The Measure of Success

Wilhelm‘s provocative My New Scorecard post and comments got me thinking. What does it really mean to be a successful MMO financially? I’m mainly referring to professionally developed games with “real” funding.

In the wake of WoW’s success, many many studios have put projects in development. Nothing breeds interest in success like success, and a success like WoW’s can sure flush out the dumb money looking for a sure thing. So there is probably more opportunity to get a project off the ground then there was in 1997, but with those opportunities probably come more serious expectations that can dramatically affect a project’s development (e.g., Vanguard, Ryzom or Gods & Heroes).

From what I’ve read, it seems most “real” MMOs are taking anywhere from three to five years to develop. PotBS and Age of Conan have been in development for about 5 years, LotRO (with its sordid past) even longer than that (though admittedly not with the same “owners” if you will). Note these were in the works before WoW launched, let alone became the success it is.

Building these games takes time. Post-EQ2/WoW/Vanguard, they will take even more time since the market is expecting a much more polished and complete product on launch.

To make these games, investors must be patient and risk tolerant. Not exactly abundant commodities in the technolog community. At least if you’re making a movie and have shot the film, you can recut it into something at the end of the day, even if its complete crap to get to revenue (can you say straight to video?).

Not exactly the same case with a software product. Mostly it works or it doesn’t and you can’t really ship if it doesn’t. Couple that with the fact that if you can’t keep the servers running, there’s really no point in launching an MMO (e.g., Auto Assault, Ryzom).

So what’s it take to develop a new MMO? A few wild guesses, but as something between a software company and a services company, I’d be surprised if a real MMO could be developed these days for less than $20 million. With the complexity of the project and the polish required, I’d expect new games to have development budgets (eventually) more along the lines of movies– $100 million+.

If you think $20 million is a lot of money, do the math over a project’s development and see what you think. Its not. That’s only an average $4 million burn each year for each pre-revenue year. Much less at the front end, probably much more at the back end as pre-launch activities ramp up. The near-launch hype machine I’m told, can be millions in its own right.

So assume you’re selling the box for $50 and tagging subscribers for $15 per month. If you sold 250k boxes and held those subscribers for a full year, you’d return a little over $16 million, with the hope of about $3.8 million in recurring revenue for each following year that you could hold 250k subscribers. So if you’re lucky, on a $20 million budget with 250k subscribers for two years, your investors may break even after seven years.

Hardly the value proposition that most of the new crop of investors sniffing around the MMO world would sign up for. Why do that when you could throw $2 million at a web 2.0 widget company and get even 2x or 5x on your investment in 3 years?

No, I suspect that WoW may have really changed the game game. I think we’re beginning to see just how far the bar has been raised. 250k or even 500k users probably just doesn’t cut it as a target for a new game.

Yes, there will always be small games, but until there is really a technological change that can replace dozens of developers, coders and artists working thousands of hours to produce a top notch game, I wonder how many smaller or independent games will be able to grab the attention of the community accustomed to blockbuster releases.

Is this the beginning of the Hollywood-ification of the MMO space?

One thought on “The Measure of Success”

  1. Financial success if about investment-vs-return. If you put in less money, you’re probably not going to see sales on the scale of blockbuster titles, but you might come out just fine since you don’t need as much money to recoup your losses. Some big Hollywood blockbusters took over 100 million, even 200 million, dollars to make. The Blair Witch Project put them to shame when it made notably less revenue (millions, but not hundreds of millions) but took only 20 or 30 thousand bucks to produce. Their investment: return ratio was much, much better than most blockbusters.

    MMO developers should start out with a similar mindset. Don’t try to invest as much as the big dogs. Start with smaller projects that appeal to consumers in a different way. If that works, the developer can invest more in each project and gradually ease their way onto the same playing field as the big dogs. A lot of creators probably shoot themselves in the foot by over-reaching. It’s probably best most of the time not to begin with your dream project. Save your dream MMO until your smaller games have increased your resources.

    Of course, I’m not a professional game developer, so maybe I’m just dreaming.

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