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MMORPG's and how they turn a profit

Pachinko

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Jun 8, 2004
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I was curious and wrote this up well checking some numbers I found on google, thought I'd throw it up on gaf and see what you guys think of the whole debacle and whether or not you can find me more accurate numbers to go by.

1) Development cost for a triple A quality MMO game-
3 years development X 100 staff @ average pay of 75000 per year
tv and print marketing

- 50 million USD roughly -

During the first 12 months, keeping servers up and running based on an average of 500 users per server, 10 servers in a cluster for 5000 simultanious users per cluster and a monthly cost per server of 800$. That means each cluster will cost 8000$ a month. Apparently you should have enough server space to cover 15% of the total number of subscribers at any time.

Given my above example game, that means you'd need enough clusters to hold atleast 75000 players for that entire first year which means 15 clusters X 8000$ = 120,000 dollars a month in server costs. So for year one total costs will be a minimum of roughly 1.5 million dollars.

Next up is bandwidth- Assuming it's a newer high impact world based MMO each user will need 8kb of data while logged in, and if those 75000 spots available are used 100% of the time for that entire first year it apparently could be around 24,000 dollars a month. That works out to 288,000 per year. So far then we're at 1.8 million dollars in operating costs for this game.

Finally community manager costs , apparently CM's make about 33K a year and treat just under 2000 users each so given that with some simpl math it works out to 1.3 million a year to keep 40 of them on payroll each year to provide proper support to the users. There's also a network manager that needs to be available 24/7 so 3.5 employees would work at say 100K a year each ? This means upkeep for the game runs around 3.5 million a year, for easier math I'll say 3.6 million which translates into $300,000 a month, without needing new servers and the leased ones paid for year 2 and 3 could cost only $175,000 per month.

Final cost for the game after 1 year given 75000 concurrent users - 53.5 million dollars

Revenue
This brings us to the revenue side of things, let's first assume that in it's first month of availability this game sells 500,000 copies and for it's remaining 11 months of the first year it sells another 500,000 copies. Given retail price of say 50 dollars, you'd take off maybe 10 bucks for retail/shipping costs and perhaps as much as 5 dollars per copy of associated production costs, giving you as a company 35 dollars of revenue per copy sold.This adds up to 35 million dollars.
Tally so far- 18.5 million in the red.

Okay, so The games in the red after a year without any subscriber fee, this is to be expected given the huge cost of entry and ongoing maintanence costs listed above. In order to break even given the staff and equipment available how much money do you need to charge the customers ? You've got 18.5 million to make up for over the course of a year if you want your game in the black, which if you're a business it's highly likely you need to break even in year 1 and hope your retention is high enough to make a profit in the latter years. Based on a rate of 15 dollars per month @ say 11 months (the first month would be free much like the first hit of acid) you'd need atleast 114000 people paying every month to keep it in the black after that first year, years 2 and 3 paint a rosier picture though because you need 125,000 dollars less money each month to keep the game operating to the same capacity. More importantly if you manage to get those subcribers for 11 months you've also broken even on the cost of initial development, say patching and further development for years 2 and 3 is costing you even 10% of the initial cost minus advertising and breaking even on the 2nd and 3rd year requires only maybe as much as 10 million dollars total. 5 million per year. Breaking even now requires just 30,000 paying subscribers each month. So basically as expensive as these games seem to be , they pretty much pay for themselves with only a moderate amount of sales.

Failure
in fact in order to really be a failure , the initial investment would have to be 50 million still but it only sells say 100,000 copies. Now you've only made 3.5 million dollars revenue on boxed copies of the game and given that most games don't sell so well after that first month, even if you doubled that number for the remainder of the year sales would only give you 7 million dollars. If , as a company you prepared for 500,000 copies you're looking at the same first month or 2 of costs and maybe layoffs and sellbacks of equipment to recoup losses in the time following. Assuming the same retention rate I used as a minimum "break even" number above you'd be looking at subscribtions as low as 10,000 people. At the same monthly rate as above that's only 150,000 dollars a month or after the '11 month' first year 1.65 million dollars of revenue. At these pathetic numbers it'd take nearly 30 years to simply break even on the initial cost. Even with the layoffs and aformentioned sellbacks and such you'd still likely have to come up with 6000$ a month just to keep those 10,000 subscribers online but that cost wouldn't drop that much until likely 2-3 months after launch, so you've got a game that leaves you in the red by 44 million dollars after just 1 year and would take 30 odd years to break even. It's a lost cause. Granted, a smart company can forsee the popularity of a game to some extent and hopefully catch it when it starts to keep it's budget low, say 5 million dollars + 5 million advertising, only 20% the initial cost and they only setup an initial server farm capable of allowing 50,000 players as opposed to 500,000 players. If that were the case you could sell 200,000 copies in a year and still turn a profit. Given the lower cost of the game; however, you'd charge maybe only 5 or 10 dollars a month and the retail price is maybe only 40 dollars. This means that you'd make 5.6 million dollars on the game itself. Monthly maintainence costs would only be 30k a month as opposed to 300k so after a year of costs and everything tallied up you should only require 4.76 million dollars. Charging 5 dollars a month would require 87000 subscribers a month which the game doesn't support given my model, moving to 10 dollars a month means you only need about 44,000 subscribers a month. So the game will break even without too much trouble with less then 50,000 paying subscribers in the first year. The whole point of this paragraph is to demonstrate how companies almost have to work towards failure in order for an MMO to not atleast break even within a year or 2.

Massive Success
Okay, so I've ranted about costs, revunue and how hard it would be to make an MMO actually die quickly, so what about that 1 heavy hitter, how much money is WOW making ?

This is a hard one to answer because it's been out for awhile and it's always growing it's subscriber base and it throws an expansion pack into the revenue stream. I guess we can assume when wow launched , blizzard prepared enough servers to handle 500,000 people (75000 concurrently)which means atleast for a week or 2 the games cost was as described above. I recall they had issues with popularity though because closer to a million copies sold and sold very quickly. I mean it's been out since what 2003? and it's at 11 million subscribers right now ? 15% of 11 million right this minute means enough server capacity for 1.65 million players at the same time, given my above 10 servers to a cluster and 1 cluster being 5000 players ratio that puts them at 330 clusters. Now I'm pretty sure wow has only around 50 clusters but they are likely more then 10 servers a piece, say maybe even 50 servers a piece ? This would put the server cost at 24 million dollars all espenses paid. Bandwidth being about the same as before (16000 dollars per 50,000 users @ 8kb a user) would leave it at 528000 per month RIGHT now, going back in time that cost would gradually drop down to 50,000 a month the first month the game was out. My estimate is about 16 million dollars in bandwidth costs from day 1. Finally staffing costs, there are likely as many as 60 network technicians working round the clock on WOW right now, but just like bandwidth costs that number has only gone up. from an initial 3 to where it is now. That puts their salary at about 15 million dollars so far, community managers, going by the 2000 players per manager average would put the current number as high as 825 of them, again though when the game was released that number was perhaps 40. Currently they are paying as much as 25 million a year to keep these people employed. I figure they've probably spent as much as 100 million on wages for these people since the games inception.

So adding all of these estimated figures togethor with the assumed 40 million cost of the game + the likely 100 million dollar ad budget spent over 5 years + the 20 million of patching/post development costs + 30 million cost of burning crusade/wrath of the litch king you wind up with a total game cost for wow of - 345 million dollars.

Now, the tricky part with wow is revenue. It costs 20 dollars a month in some parts of the world to play it but I'm pretty sure it's more like 5 or 10 dollars in some parts of asia. I'll average out the wow monthly subscriber fee to a sort of comprimised amount of 15 dollars a month as well as averaging out the number of players at 5 million over 5 years(4.5 billion). Next I'll assume that each of those 11 million subscribers got atleast 30 days of play for free, next I'll assume that 30% of copies were sold for 50 dollars(381 million in revenue), 30% at 30 dollars(69 million) and 40% at 20 dollars(61 million). I'll also assume burning crusade is at 6 million copies sold @ a cost of 40 dollars(168 million).

Given these astronomical numbers wow is a HUGE return on investment, makes me believe my numbers are either somewhat flawed or blizzard is ripping us off :p Total revenue to date for world of warcraft is a staggering 5 billion dollars at a total cost of ~350 million dollars. This means for every dollar blizzard spent on the game they made 14 back. Even if my numbers a little low, like say it cost even 1 billion dollars to build wow to date , that's still 5 dollars made for every dollar spent. Absolutly obscene really.

Conclusion
Well I hope you've enjoyed my wall of text, feel free to google some of this stuff yourself and I actually do hope someone comes up with more accurate figures then what I found but until that time I hope you found this an interesting look into the world of MMO gaming. It's really no suprise why so many companies want a piece of the pie when it comes to the genre, people complain when a new one doesn't "take a dent out of wow" but thats pretty much an impossibility at this point. As I've demonstrated though, it doesn't take much of a subscriber base to keep a game afloat. Which is why there are a number of MMO's out there today with subscriptions ranging from 20-150,000 and they still exist and recieve support.
 

ToxicAdam

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Dec 30, 2004
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Where does the money come from to get MMO's off the ground? Outside investors (venture capitalists) or established banks and lending houses? Or a combination of both?

I always thought a great way to make money was to establish an MMO, round up capital from VC's, pay yourself handsomely during development, then pull the plug once the money runs dry. A modern day gold prospecting scam/outfit.
 

Pachinko

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Well that's just the rub right there isn't it? that 53.5 million doesn't just come out of thin air and simply breaking even won't do you any good. You've gotta sell stocks and get investments from hundreds maybe even thousands of people to get say 60 million dollars to keep the game afloat for atleast 3 years and then promise them that they'll make their money back in a year and make X% profit the year after followed by X+y% and so on and so forth. WOW would have been an gold mine to throw money at in the early days. Imagine it's 2001 and blizzards stock is at say 5 dollars a share so you buy 1000 shares of their company, even at the 5:1 return I wrote above you'd make 25000 dollars after only 5 years. Now imagine if you invested 10,000,000 in the company.

This is why I can't imagine it's that hard to get investors, you take a loan of 10 million from the bank and get 10 million from investments and after 3 years you've made say 50 million on the game so the company doubled in size financially, you can hire more people to make more games or simply bank the cash to support future projects without backers, whatever.
 

sankao

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Jan 20, 2007
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Pachinko said:
Well that's just the rub right there isn't it? that 53.5 million doesn't just come out of thin air and simply breaking even won't do you any good. You've gotta sell stocks and get investments from hundreds maybe even thousands of people to get say 60 million dollars to keep the game afloat for atleast 3 years and then promise them that they'll make their money back in a year and make X% profit the year after followed by X+y% and so on and so forth. WOW would have been an gold mine to throw money at in the early days. Imagine it's 2001 and blizzards stock is at say 5 dollars a share so you buy 1000 shares of their company, even at the 5:1 return I wrote above you'd make 25000 dollars after only 5 years. Now imagine if you invested 10,000,000 in the company.

This is why I can't imagine it's that hard to get investors, you take a loan of 10 million from the bank and get 10 million from investments and after 3 years you've made say 50 million on the game so the company doubled in size financially, you can hire more people to make more games or simply bank the cash to support future projects without backers, whatever.
True for all the software industry. Very high risk, but matching ROE.
 

Farnack

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Mar 18, 2008
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Be WoW or take the SoE route. SoE puts very little resources into their MMOs which makes them viable MMOs to run.
 

Grayman

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Feb 7, 2005
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ToxicAdam said:
Where does the money come from to get MMO's off the ground? Outside investors (venture capitalists) or established banks and lending houses? Or a combination of both?

I always thought a great way to make money was to establish an MMO, round up capital from VC's, pay yourself handsomely during development, then pull the plug once the money runs dry. A modern day gold prospecting scam/outfit.
There were articles when Turbine secured venture capital for DDO and LOTRO.
 

Pachinko

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Extending my whole thread to standard non mmo fare is done fairly easily as well. I mean EVERY triple A product out there has had atleast 35 million spent on it for say a newer pc, ps3/360 title. Development/advertising adds up very quickly you see. The issue is that there is no monthly subscription for these games so they have to make back their money in other ways, I mean the average triple A console title these days has a 60 dollar and even upwards of an 80 dollar version. At 60 bucks , maybe 42 dollars is going back to the company per copy sold and at 80 dollars as much as 56 dollars goes back to the coffers. This means at say a 1:10 ratio of limited:regular for release you need to sell about 810,000 copies to break even. The problem is that for every game that sells through a million copies there's 3 that sell half that. Given the amount of money involved the games that sell only 400,000 have to hope that they can sell a shit ton more at perhaps a discounted price or else their publishers are going to be in the red by 17 million large.

So this is where things like downloadable content and micro-rape-ments come into play, if even 40,000 of the 400,000 owners spent another 20 dollars buying useless shit in game with real money that's another 800,000 $ in revenue. Now your company is only in the red by 16 million and well perhaps you'll sell another 400,000 copies at 50% off which will get your nearly 9 million dollars. What if you get another 40,000 suckers to buy your DLC, now you're only in the red 4 million dollars perhaps a year later. This is a situation faced by many developers/publishers these days and other ways of compensating that don't involve DLC may include spending 5 million dollars to port this game to another platform where it can perhaps sell a further 400,000 copies but this time at full price, oh look at that now you've broken even on the whole affiar! or spending even a couple million on making a version of the game for handhelds with a smell developer, now it needs to sell only thousands of units to break even instead of hundreds of thousands of units. As a plus you can also make 1 advertisement for every version of the game and well, maybe this 42 million dollar investment will get you 45-50 million after a year of availability, everyone makes their money back but it's tricky to really get a return on the investment. It's why any company that isn't huge these days is dying off, they still spend the 40 million making a game and only make 25 million back, it doesn't take too many duds to declare bankruptcy or live off loans. So you can either die off, sell off brands to bigger companies or just stick with 4-5 million dollar products that can generate 7-10 million in sales.
 

Jackson

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Mar 16, 2007
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Pachinko said:
This is why I can't imagine it's that hard to get investors, you take a loan of 10 million from the bank and get 10 million from investments and after 3 years you've made say 50 million on the game so the company doubled in size financially, you can hire more people to make more games or simply bank the cash to support future projects without backers, whatever.

Cool, 10m loan from the bank? No problem! Another 10m from VC? Sure, why not? The bank was down with you right? :lol

Take it from someone who knows what they're talking about -- reality is a lot harder than you think my friend.

Also, you'll be lucky if you can do a AAA MMO in just 3 years, WoW? Took 5 and had a headstart from battle.net and it's previous monster hits.

But maybe I shouldn't be the wet blanket on someone else's dreams :(
 

_Xenon_

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Nov 27, 2007
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Pachinko said:
wall of text.
This sounds really sucky for game developers. Either they are lucky enough to work in a huge game company such as Activsion / UBI / EA (any more?) or they end up jumping through multiple small companies trying to find a stable job. Well, who should we blame this time?