Wednesday, August 1, 2012

The Impact of Retail on SWTOR

One of the odd quirks of the SWTOR story is where all the revenue went.  With over two million copies sold at full price during the first months, that's hypothetically well over $120 million in revenue, not counting copies sold beyond the first month.  We have no way of knowing what the churn rate was, but even an average of 1 million subscribers paying $90 each over the course of six months between January and July is another $90 million.  No one knows what it cost to make the game - EA previously denied that the rumored $300 million budget was true, but development continued and then the advertising campaign kicked in, and there were ongoing staffing costs (prompting the two rounds of layoffs), so who knows what EA's total outlay is.  Still, one would imagine that gross revenues that can be no lower than $210 million would have put a dent in it. 

The catch is who gets the $210 million.  The store doesn't put the box on their shelves and pay an employee to run the checkout line for free.  The distributor doesn't ship the boxes to the store for free.  The pressing plant doesn't make the DVD's and stuff em in boxes for free.  WoWhead doesn't run full border ads for games that compete with WoW for free. 

For console games - not a perfect analogy because the console maker collects roughly 20% off the top - figures that are routinely cited give less than 50% of the revenue to the developer and publisher (in this case the same corporation).  The numbers get much more favorable for direct downloads and recurring subscriptions, which is a big part of why studios like them, especially since they're often serving multiple gigabytes in patches to even the retail customers.  This, in turn, is why the high churn rate hurts the game's outlook so dramatically - one of the biggest benefits to the developer to having a monthly fee is that they get a much larger cut of that revenue compared to the initial box sales. 

In this context, it starts to make sense why EA is throwing around numbers of half a million subscribers - it's never been stated for precisely how long but presumably a few years - to break even on this game.  If they're keeping only half of that initial revenue, seeing box sales decline in both volume and pricing, and continuing to bleed hundreds of thousands of subscribers each quarter, it's going to take a long time for them to break even on even $300 million in total development plus marketing costs.  One wonders if the picture would have been different had they gone online only - but I suppose EA's console retail presence wouldn't have allowed them to try such a move. 

3 comments:

Wilhelm Arcturus said...

And then there is the cut that LucasArts gets, which I am sure is some percentage of revenue with a minimum amount.

Yeebo said...

If by "we need 500K players to break even" they meant "we need 500K steady subs for a few years" then EA was being very seriously misleading. Unless EA was lying in all but the letter of their statements, they shouldn't need 500K subs for more than around a year to break even. If they aren't at least slightly into the black on SWTOR by now (8 months out, at least 550K subs still), they have pretty much lied to everyone.

Bhagpuss said...

Some recent estimates on the costs have been closer to half a billion dollars. You could make a couple of blockbuster movies for that. Wouldn't take five years, either. Makes you wonder who would want to invest in something of this scale. For a while, not many I'd guess.

On the other hand, if TOR is still here in five years, long-since recovered its costs and pumping money, maybe it won't look such a bad investment after all.