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Profitable or Not?

William Murphy Posted:
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In my most recent MMOFTW show, I chose the City of Heroes closure by NCsoft as one of the year’s top MMO-related news stories. In the segment, I mentioned that CoH was not profitable, and this is why it was shut down in November. Why? Because this is what we were told by NCsoft as one of the driving reasons behind the closure of the game.  Several readers reached out to tell me this was inaccurate.  But more than that, former Paragon Studios and NCsoft employees reached out to our own Rob Lashley to tell him what they believed to be true regarding the studio’s earnings in a phone interview.

The source requested to remain anonymous, but also wanted to make sure they got across that they're not trying to vilify NCsoft in any way, shape, or form. They just want people to know the “truth about the closure of City of Heroes”.  That said, we also reached out to NCsoft for comment on the details the source gave us. I’ll present them both to you here.

First, in an easy to read bullet point format, are the anonymous former employees' claims, from Rob Lashley's notes on the call:

  • CoH was profitable even before they converted to Free to Play but were even more so after the conversion.
  • The studio’s total annual operating cost was 4 million USD.  They grossed 12 million in revenue annually.
  • NCSoft paid $8 million USD to buy CoH. They wanted $80 million USD to sell it. They only value it at $3 million for tax purposes.
  • CoH had a high retention rate. Subscribers had a stick rate of 95-98%.
  • NCSoft has no plans for a CoH 2.  Paragon wanted to do it but NCSoft was growing ever more uncomfortable with a Superhero IP, worried that it wouldn't work in today's market.
  • Brian Clayton tried to orchestrate a management buyout of Paragon starting over a year ago because it became progressively more difficult to deal with NCSoft. They had created a Kickstarter page and a campaign video, but it never went to press.
  • They (Paragon) had a second project in the works. It was a compromise to not being able to make CoH 2.  It was the show "Lost" meets Minecraft.  You crash-landed on an island and you were able to build your own fortress and weapons. You teamed up with other players to tackle the mysteries of the island.
  • NCSoft tried to work with Paragon, they really did.  But the profits were not what they needed to be, and CoH/Paragon were the weak link in NCsoft's lineup moving forward.
This is our post-mortem with Matt on the game, for more info surrounding the final months of CoH

When we reached out to NCsoft for comment, they were candid in their response. Here is the statement from NCsoft's Director of Corporate Communications, Lincoln Davis:

"It is disappointing that such inaccurate information was provided to MMORPG by an anonymous source and is being reported on as news. The operating cost, annual revenue figures and other financial information shared by this anonymous source are simply wrong. The studio was unprofitable before the shutdown. Both NCSOFT and Paragon Studios were incredibly proud of the transition of City of Heroes to a Free to Play business model, but unfortunately it wasn’t enough to support the studio’s needs. We made the difficult decision to close Paragon Studios and sunset City of Heroes because the franchise no longer aligned with the long term profitability goals for the company.

"While we looked to sell the franchise multiple times, we were unsuccessful in finding a suitable partner that we thought would support City of Heroes’ fans in a manner they were accustomed to for years to come. Closing a studio and sun setting a beloved franchise is never an easy thing to do for the publisher, the developer or the fans. This was not an easy decision to make. The Heroes and Villains have taken to the skies of City of Heroes for the last time, but the game and community will remain in our memories. We truly thank our fans for their years of support and we hope they understand the difficult position we were in when making the final decision."

This complies with to the notion that NCsoft tried to work with Paragon to make things work and keep the game alive, but the Q2 2012 Earnings Report seems to jive with our anonymous friend's claims. CoH seemed to, at least during that window, be bringing in around 3-4 million dollars a month in revenue.  What that doesn't account for however is how much overhead the game had to contend with and if the $4 million annual overhead claims by our source is correct. The report doesn't specifically state how much CoH cost to maintain.  MMOs are expensive projects, as we well know.

What our source did tell us is that about 80 people were employed at Paragon Studios, and even if the average income for all employees there was $50K a year, that's still $4 mln a year in just wages alone and I'm estimating on the low end of the pay scale. Add in benefits other taxes and that number increases dramatically. And that's just labor costs. Still, one has to wonder how much it cost to actually run and maintain City of Heroes. In the end, this could be a simple case. CoH may have been making a profit, but that profit margin was likely shrinking through Q3 (the game was omitted from that report). Rather than continuing to scale back the game until it was on life-support, it's possible that the businessmen at the company decided a more suitable fate was to end the game's life altogether rather than let it become a financial viability and 'wither on the vine'.

But even with that hypothetical, it's a sad tale to see one of this genre's earliest blockbusters burn out prematurely, when other older titles are still around to live on. Perhaps NCsoft did everything they could, and perhaps Paragon tried valiantly to find backers elsewhere, but the game is still closed (like so many others, I might add). In the end, despite how disappointing and sad it is to see City of Heroes shuttered, an old adage comes to mind: "It's just business."

Be sure to follow Bill on Twitter @TheBillMurphy


William Murphy

Bill is the former Managing Editor of MMORPG.com, RTSGuru.com, and lover of all things gaming. He's been playing and writing about MMOs and geekery since 2002, and you can harass him and his views on Twitter @thebillmurphy.