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May 09, 2007



(((Bruce Sterling's mmorpgchart)))

You don't mean Bruce Sterling, the futurist and science fiction writer. You mean Bruce Sterling Woodcock, maintainer of MMORPG subscription charts.


Also see Vivendi Games and financial analysis of the Blizzard division WoW game http://www.vivendi.com/ir/download/pdf/VIVGames_EuropeRoadshow_June2006.pdf


There have been a few more developments in this story since the original SEC report was filed in November 2006. According to a news article here, last month Interplay sold the entire Fallout IP to Bethesda for $5.75M. Interplay still plans to develop a Fallout MMOG, but now that Bethesda owns the IP, they have imposed a few requirements and restrictions on Interplay:

Interplay may not sublicense any part of MMO development without Bethesda's approval. The MMO "must meet or exceed such quality standards as may be set by Bethesda from time to time" in order for Interplay to remain in good standing, and Bethesda has the right to inspect Interplay's offices and development progress at any time during normal business hours provided two days' notice is given. Furthermore, Interplay must enter "full-scale" development of the MMO with a minimum of $30 million in funding by two years from the signing of the agreement, or it immediately forfeits its rights to the license. The company must launch the game in North America and Europe within four years of that development commencement date, with the potential for a one-year extension if development is progressing adequately, giving the game a final release date limit of April 9, 2014.

In return for granting Interplay the MMO rights, Bethesda will receive royalties of 12% of sales, subscription fees, or other revenue generated by the game.

Despite having seen similar processes up close over the past few years, I have to admit a perverse interest in the negotiations surrounding the Fallout MMOG. Negotiating and funding a MMOG is a process not unlike sausage making -- licensed MMOGs even more so -- but every now and then it's fun to see the horrors through which others must wade.


Many thanks for highlighting this Dan, as I found it not only of great interest as a researcher, but also in my role as a Lecturer in Corporate Finance.

Indeed, I'm currently writing a seminar based around the numbers detailed in that presentation for students to go through varoius investment appraisal tools (NPV, IRR, Payback etc) and to gain an idea of the issues to do with information asymmetries and a changing environment (as pointed out by Samantha above; many thanks for that).

I have to admit a little scepticism at some of the things in that presentation, as, of great interest to me was despite the fact the presentation displays an awareness of the current MMO games and their market share, it fails to display those games in production. One would think, when proposing a project for completion in 2010, that someone might want to mention the sheer volume of other MMO's currently in production due to the success shown by Blizzard and Warcraft, with practically every major PC games maker not in the market at the moment having at the very least one MMO in production. However that information seems to be somewhat lacking on those slides.

The scale of the budgets though is possibly one of the biggest indicative factors which I can see as to MMO success as time is progressing. A recent Vivendi presentation was talking about 80 million Euros invested in Warcraft. Fallout MMO is estimated at $75m. In the face of the "big budget" games companies future plans, it raises the question of many of the lower budget games can succeed? Or indeed, is this an indication that many companies have not learnt the lessons of "Matrix Online".

One of the most worrying figures in that presentation was the break even subscriber numbers as well. 1m people. If a large amount of big budget games are going to hit the market, each of which need about 1m subscribers, at the very least, to start to break even, I can see a large number of rather dramatic flops and failures in the future of the industry. We'll most probably see some successes in the future, but just like the movie industry, for every Jurrassic Park, you get a Last Action Hero.. or two.


In a similar vein, this might also be of interest to people regarding Gravity.



The sheer number of games in development would be a daunting number, but also highly misleading. Most (roughly 9 out of 10) will never launch. Historically, half of those that do launch will limp across the finish line, making barely enough money to justify keeping the servers turned on and a few people working maintenance.

It's boom or bust in this business, moderate, "slow burn" hits like Eve are the exception.



Oh, on the low budget issue: Smaller budget mean smaller expectations. You could build a game comparable in complexity and production values to EQ1 or DAoC for under $5M (after all, those games cost less). Of course, just making those games over again would be pointless, trying to compete with the highly evolved WoW or LOTR would leave you scraping the bottom of the market barrel (although Runescape indicates there's a lot down there at the bottom of the barrel).

But there were a lot of game types that fell by the wayside, not because they were bad but because they didn't promise the immediate Big Payday of the Diku clones. There were 3 attempts at a space exploration and exploitation games, only Eve hung around long enough to show there was actually a market there, even if a smaller one. Planetside "bombed", but would the same game, revised for lessons learned, do better launching fresh in an overall market more than 10 times larger? 25K population was a failure, 250K would not be.

Even all the way at the bottom, at the sweat-equity-and-ramen level, there are still opportunities. There are so *many* different kinds of games we could make.




Do you think then we can draw many parallels from the movie industry in this instance? You will, after all, always have the big studio's competing with the big "blockbusters" with huge budgets, however there is still scope and space in that highly competitive market for smaller production companies and movies, and indeed, even independent small scale works.


Single-user games and music would compare better to movies. Server-based games cannot be copied and can benefit greatly from word-of-mouth marketing.


As a consumer of MMO's, it's wonderful and exciting to see that Blizzard isn't the only one willing to risk huge buckets of money on an MMO. For a while, I though they might be.

Other things being equal, given the choice between $2m worth of content and $40m of content, I'm likely to get more gaming value out of option B.


Dave Rickey said The sheer number of games in development would be a daunting number, but also highly misleading. Most (roughly 9 out of 10) will never launch. Historically, half of those that do launch will limp across the finish line, making barely enough money to justify keeping the servers turned on and a few people working maintenance.

It's boom or bust in this business, moderate, "slow burn" hits like Eve are the exception.

I agree with you on the rough pre-release failure rate, though of course it's difficult to tell -- some fail at the announcement stage ("we're making this cool game and have a spiffy web page!"), others die somewhere along the way. This ratio doesn't seem to have changed greatly in the past ten years either.

But I've looked pretty closely at the commercial success rates of those games that have released, and they're better than you make them out to be. While looking into this required using some non-published sources and some interpolation, the rough numbers are pretty clear.

Of the roughly 38 major (and some not-so-major) MMOGs or virtual worlds released in the US between Meridian 59 and World of Warcraft, about 65% were significantly ROI-positive (that is, not just limpingly profitable). If you remove from that calculation those games with a low development budget (under $3M), the percentage jumps to about 71%. Finally, looking at the list, if you take out EA's four biggest commercial failures in this space -- Majestic, Motor City Online, Earth & Beyond, and The Sims Online -- then the number jumps to about 83%.

Those left in the ~17% hopper include games like Asheron's Call 2 and The Matrix Online (others like Auto Assault came later).

Now compare this to games that depend on retail/box revenue, where the profitability rates are more like 5-7% -- that is, 95%+ of all (non-recurring revenue) games you see on the store shelves will never make money. This is why people believe games are a hit-driven business, and rightly so when looking at retail revenue models. When you move the revenue model online, either subscription or pay-per-item, the ratios change dramatically.

Regarding stratospheric budgets, these are as much as anything else a way to scare people out of the market. You don't need to spend $20M -- much less $75M -- to make a highly profitable MMOG or virtual world. You can spend -- or more pointedly, bet that money and four years (the "40/40" plan - $40M and 40 months), but you can also spent a small fraction of that and come out with a more focused product that is more likely to be significantly profitable.

There are good reasons to make a $75M MMOG, just like there are good reasons to make a $250M action-packed movie. OTOH, you can also make a $5M (or less) MMOG that does quite well, just as you can make a movie for $10-20M and have it be wildly profitable (Napolean Dynamite was reportedly made for less than $500K). Thinking that more budget equals more revenue just increases the likelihood of a defocused design, a longer development period, and a longer ramp to profitability in a continually changing market.


I think I'd include a few in the "limp across the finish line" category that you wouldn't, like Planetside and Anarchy Online. Although they both eventually earned out, it was by much narrower margins than is typical. If they had been EA games, they would have been shut down. But yeah, if you eliminate EA titles from "Major projects that launched and closed", all you're left with is AC2. EA's belief that anything less than UO's ROI represented a failure led them to close games that could have kept running, on the strict income/ongoing cost accounting.

But yeah, compared to single-player games, the potential for a marginal or better success once you reach launch are much better.

Big Scary Budgets and doom/gloom pronouncements are competitive tools for the bigger companies though, have been for a long time. Certainly I wouldn't try to make a Diku-clone for a shoestring budget now, that window is closed forever. But there are a *lot* of games we could make for $5M or less that could easily get the 50K+ subscribers for a good ROI, with the potential for a "lightning strike" hit that would repeat the UO/EQ experience.



Before taking the GAAP numbers to be representative of MMO development, I'd strongly suggest looking very carefully into the "REVERSAL OF CERTAIN PRIOR YEAR ACCRUALS AND ACCOUNTS PAYABLE" section. Likely relates to royalties treatment. Needless to say, reversing payables liabilities over over 100% net income is highly unusual and hopefully not a core tenant to the financial business model attached to such beasts.


Dave Rickey wrote:

Certainly I wouldn't try to make a Diku-clone for a shoestring budget now, that window is closed forever.

Wanna bet? :)



Well, in a way, we are, aren't we? You know the territory as well as I do, I assume whatever you're doing is far enough from EQ and WoW that it will potentially benefit from the market growth without going head to head with them.



Yes, that's true. We are certainly already betting.

The thing about the market is that it's not about being ahead of WoW, at least in the sense that most people would use the term, unless you're operating at the AAA scale. For instance, look at Sherwood RPG (http://www.maidmarian.com). They're up to over 100,000 uniques a month, I believe, and it's making a nice living for the creator. The only way it's "ahead" of WoW is that it's free and more accessible. It's using an extremely simple DIKU model for gameplay.

I guess if accessibility is part of "being ahead" then I'd agree with what you're saying. (Part of accessbility is not having a subscription fee as I see it.)


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