 people. This is far from the same situation at CCP or other small companies. You just need to look how the same people judged 20% layoffs at CCP as a healthy refocus on their core values, while Activision Blizzard laying off 0.2% of their staff is judged as a sign of certain doom, to see how much these judgments are made based on personal likes and dislikes of the games these companies produce, and have nothing to do with economic reality.

Shortly after World of Warcraft was released one guy in the online game community I was frequenting at the time predicted how their release sales were just a fluke, and that subscription numbers of WoW would drop quickly, and Blizzard go bust as a consequence. I hope he wasn't holding his breath waiting for that to happen for the last 6+ years. And I wouldn't advise you to hold your breath while waiting for Blizzard's "certain" doom today either. The economic signs for Blizzard aren't universally positive, and there are certainly problems with their aging main product. But the company will rake in crazy amounts of money in 2012 with the release of Diablo 3, the next part of Starcraft 2, and the Mists of Pandaria expansion.

They'll also rake in tons of money with Titan, and Diablo 4, and Wow: Emerald Nightmare (or whatever the next one is) and Starcraft II: part 3, and... well, anything they publish, ever.
On the other hand your judgement isn't all that surprising, either, Tobold :)
"Cataclysm isn't even released yet in China. "

Cataclysm was released in China this summer.


" has confirmed that there have been no layoffs.. including the one they originally reported themselves..

They wrote:
Yesterday, a handful of gaming news sites reported that a senior designer working on the new Titan MMO had gotten laid off by Blizzard Entertainment."

But regarding ppl beeing laid of it seems to be some conflicting reports and apparantly atleast one of the eight is confirmed.
Cataclysm was released in China this summer.

Thanks, fixed.

But regarding ppl beeing laid of it seems to be some conflicting reports and apparantly atleast one of the eight is confirmed.

My point is not whether there were no layoffs, 1 layoff, or 8 layoffs. My point was that reporting this as "massive" layoffs which would endanger the Titan project is ridiculous.
Tobold: the large decline this quarter, with the decline in China mirroring the decline in NA/EU after Cataclysm release, confirms that the decline is due to Cataclysm. They made a terrible expansion and are paying for it.

At this point I have to wonder when those responsible on the dev team, or their management, start being fired. I can't think Morhaime is at all comfortable right now, for example.
With the slow trickle of information to come out of Blizzard these days, blogs and commentators regularly engage in speculation. Traditionally it's been limited to game mechanics, lore/story and the occasional bit of business strategy.

After all, how many times have you read (or written) what you think Blizzard is doing in an area, before declaring if it's a good or bad idea together with your reasoning.

What we've seen is a speculation too far. Someone spotted something, speculated on it, looked for data to support that speculation and published it.

Some speculation is healthy and/or interesting. Other times it just leads to misinformed stories and chaos.

You might want to link to the other sites headlining "Massive Layoffs at Blizzard. Titan in Trouble. Company Doomed."

Or else readers here might assume that the only blog you linked was the one that reported that nonsense, and you would be compromising your journalistic integrity. :)
WoW is dying

Mass laysoffs at Blizzard. Titan in Trouble

Links like this?
My point is not whether there were no layoffs, 1 layoff, or 8 layoffs. My point was that reporting this as "massive" layoffs which would endanger the Titan project is ridiculous.

I completely agree with your point.
I didn't think they'd fall off, I just couldn't believe how fast they went up.

Now.... I think there's a natural senescence cycle to that type of game, that kicks in around boxed expansion number 3 or 4. And subscriber numbers plateauing and then starting to retreat are just about where WoW fits that curve. If they follow the typical curve, modified for their numbers, they'll drop under 1M subscribers somewhere around...2018-2020. So this is not a "Run for the exits" kind of crisis.

If I'm right, it would be *very* good news for SWTOR.

Maybe some journalistic honesty should be practiced by all sides.

Your comment that the loss of subscribers didn't have a major impact on quarterly profits since they were mainly in China is misleading at best.

About 500K of the 800K subscribers were from China or other asian markets. But it did have an impact on revenue from WOW. You used the 'quarterly profits' wich includes all other games and endeavors by Activision which can hide and blunt the revenue lost from subscriptions.

So both sides, including you need to report facts and not mask them within other areas.
On the subject of WoW's subscription numbers, it's a case of 'live by the sword...' - or more professionally, the necessity of providing symmetrical explanations.

Blizz (and many WoW fans/bloggers - although not you, Tobold) have been happy for many years to conflate Chinese time-card players with US/EU/Oceanic subscribers; and to allow the conflation that the time-card players were subscribers. Notably, Blizz didn't report subs figures at all during the nearly 18 month period that WoW was refused a permit to operate in China (although I do clearly recall you pointing this out, which is how *i* know about it. If they had, during that time, reported 'only 4 million subscribers' during this time, then a: we'd all (including the investors) have a much better idea of WoW's subscription numbers, and like all game companies, Blizz prefer to obfuscate this; and b: there would have been 'WoW is finished' and 'WoW never really had 10 million subs' stories everywhere. So they didn't tell anyone, and engaged in the illusion that the '12 million' were really subscribers, instead of glorified f2p customers.

So now, when those same glorified f2p customers are choosing a different game (even assuming that Blizz's statements that 'most of the drop-off of subs is from China' is read as 'ALL the drop-off is from China'), neither BLizz nor WoW fans/bloggers get to pretend 'oh, they don't matter cos they're not real subscribers anyway'. Either they were never real, so we should *never* have talked about WoW having 10-11-12+ million subscribers, or they are *still* real now, and the decline is significant. Again, Tolbold, you are one of the few exceptions to the systematic mis-reporting of WoW subs numbers, so I am not referring to you here.

But, none of this means that WoW is dying, just that it has finally (ineluctably) entered the mature phase of population decline that Raph Koster mapped years ago. In truth, they probably entered it 4 or 5 years ago, but were able to obfuscate this decline by pretending that Chinese time-card users were actually Western subscribers. Now, even that misdirection no longer works, as the Chinese market has also entered its mature phase.
Well with a website like FUDzilla, what did you expect? Probably courage, certainty and belief.
@seanas: I don't see why Chinese time-card players shouldn't be conflated to be on par with their western counterparts? Sure, they may pay a different amount than us, but that's not what the number is counting. As far as I can remember, WoW is not f2p in China, but rather pay as you go, and if they play at least once during the month, they get counted as a subscriber.

It's a measure of how many people are playing the game, for which I think it is certainly an apt measure. I don't see how you could say these Chinese subscribers are some how worth less than a US subscriber in terms of player numbers.

If you wanted to know how much money WoW was raking in, you'd look at the revenues numbers (which Activision provides readily in their quarterly report, and is significant enough to warrant its own column).
@Goodmongo: Activision's quarterly profits can readily be found online. They have a column solely for subscriptions/licensing, which I'm pretty sure means just WoW, when it comes to Blizzard. Tobold's statement of "quarterly profits not being impacted" looks to be quite true.

Latest report:

Their profits still grew from last year. I don't know about it historically, so I can't compare their growth to their previous years' growth, but growing revenues by 10% is pretty good no matter the case.
I think it is telling that Cataclysm only launched in China in July and already ~500k Chinese players are no longer counted in the official numbers.
Here are my thoughts on Blizzard's directions, with regards to the SC2 scene, as I'm much closer to that than WoW.

To be clear, I'm sure that linking my own blog is not a good thing, I'm just unsure if you realise what exactly goes on for SC. I don't really need this comment to be published, I just want you to take note, that Blizzard's plans for SC2 are pretty strange.
Yeah, you can criticize WOW for many many reasons, but the idea that it isn't making mind boggling amounts of money is too stupid for words.
Remember that wow is now free to play up to level 20. how do we know if blizzard is including those accounts in their 10.3 million number?
We know that the free accounts aren't included because the press releases of Blizzard have an extremely detailed description of what exactly they are counting as subscriber. Basically only people who pay are included in the count.

One point of contention is that is that this does count anybody in China who used his pre-paid time at least once in the last month. So a Chinese player playing one hour every month is counted as a "subscriber", although he obviously brings a lot less income to Blizzard than somebody paying for a monthly subscription.
Quoting from the investor's report Pzychotix linked to:

Activisions "subscription, licensing, and other revenues", which basically consist of WoW subscription were

385 M$ in Q3 2011, compared to 348 M$ in Q3 2010. From January 1st to September 30th, Activision made 1,151 million dollars from subscriptions. In the last quarter they made more money from subscriptions than with product sales. Note that if you divide the 385 million dollars by 3 months and 10.3 million subscribers, you get a monthly income per subscriber of $12.45. That is lower than the average monthly subscription cost (especially in Europe) because of the Chinese subscribers who pay less. But it does not support the hypothesis that nobody is paying for WoW any more.

I'm sure that linking my own blog is not a good thing

And you're wrong about that. Linking to your blog is perfectly fine, I only suppress people linking to their sites with commercial purposes. Assuming you don't need any herbal Viagra, I hope that is in your interest.
It should be noted that the GAAP numbers for WoW's revenue still are including a large amount (in Q3 I think it was $62 million) of deferred revenue, which is mostly from sales of the expansion in the previous few quarters. Q3 2010 deferred revenue was much less.

If you ignore the money still trickling in from Cata's release, the decline in revenue is apparent. Non-GAAP revenue for Q3 is below that of a year ago.
The revenue of expansion sales is in a different row than the subscriptions.
"* Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs,
licensing royalties, and value-added service"

So, no, it's all lumped together.
Shows that I am not an accountant. I would have put box sales in the row labeled "product sales".
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