Thursday, February 5, 2009

What the numbers mean

Yet another post about WAR having 300k subscribers, and what it all means. There were several comments on this blog saying that 300k wasn't that bad, and as Syncaine pointed out, those subscription numbers probably mean that WAR is the number 2 monthly-fee MMO in the US / Europe. So, we just point out that WAR right now has more subscribers than Everquest, and everything is fine? Sorry, but this isn't the olympics where getting the silver medal is quite an achievement. In fact where a game ranks in subscription numbers compared to other games matters very little. What matters, as always, is money.

Somebody invested a large amount of money into Warhammer Online. I don't know how much exactly, but certainly several tens of millions of dollars, maybe even over $100 million. Now WAR is producing a revenue, of which we know a bit more. Unlike WoW, where part of the subscribers are in China and pay much less, all the subscribers of WAR pay a similar monthly fee, around $15 (bit more in Europe, bit less if you subscribe for several months). So 300k subscribers produce a revenue of $4.5 million per month, or $54 million per year. But that is revenue, not profit. Profit is revenue minus costs, and again we are in the dark, as we have no idea how much it costs to keep WAR running and everyone at Mythic paid.

We know that Blizzard has a profit margin of around 50%, from their statement of earnings and profits. So lets hope for Mythic that they are somewhere in a similar range, and thus make $25 million profit per year. If it really has cost them $100 million to develop that game, that means that they'll break even and pay back all that development cost in 4 years, at the end of 2012. But what if the subscription numbers, which already fell from 750k to 300k keep on falling? Syncaine predicts WAR having 500k subscribers at the end of 2009, due to bored WoW players. That could happen. Or it could happen that the numbers keep falling and WAR is down to 100k at the end of 2009. We don't know, and we really don't have enough information about the future to do any more than guessing. The comparison with Everquest isn't really valid, because EQ surely did cost less, and paid back that development cost a long time ago. EQ can live on until the monthly revenue falls below the monthly cost.

Of course the same is true for WAR: As long as they make more money than they spend, WAR could keep going. But companies do close games that still make a small profit, for example Tabula Rasa, if that profit just isn't large enough. If the development cost of WAR was higher than I guessed, and the profit margin lower, how do you think the investors feel if it will take 10 or 20 years at the current rate (which isn't guaranteed to be the future rate) to pay back the investment? At the very least they'll want to reduce that time by increasing profit, which is done by decreasing cost. Which is exactly where the round of layoffs is coming from.

So, 300k sounds nice enough, but as long as we don't know more about development cost, profit margins, and return on investment, it is impossible to say how good or bad 300k really is. Was Mark Jacobs serious when he said he'd need 500k subscribers to be successful, or was that just a random number? It doesn't matter whether WAR has more or less subscribers than lets say LotRO, unless you also have the numbers for the development cost and profits. It's a harsh world, ruled by money, and never more so than in a recession. Whether you or me personally think that WAR is a good game isn't much of a factor in determining whether it will still be around in a year.

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