For the Right Reasons

We can measure facts, but a cause is not a fact—it’s a fiction that helps us make sense of facts.
~Jonah Lehrer, Wired.com

So, I guess Turbine is laying off some workers. To those whose jobs are on the chopping block: you have my deepest sympathies. I hope you land on your feet in a great new place. Meanwhile, there are those jumping at the chance to gloat at your misfortune, ready to draw conclusions not only about the health of Turbine, but the MMO genre as a whole.

Instead of linking to that old PR release about how great LotRO and DDO are doing thanks to F2P, please use this updated link.

F2P ALL THE WAY!
~Syncaine, Turbine finally updates us on the continued success of their F2P conversions

Yeah, because no proprietor of a subscription-only game ever laid off any employee. Syncaine makes a fallacious correlation between a business model he personally dislikes and the health of a company that operates it. (And yes, it's fallacious, because we don't know the circumstances or reasons behind the layoffs.) Syncaine espouses all sorts of valid reasons to dislike F2P. This instance, sadly, is just his schadenfreude showing through.

No game succeeds or fails purely due to its business model. The success factors of both WoW (which has hemorrhaged more players than pretty much all other MMOs ever had) and EVE have little to do with their business model (btw, doesn’t PLEX make EVE a hybrid?) and everything to do with game design. Turbine’s “rightsizing” is business, not game design. We need to look at the design decisions behind LOTRO and other games, as well as external market pressures, to understand why they succeed or fail. Syncaine insists on oversimplifying it to a question of how the companies extract money from players’ wallets.

I'm not saying business model doesn’t influence design. But a crappy, unpopular game will be crappy and unpopular regardless of the business model. And a good game will be good regardless of how the player is asked to pay for it.

Pretty much every game that is not WoW (including EVE) has proven that WoW is a glaring exception to the rule that MMOs are basically a niche in western markets. Every game has its fanbois and haters, regardless of its relative success. And every fanboi thinks his favorite is the result of superior game design.

But Syncaine has declared himself arbiter of both quality and success. He has "yet to see a great F2P MMO," but he's also the one determining "great." He knows "what a great sub MMO looks like," but again that is his personal opinion. This reminds me a little of the SCOTUS definition of obscenity.

I assume Syncaine is playing EVE. He certainly holds it up as an example of great game design. I don't dispute its success, but I would never play EVE, given the tales of what I consider dickish, unethical, and downright criminal behavior of the players. All explicitly allowed by the premise of the game. That's not a great game, in my opinion; and it's by far a distant second in success to the behemoth that is WoW, a game that Syncaine deplores, if I am not mistaken. And when we take into account that the average EVE player allegedly has upwards of 2.5 accounts, Syncaine's 500,000 accounts translate into maybe 220,000 really enthusiastic players. So about the same number of subscribers as LOTRO from what I could gather; though they pay far more per player.

I love TSW, but I don't subscribe. I throw money at it every once in a while for either "fluff" costuming, or the DLC-style content updates. And I am happy with that. Does it struggle? Yes, but it is in a niche genre. However, I haven't encountered a better progression system (imho) or better content (imho) in any other game. Syncaine, naturally, probably thinks it sucks. But I defy you to find any way that TSW drives players into the cash shop from within the game. The shop certainly is available through an in-game interface, but I don't really think that's what we're talking about when we say a game is "purposely designed to make me use their cash shops," as Xyloxan put it. Maybe LOTRO does, I don't know.

I am past the point in my life that I want to be tied to any particular MMO because I am subscribed to it. You can argue about my level of commitment, I suppose. But there are more important things in my life I have committed myself to than a game. Therefore, F2P is perfect for me, right now. If I don't like a particular F2P system—*cough*SWTOR*cough*—I don't play. I don't play LOTRO either. But the reasons have nothing to do with the business model.

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MMO Economics: Quoting Syp's Quote of the Day

Reading Bio Break today, I got into a discussion which I decided to bring here. The original quote follows.

Things you’ll see in MMOs going forward (IMO):  More player created content MMOs (easier to ship and player demand is there), and more big IPs doing games/box games going to MMO (there’s too much money in the MMO model, F2P or subscription compared to box sales).

~ Carbine Studios’ Jeremy Gaffney

Tanek, a commenter on Bio Break, questioned the veracity of that last statement about there being more money in MMOs, regardless of revenue model, than box sales. Failed MMOs notwithstanding (after all, box games fail, too), I can totally understand the developers' motivation to get involved in an ongoing revenue model.

From my own comments on Syp's post: 

With a box game, even a series, you have to invest money in development and then hope for sales to recoup that investment. This includes DLC, which only sees revenue after the fact. With on an online service, whether subscription or cash-shop, you have an ongoing revenue stream that can be reinvested in further development as well as extracted as profit.

This is why, despite all the complaints by players, so many MMOs ship “unfinished” or missing features player have come to expect. The developers are using sub or cash shop revenues to further develop the game.

Smarter people than I have studied the business model known as razors-and-blades and reached no better conclusion than that it seems to work—and work well—despite some logical economic ".intuition" to the contrary. Regardless of whether the initial box (or razor) is profitable, the subscription or cash shop (the blade), creates a potential for further profits even if the project is temporarily in the red from an investment perspective.

I promised some math on Syp's blog, so here it is. Keep in mind I have no idea what the actual income statements look like for any game developer. I can only some assumptions, one being that the month-to-month operating costs of an MMO do not exceed the revenue, if they do, the company really only has a couple options, change the model or close down the MMO. We've seen both scenarios in real life.

Boxes, or One-time Revenue

 ($100,000,000=$50x2,000,000)

Here is the math for a box-only game. If the company invests $100,000,000 to develop the game and wholesales the boxes for $50 (MSRP $60: remember, the store has to make a profit, too), then 2,000,000 people have to buy the game before the company breaks even on their investment. If they don't move that many boxes, they're basically done. They can reduce the price a bit, but that just means they'll have to sell even more boxes. Oh, and from the time they commit the money for development until the two-millionth box is sold, they're basically operating at a loss of $100,000,000. Chances are that they will have to break even in the first week, or the game will be considered a failure.

One last thing: Once the boxes have been purchased any further revenue for that investment ceases. For a franchise like Madden football, this means the sequel has to be developed with profits from the prior box sales. I'm not saying this is not a profitable business model, but it has its drawbacks compared to the MMO model.

MMOs, or Ongoing Revenue

 ($100,000,000=$50x1,250,000 + $10x3x1,250,000)

Now if we factor in ongoing revenue, the potential for seeing a profit goes up. Same $100,000,000, but now, because we have the ongoing stream, our box sales don't have to be as high. Remember this is based on the assumption that the monthly MMO operation is in the black, making a profit. Let's say we anticipate a $10 profit per month per player and a four month window to break even. To break even on that same $100 million investment, we only have to sell 1.25 million boxes and have people pay for three months of subscription (the first month is typically included). If the game starts at free-to-play, then the cash shop revenue has to generate at least $90 profit per player in the first four months to achieve the same goal.

This does require some patience on the part of the developer/publisher of the game, but the long term profit potential makes it worth it. Obviously, more people may buy the box than will play past the first "free" month. That only lowers the number of people who need to stick around for the entire three months.

If the developer is even more patient, and is willing to push the break-even goal out to six months, less than a million people have to buy and play the game for six months. If two million people buy the box, then the game breaks even on the investment, and every cent of the ongoing profit (operating revenue less operating expenses) goes into the company coffers, enabling future development, updated content, expansions, etc. Welcome to Blizzard.

The Wrap-up

This is why the layoffs at BioWare a few weeks ago and the collapse of 38 Studios are very different situations. 38 Studios never got a chance to see a return on the investment. BioWare is working to bring monthly costs lower than revenues. The recent "soft mergers" are another effort to streamline costs while at the same time improving player experiences. (This has met with mixed success, for various reasons.) There is also talk today that BioWare is considering a move to F2P. While there are many who scoff that this is yet another sign of the failure of SWTOR, I point to games like LOTRO and STO that are still around and arguably doing just fine after changing to a F2P model. LOTRO is well on its way to, what, the third expansion, "Riders of Rohan"?

Obviously I used relatively simple numbers here and pulled them out of my butt. But the principles behind the numbers are sound. Any variances in the profit margins only change the timeframes. It's becoming a recurring theme on this blog that I don't think a game has to boast WoW-like populations to be a success, and comparisons to WoW are not helpful.

The key thing to remember here, from both an economic and accounting perspective, is the concept of sunk costs. Every dollar that goes into development prior the the release of the game is sunk cost. For a box-only game, the only way you'll get further investment is to make a profit on the box sales. In an MMO or other ongoing, service-based game, keeping the operating revenue higher then the operating costs is the only thing that matters. An MMO will continue to function as long as the developer/publisher can accomplish that, regardless of the long-term return on investment. As long as there is a profit to be had in the operation, the investment will eventually break even, given enough time. After that, all you have is profit, which can be reinvested in updates, expansions, and new games.

Developer Appreciation Week

OK, I planned to write this and post it much earlier in the week, but RL and GL got in the way. As it is, I haven't posted this often in a week since I-don't-know-when. So I guess last year Scary Booster founded Developer Appreciation Week to show his appreciation (of course) and encourage other gamers in the blogosphere to do the same. I don't know enough about individual developers to write bios, but I want show my appreciation for the teams that have brought me so much entertainment for the past year and the past half-decade. All too often, game developers are on the receiving end of a lot of criticism (to say the least) from many quarters of the gaming population (including me). In a given game: the PvPers want more battlegrounds or whine about this or that class being over-powered; players of said OP class don't want it nerfed; the crafters want a more robust crafting system; the Raiders want new challenges; the altoholics want more quests; PvErs don't want PvP affecting their play; the list goes on and on. All the while the techies, artists, and storytellers try to keep the hardware and software functioning under tremendous loads, keep player accounts secure, and keep the games fun for everyone.

I want to briefly mention Funcom and Turbine. I tried Lord of the Rings Online and Age of Conan this year; and while neither ended up being my cuppa tea, I did ring a few hours of enjoyment out of them. And the developer teams do their best to support the fans of both games.

BLIZZARD ENTERTAINMENT takes a lot of flak from many directions over World of Warcraft, a game held in contempt by a great many "serious" gamers, and one in which even fans often level tremendous criticism. But you've gotta hand it to the developers of the only true blockbuster MMORPG in the Western World. What other company, in the SIXTH year of of a game's existence, would go back and say that in the next expansion pack they were not going to simply add a new land or continent for purchasers of the XPACK, but completely revamp the original world for ALL players as well, streamlining the content so new players feel just as welcome as the veterans? The people at Blizz have a passion for the game that really does shine through the material.

TRION WORLDS. Holy cow! Rift was not even on my radar until mid-December, when many of my blog and Twitter friends got into the closed betas and couldn't stop talking about their excitement for the game. As far as I know, no one--not Sony, not Blizzard, no one--has managed to launch an MMO with the polish and poise of Rift. A visual style all its own, interesting lore, public group content, and a character specialization system (Soul Trees) that blows every other system I've seen out of the water. On top of this, attentive development and customer service teams that are going out of their way to keep players happy and having a blast in the game. Rift is my new shiny, and I think Trion has probably upped the ante for every new MMO that is released from here on out.

CRYPTIC STUDIOS gets my award for most improved game, Star Trek Online. A compelling game (IMHO) from the beginning, with both an excellent space combat system and decent ground combat and an awesome visual style, STO has shown steady improvement in the first year since launch. They are also the main reason you, Dear Reader, are still suffering through my meandering diatribes and stories. Trekkers are a hard crowd to please, and Gaming Trekkers even worse. By listening to one of the most rabid, nitpicky fanbases ever (topped only by Star Wars geeks) in the first year; despite initial hiccups, the STO development team has revamped the crafting system, redone interstellar "warp" space (I liked the original star charts, but great improvement), introduced ship interiors, added great content, and started  the most compelling series of weekly updates I have seen a game: The Featured Episodes.

FEATURED EPISODES deserve a paragraph all their own. Cryptic devs have outdone themselves repeatedly with every mini-series. They offer compelling storylines; mystery, suspense, even creepy/scary atmospheres; cameos of classic Trek characters; puzzles and branch-specific side missions. I love how each one has a teaser then formally opens with a title shot as my ship warps in to the local star system. The latest series introduced voice acting and moved the whole Star Trek story forward, reintroducing the mythical Iconians from The Next Generation as a new threat to galactic civilization. I have come to look forward to each Featured Episode the way I anticipated each new episode of TNG as a teenager.

Thank you, all those who have joined in the efforts to brings such great games to millions of people. It may seem seem trivial to some (as they sit watching Survivor, or the current sporting event), but these games allow us to explore worlds of imagination and wonder, to control or become powerful beings, to be the heroes (or villains) of our own stories.

THANK YOU!!