A Critical Look at Turbine's Status

Roger at Contains Moderate Peril has a summary of some of the recent developments indicating that all may not be as well as gamers believe at Turbine, makers of Lord of the Rings Online and Dungeons and Dragons Online.  The fate of any one studio or project aside, Turbine's status matters because DDO's relaunch kicked off the modern wave of free to play revamps.  Bloggers like myself frequently cite the company's content-selling approach as an alternative to the more subscription-driven models at studios like SOE and Bioware. If Turbine's situation goes south, there are implications for the entire industry.

The missing context of DDO's revival
Turbine's success is often taken as gospel based on press statements that lack context.  Yes, revenue increased by 500 percent over the first two months after the famous DDO re-launch.   Yes, even the subscriber numbers went up 40%.  What these relative numbers lack is a baseline.

For a nine month period while Turbine was revamping the game, no new content was added - a situation which would be tailor-made for increased subscribers after the next big patch, even if there had not been the hype of a relaunch.  Revenue would almost certainly have been further depressed by some players choosing to cancel their subscriptions and await the relaunch before paying more.  If we assume that Turbine's press people chose the most favorable numbers - which is their job after all - then that 5-fold increase is not a realistic baseline.

None of which matters if the increase in revenue were sustained.  I've been arguing since 2010 that the limited data we have does not bode well on that front.  According to a 2010 Game Developer's Conference talk - to my knowledge, the only such information Turbine has disclosed - the DDO's top ten revenue items included five one-time account unlocks, and three additional purchases (character slots, supreme +1 and +2 tomes) that are paid for only once per character.

We don't know whether this trend continues.  That said, my experience with the Turbine model has been that customers can expect somewhat high one-time costs in setting up their accounts, but longterm savings that are significantly below the price of the subscription.  This year to date, my total expenses are $25 for DDO and $40 for LOTRO, and both purchases will carry me well into next year.  I'm not a heavy player of either game, but those numbers pale in comparison to what even an infrequent subscriber will spend.  To the extent that my experience is representative, I suspect that Turbine's revenue has definitely dropped off from that one-time re-launch peak.

(As an aside, one analysis of the studio's 2010 sale to Warner Bros indicated that the studio had previously raised at least $100 million in investment capital, which would make the rumored $160 million sale price an underwhelming return on investment.  While I'm largely ignorant of how investors compare annual operating profit to the purchase price of a company, my guess is that there is an upper limit to how well the games can have been doing at that time.) 

What we can tell about today
As Roger reports, what little we know of Turbine's status this year includes layoffs, hiring of senior officials with job descriptions like "responsible for our digital technology platform that helps drive online engagement and monetization", and the termination of foreign language support for DDO.  What we are seeing on the game development front is not more heartening.

Turbine's major releases this year in both games have drawn fire for uncharacteristically high rates of show-stopping bugs, even after a high profile delay to this year's Rohan launch.  Prices have trended upward, with DDO's latest high level adventure pack coming in at 750 Turbine Points, compared to 450 for most releases in 2010, and expansions (themselves a new thing to DDO) coming in at $50 for the cheapest DDO bundle that includes the new class and $70 for the LOTRO bundle that includes the game's first bagspace increase since 2007.  Turbine was quick to promote 2011's Isengard expansion as the best-seller in the studio's history, but I haven't seen even such vague comments on either of this year's releases. 

Meanwhile, monetization is indeed on the rise in Middle Earth, with apparel mannequins displaying cosmetic outfits that initially appeared in the most remote, dangerous locations in the world, a $10 cosmetic purchase that lets Dwarves take off their shirts, and the joke hobby horse with its hypothetical $50 price tag.  Meanwhile, it feels like buggy and unpopular systems - kill deed grinds, legendary item grinds, holiday festival grinds, etc - are being retained in part so that fixes for them can be saved for the cash shop.

None of these individually allows us to distinguish a for-profit company making reasonable efforts to increase revenue from a less favorable scenario in which the studio is struggling to maintain revenue as the short-term gains from the game's front-loaded business model are translating into non-subscribers who no longer need to purchase much of anything.  All of the above collectively, however, starts to suggest the less-cheery scenario.

2013: make-or-break year?
I don't think Turbine is going to be the surprise MMO studio closure of 2013, but I do think this may be a moment of truth for the company.  According to a 2008 press release, the LOTRO's license for the intellectual property runs through 2014 with options to extend it through 2017.  Having a sudden and unfavorable chance in the license terms is the one thing that can suddenly kill a game that had been coasting along without issues.

We don't know the terms of the license, and it's certainly possible that Warner Brothers has the clout to negotiate a more favorable rate if they feel it's worth their time.  The big question is whether it is worth their time, or whether this was primarily a transaction intended to net the parent corporation online community transaction technology and infrastructure.  I'm certainly hoping it's the former given my investment in Turbine's games, and their generally enjoyable qualities.  Time will tell whether that view is realistic.