WoW makes $520 million of profit a year

Businessweek has an article about the Activision Blizzard merger, and among the financial results that had to be revealed for that merger is the nugget that World of Warcraft is projected to make a profit of $520 million on revenues of $1.1 billion. Given how the development cost for World of Warcraft was estimated to have been less than $50 million, making over 10 times your investment per year in profit is really outstanding. No wonder everybody wants a piece of that pie.

On the other hand careful observers will have noted the disparity between the reported 9.3 million users and the $1.1 billion of revenues. World of Warcraft is still one of the best-selling video games every month, and they sold millions of copies of Burning Crusade for $40 each this year, so a good part of those revenues comes from box sales. Thus Blizzard makes less than $100 per subscriber per year. A US subscriber pays between $156 and $180 per year. To bring the average down to $100, there must be a lot of Chinese subscribers all bringing in a lot less than $100 per year to Blizzard. If we assume 4 million US / Euro players each paying $160 a year ($640 million total), and $300 million is box sales of TBC and WoW in 2007, that leaves us only $160 million revenue for the remaining 5.3 million Chinese players, each paying $30 per year. If we believe the Chinese to bring in more than $30 per year revenue, we'd have to revise our estimates on the number of US / Euro players downwards. Which would be my best guess, albeit only based on anecdotal evidence of reported problems with underpopulated servers.

Furthermore the recent growth in China can be explained by the fact that they got the expansion only in September. It is reasonable to assume that in China the player numbers will decrease as well a few months after the TBC release, just like they did over here. The financial result of World of Warcraft in 2008 will depend very much on when that expansion comes out in the different regions, and whether they can again get such a huge wave of resubscriptions for the second expansion as they got for the first. I'd say Vivendi picked a good time for their merger, it is totally possible that next years profit numbers will be lower. Which is still a ton of money, but financial analysts don't like decreasing profits.