Just after New Year’s Day Paul Tassi wrote an editorial piece for Forbes.com titled Predicting the Biggest Video Game Disaster of 2014: The Elder Scrolls Online. As I read this piece it became clear that Tassi’s prediction was based on the choice Zenimax, developer and publisher of the game has made on how to monetize the game – a fixed price monthly subscription. Tassi writes: “Console players, and hell, most PC players these days that aren’t die hard WoW or EVE Online devotees, have no place for the increasingly outdated monthly subscription model.”
Tassi also slights Zenimax for producing a big-budget MMO (rumors put the budget north of $200 million, a figure that seems reasonable to me based on the reported size of the team and the length of the game’s development.) I agree with Tassi that multi-hundred million dollar MMO budgets are unlikely to generate enough long term success to justify the risk involved, but I take issue with Tassi’s dismissal of the classic subscription model for monetization.
If we consider the MMOs that generate the most revenue in the Western market (North America, Europe, Russia, and Australia / New Zealand) a sizeable majority of the revenue being generated is in the form of monthly subscriptions. The era of MMO subscriber transparency has ended but we can still make some educated deductions about these revenues and subscriber totals.
It’s impossible to confirm these figures without the cooperation of each game’s developer and none of them are going on the record anymore with these figures. But by triangulating from press releases, SEC (and other government filings), talking to industry insiders, and looking at anecdotal evidence from many sources, we can get into the ballpark for some analysis.
Here are my estimates for the top* MMORPGs in the Western MMO market:
*I don’t have a reliable way to estimate the revenue from King Isle’s Pirate101 game, but it could easily be in the middle of this chart based on the comparing it to Wizard101. And I should note that there are games like Ultima Online, EverQuest, EverQuest II, Champions, Lineage, etc. which continue to generate substantial revenues for their publishers even if they are hard to quantify for a chart like this. I also didn’t include games like Webkinz or Maple Story because they’re not really MMORPGs, nor is a service like Second Life. And this chart looks at RPGs, not MOBAs or FPSs within the scope of “MMO” games.
Yes that’s right: I believe that more than $100 million is being paid by subscribers every month in the Western MMORPG market.
It’s even harder to estimate how much revenue is being generated from microtransactions (MTX) but it is extremely difficult to imagine that the revenue even approaches 50% of the amount being paid as subscription fees. Half the subscription revenue is coming from World of Warcraft and Blizzard has just begun to dip its toe in the MTX revenue stream. MTX revenue will clearly increase over the next several years but until and unless there’s a major shift in the market, it will remain a junior partner to subscriptions in terms of revenue generation.
Why the big mismatch with Tassi’s opinion which would be fair to say mirrors the conventional wisdom in the player and development community?
My opinion is that the disconnect is due to not understanding how amazingly successful Turbine’s hybrid subscription / microtransaction model has become and how the amazing success Turbine had with Lord of the Rings Online and to a lesser, but preceding degree with Dungeons & Dragons Online created a Western market approach that differs from the pure Free 2 Play / MTX model of the Asian market.
Let’s review why the F2P/MTX model makes so much sense. Here’s a diagram that describes the function of how much revenue is generated by various kinds of players:
The Y-Axis is revenue paid per month. The higher up the line the more money a person is paying. The X-Axis is the number of people willing to pay at that level. The traditional subscription system creates the “box” in the middle – a certain number of people are willing to pay the fixed-price subscription. The problem with this model is that there are some number of people (in the green area) who would be willing to pay more per month but can’t because the subscription price is capped, and some number of people (in the purple area) who would be willing to pay something but can’t or won’t pay the full price subscription amount who generate no revenue because the subscription is the minimum payment for entry to the game.
The microtransaction systems that originated in Asia seek to capture this entire diagram. For the people in the green area games offer all sorts of premium items and services above the base subscription price. For people in the purple area games offer some content at a reduced price or allow people to play without paying anything but allow them to gain some convenience or accelerated progress if they pay something.
One of the big take-aways from the Asian success with microtransactions is that the area above the subscription box may be larger than the area inside the subscription box. In other words games that rely solely on a subscription may be losing access to half the potential revenue they could be earning. The amount in the “long tail” of some revenue but not a full price subscription can be pretty substantial as well and is ignored by a publisher to its financial detriment.
In Asia, subscriptions are hard. Many (most?) people don’t have access to credit cards. They often play in game centers and gaming cafes rather than owning a gaming system and playing at home and the business model of those game centers is to charge a fee by the hour to rent a computer and that revenue is augmented by selling game credit and microtransaction currencies by the game center operator. These structural problems mean that games which require a subscription face an uphill struggle in Asia and may partially explain why none of the major Western MMORPGs have succeeded there except World of Warcraft (which is flexibly priced in Asia and Blizzard has worked very hard to make a business model that makes sense for its Asian partners.)
However in the West subscriptions are a preferred system for many consumers. People like the ease of not having to worry about paying to play a game every time they log in. They like the idea of paying a known, fixed price and not feeling required to “pay to win” when they play. Subscription services are extremely commonplace: cell phones; cable/internet service; Hulu; Netflix; health clubs, etc. are a common facet of everyday life.