Monday, August 9, 2010

Are MMO's Financially Sustainable?

Upon arriving back home from vacation, I've found a blogroll full of concerning news from the world of MMO financing.  A few hits:
  • Scott Jennings reports on the practical demise of Earth Eternal, lamenting that "online gamers are saying with their dollars, yeah, we actually don’t want to play anything that isn’t World of Warcraft".  In the comments of that post, Psychochild suggests that the EE devs did not do enough to keep the time and cost of development (4+ years on a game that was still in beta) under control, arguing that "a smaller game absolutely needs to limit scope drastically".
  • Complete Heal delivers some sad details from SOE's Fan Faire, where he learned that EQ2's subscription numbers have dwindled to the point where the game is about even with its predecessor from 1999, EQ1.  Echoing reports from earlier this year that EQ2 devs were pulled away from the game to work on Free Realms, CH mentions that EQ2 is now sharing at least one dev with the "EQ Next" team.  Against this backdrop, EQ2's next expansion sounds smaller than this year's (which was, in turn, smaller than the older ones).   
  • Keen observes a "new MMO slump" on the horizon, as we've hit an era where new games have a shelf life of 3 months (if they're lucky) before burnout and disillusionment set in.  
The current generation of MMO's was built with the expectation that a million subscribers was an attainable goal.  This demanded that developers aim high, and has only exacerbated a trend of over-hype and under-delivery that has gutted the reputations of many high profile and otherwise decent games. 

When reality set in, we've seen dev teams decimated (e.g. Warhammer, Fallen Earth) to meet the new, lower revenue potential.  I would have named LOTRO and EQ2 as two of the more successful games of the current generation, and populations in both games are supposedly steady.  However, both have seen trends of less and less new content added in expansions as developer resources shift elsewhere, and both games are now hoping that dramatic shifts to free to play can bring in enough revenue to justify reversing that trend. 

Returning on investment
Until Psychochild gets enough player contributions to build a high quality MMO without relying on profit-driven investors, we're stuck with what those investors are willing to pay for.  The problem is not, as Keen suggests, that it somehow hasn't occurred to anyone that there's a market for games smaller than WoW.  The problem is that bringing in enough money to keep the servers on is very different from bringing in enough money to offer investors a profit on an initial outlay in the tens of millions of dollars. 

A game with 100K subscribers paying $200 per year brings in $20 million annually BEFORE expenses (servers, customer service, salaries for the live team).  Who's going to front the developers a $20 million budget in the hopes of being paid back in five years (after, say 3 years of development and two years of live service if all goes well, with any profit even further out in the future)?  The answer, apparently, is no one - the risk is only worthwhile if the prize is $200 million, but that would require a subscriber level that only one game in history has obtained. 

Rising Price Tags Ahead?
Though I'm sure that there are ways to cut costs and increase efficiency, I don't think we're anywhere near having a virtual world on the scale of Azeroth, Norrath, or Middle Earth built cheaply.  Meanwhile, the market is less and less tolerant of any perception that corners have been cut or left unpolished, which means that revenue will have to increase somehow. 

Unfortunately, the history of the genre argues that anyone counting on more than 300K subs to keep their game afloat is making a risky bet, so this goal cannot be the longterm plan for a game breaking even. If all this is true, the last variable in the equation is how much money each player is spending.  If our hobby is to go on in the manner in which we're accustomed, there may be significant price hikes in our future.  Whether those hikes are presented in the form of "optional" item shop transactions (the current trend, which has its pros and cons) or other less voluntary mechanisms remains to be seen, but I don't see how things can continue at their current pace. 


Chris said...

Which means we need a better, faster and stronger (daft punk mode) way to develop and maintain virtual worlds.

The Blizzard rate of development is roughly 1 boss per 2 weeks (or 1 boss per week + 52 to build an expansion). The rate content is beaten at is 1 boss per week typically or faster (barring certain blocks we got it down to a boss an hour or less :P).

This means we need automation and ways to design and test automatically to get the development process for these games to a state that we can achieve a sustainable game without being WoW.

sid67 said...

I'm not convinced that small devs can't make it.

Aventurine (i.e. Darkfall) has a very small community and yet the work they have done despite that limitation is pretty robust.

You may not like the game for it's "rough" features or find it to your liking, but it's hard to argue with the type of success they have had on the small scale.

I think where other devs have failed is in the promise of a million users to attract investors.

Certainly that's one type of success but it strikes me as one where the approach is to simply toss a bunch of money at a solution and hope for the best.

As we've seen it's more prone to failure. And particularly in this post-WoW era, I have to wonder if the slow and steady approach pioneered by CCP with EVE isn't a much more thoughtful and sane approach to success.

Brian 'Psychochild' Green said...

2nd Nin wrote:
Which means we need a better, faster and stronger (daft punk mode) way to develop and maintain virtual worlds.

We do. The problem is that people balk at playing text games or 2D games. As long as the audience insists on full 3D games, we're going to be limited in our options. Sadly, it seems like it's the hard-core that are slowly killing the medium.

I think the success of Facebook games has one positive aspect: it's shown that you can get millions of people interested in a fairly simple 2D game.

sid67 wrote:
Aventurine (i.e. Darkfall) has a very small community and yet the work they have done despite that limitation is pretty robust.

I don't think you can use Darkfall as a good example. For one thing, the game was in development for almost 8 years. As I posted over on Scott Jennings' site, I think one thing that hurt Earth Eternal was a tremendously long development cycle. I had heard that EE was aiming for the Runescape audience, and I think they spent too long developing the game when they didn't need to. (Comments that is was cloning tired old DIKU gameplay probably didn't help it, either.)

As someone who has been living on a very modest income for the past few years, I don't think I could live like this for 8 years while building a game. Finding out how Adventurine kept things going for 8 years would be an interesting business lesson, and I suspect it was probably some special circumstances that aren't easily available to other developers.

I think where other devs have failed is in the promise of a million users to attract investors.

It's not the devs making that promise, it's usually the investors making that demand. I've tried to raise funding for a smaller game, but most investors want a slice of the WoW pie. Or, now, they want a slice of the social games pie. Tell them that you're going for a modest 100k subscribers (which, as Green Armadillo points out, could lead to nearly $20 million gross per year), and they'll tell you to multiply the budget by 10 and the player expectations by 100 and they'll be interested. As a developer, knowing that's completely unrealistic has kept me from getting funding a few times now.

To answer the post's question: yes, games are generally financially sustainable. Even with only a few thousand players, we kept M59 going for a long time with low overhead. It's getting enough resources to create the game in the first place that's hard.

Longasc said...

The problem with the SUB + SHOP model practiced by Cryptic for example is so far they just increase the profit. And conversely the cost for gamers to play the game.

They do not really attract new investors or make money to hire one more dev or something like that at all.

I fear for Guild Wars 2's item shop. Why? Guild Wars 1 is/was doing fine, making money, players are happy.

But GW has no monthly fee. No shop that is used much. They relied on the chapter model, pay for each new chapter of Guild Wars, and a in the last year somewhat expanded but still minor item shop.

GW was good, but investors probably think they could make even more money if GW would use a more classic model.
I am afraid expansions to GW2 will cost and that the item shop will be expanded.

It is not only about making a MMO sustainable, it is about making a lot more money than that. Investors see only INPUT of X $ results in OUTPUT of Y $ as result.

A return to some modesty would be much welcome. Brian's report shows how sad the situation is. I can only sigh when I think how hard it is to work around such limitations AND create a fun game that is in for the long haul, a real virtual world.

Yeebo said...

It seems like FtP titles can sneak in with a niche concept. The amount of polished content they are expected to launch with is minimal. Look at Wizard 101, it launched with only four or five worlds (if I'm not mistaken). And Runes of Magic just launched their second starter area.

If a FtP game does well, expand it. Notice how development for DDO took off after they went FtP? And Wizard 101 is getting new worlds at a pretty steady clip. If it tanks, ditch it or put it in maintenance mode and try again. In addition, a lot of successful FtP games are actually 2D...further lowing the bar for how much you need to initially budget.

I think that a really good sub based game could get away with a $20 fee, but that's about it. And that is hardly enough of a jump from $15 to justify the enormous budget of something as risky as a premium WoW scale MMO. Further, I'd be hesitant as hell to pull the trigger on that with a new launch MMO. MMOs of the scale of WoW, LoTRO, and EQ II may no longer be financially viable.

We have a few more coming down the pipe. The new FF MMO, GW II, SWTOR. If none of those cracks a steady 500K+ subs, I expect that to be the nail in the coffin of big budget sub based MMOs.

Ian Whitchurch said...

Yeebo is dead on.

You have to do what Turbine has done, and turn content into a profit center.

If something's a profit center, you'll see more of it - enough to hit 2nd Nin's rate of a boss an hour or less, even ;)

Yes, this means moving away from subscriptions. Deal with it, and move on.

Bronte said...

This post (and your link to Keen's article especially) resonates with my thoughts on the subject. I can't remember the last time I played an MMO (other than WoW) where I enjoyed playing it beyond the first few months.

City of Heroes - 2 months
EvE Online - 4 months (recurring 1 month subscription occasionally)
Champions Online
EverQuest 2
Free Realms

This may sound odd, but I am tired of not being able to find a quality replacement for WoW. We always scoff at the term "WoW-killer". At this stage I really wish there was one.

Lomax said...

I don't believe the comment about EQ2 now dwindling to EQ1 is true, at the fanfaire there was no such mention anywhere.

All we were told was that the subs are about equal with the SF launch, which if true and the EQ1=EQ2 subs is true would mean that EQ1 has risen to EQ2's level.

Personally I think that they have dropped, but not downto the EQ1 levels, but they'll not tell us.

As for player numbers, if the Fanfaire was anything to go by then I'd say EQ2 outnumbers EQ1 by a 2:1 ratio.

As for development, its clear that EQ2 has been funding several other MMO's now for years (DC Online and The Agency) just as EQ1 funded planetside and EQ2. Also they've been putting a considerable amount of effort into the EQ2X and new player experience the past year which has detracted from creating real new content.

I'd like to hope that with DC Online standing on its own two feet, and all the new player experience work more or less complete that Velious part 2 would be much larger.

Time will tell there, although I still stand by my hunch that the fairly predictable SF expansion which left a lot of gameplay issues unresolved and the EQ2X/Live issues have caused a fair drop in numbers.