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.

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