MMO Box Sales And Defining Success
There’s an interesting discussion raging in one of the articles I wrote last week between Samus, Pascal and myself about the finances behind MMOs and how, when and why they can be considered successful. It was all sparked off by the sweeping statement (what’s wrong with sweeping statements? everyone in the world loves them) I made in the post about how success for these games is measured in retaining subscribers not through box sales and that was challenged. Let’s explore that a little.
First up, let’s look at the term “success” because, after all, it’s very subjective indeed and varies not only from person to person but from situation to situation. For you, success might be climbing Mount Everest or creating a billion dollar company but for me, success might be measured by having a good day at work, completing a video game or managing to impregnate my wife. In the case of MMOs though (and particularly for these discussions), I determine success as being sustained long term profitability. Now maybe I watch too much Dragon’s Den but the bottom line is that the people pumping money into a company want to see, within three to five years, a good return on in their investment. Simply getting their money back ain’t going to cut it; they want a healthy profit to outweigh the risk and time involved.
And I think that’s a pretty big point when it comes to the impact that box sales make on MMO finances. They may cover some costs, but they don’t make an large dent on the profitability of the game, which is ultimately higher than the sum of its initial investment. In fact, I and a lot of other bloggers tend to believe that this profitability can only come from retained subscriptions.
For instance, if a MMO costs $50 million to make (which THQ just came out and admitted for Warhamer 40K) and sells a reasonable 750,000 box copies, assuming the gross profit per box is $20, the developers net $15 million. So unless I’m missing something fundamental here, even if the game sold a million units plus (which is pretty rare for a MMO), they’d still be well shy of covering their development costs before even trying to generate a profit to pay their investors a dividend with.
On a side note, I think it’s worth mentioning that a big differentiating factor between MMOs and other types of games is the number of units sold. MMOs cost, what, $30-50 million and launch to 500k – 1 million sales if they’re lucky. Now contrast this to Grand Theft Auto 4 which may have cost $100 million to make but sold well over 6 million units at a much higher sticker price.
I guess my point is that it appears to be that is indeed long term subscriptions are the real financial driving force behind these games. After all, a person forking out $15 per month for a year is going to net the games company a much more tidy sum than that initial box sale especially when the gross margin on the subscription fee is likely to be a lot higher than on the retail sale (digital sales aside… although for sure another reason why they are so popular with developers). In fact, if this wasn’t the case we wouldn’t have big companies like EA BioWare coming out and saying that SW:TOR needs to rock 500k subscribers to maintain a profit.
Anyway, a lot of this is my conjecture as I’m neither a business man nor have access to financial books of any of the MMOs out there so feel free to chip in with your thoughts. And if you quote me the Guild Wars model I’ll just ignore you politely.