World Class Villains

Star Wars: The Old Republic is a high risk title because it is being developed for some good and bad reasons, and will cost too much… and because its core way of collecting revenue is currently on the downhill slide. Although BioWare has been coy about its revenue model, EA management is talking subscription fees. I suspect they mean box sales plus subscription fees plus real money transactions (RMT) because that’s what would get management excited, but the problem with this approach is that the core revenue function – subscription fees – isn’t what it used to be.

History: Or Stuff That Happened A While Ago

First off, let’s look briefly at why subscription fees became the dominant payment model for MMOs.

Neverwinter Nights (AOL). Remember when people say old games were better? They're wrong.

Going all the way back to a time when only the truly nerdy played video games and the internet barely had any porn on it, multiplayer games (MUDs, MUSHes, MUXs, et al) were a lot more flexible in terms of pricing. Some were free, some licensed out rights to interested parties (often computer clubs at universities who had *gasp* computer labs), some charged subscription fees and some even charged hourly fees. This was during the period where internet access was rare and long distance call costs could be charged on top of internet access fees. MUDs were most popular at universities as a result, since the unis often ate up the cost of going online.

Without going into too much detail, some notable points in MMO pricing include (all US$):

• The first commercial MUD is considered to be Legends of Kesmai, which launched in 1985 as a paid service costing up to $12 per hour.
• The first MMORPG to display graphics is generally considered to be AOL’s Neverwinter Nights which could cost up to $8 per hour to play. That was 1991.
• In 1992 The Shadow of Yserbius was published by Sierra Online with hourly fees but also the convenient monthly subscription cost of $119.99.
• Meridan 59, the first 3D MMORPG, (possibly) launches in 1996 at a $10 a month subscription fee, but is migrated to a $2.49 per day / $10 per week / $30 per month subscription model in 1997 that drives some players away but is still profitable for publisher 3DO.
• Ultima Online, the first MMORPG to be called a MMORPG, launches in 1997 with a subscription fee of $9.95 per month. This goes up in 2003 to $12.95 per month.
• EverQuest (1999) launches at a monthly subscription fee at $9.89 (after developer 989 Studios) but cost $12.95 per month in 2003 and $14.99 per month in 2005. The EverQuest Legend server shouldn’t be forgotten – launching in 2002, it charged players $40 per month for interaction with “dedicated and exclusive assembly of GM’s“. It was closed in 2006.
• Sony Online Entertainment announces their Station All Access pass in 2003, allowing players to get access to multiple MMOs for $21.99 per month.
• Dark Age of Camelot (2001) launches with a subscription fee of $12.95 per month which increased to $14.95 per month in 2005.
• I’m not 100% sure on this, but it looks like NCsoft was probably the first major company to go with the $15 per month figure with Lineage in 2001.
• World of Warcraft launches in 2004 at $14.99 per month and to date has stayed there.

Key thing to take away: just because the $15 sub model has been favoured for about the past 6 years or so, doesn’t mean it is written in stone. There have been a lot of variations on how MMOs collect regular money from players via some sort of subscription service.

The market leader sets the prices. Everyone else plays catch-up.

But how did sub fees become the dominant way of thinking about collecting money from players? Probably a number of reasons, including inertia (“UO launched with a sub fee, they did okay, we’re launching with a sub fee”), constant and simple revenue math (“200k players times $15 a month equals our revenue”), and that it was a big improvement over the pay by the hour approach. Subscription payments have a number of benefits – they lock people into the product / service, they are convenient and price discounts can be offered to attract customers – but also see players consider if they are getting the full value of their subscription fee, or even act as a barrier to starting playing in the first place. People’s mentality changes when they have to put money on the table, with even small amounts of payment changing how people view a transaction – the penny gap at work.

What is a bit interesting to me is that sub fees have remained consistent at that $15 a month point for those six years. That’s probably due to World of Warcraft.

Why WoW Really IS Responsible For Everything

The success of WoW has probably meant that the sub price remains at $15 a month because if it goes above that, the devs / publisher is saying, “My MMO is better than WoW,” (and even charging the same sub price arguably says, “My MMO is just as good as WoW”). Going back through that MMO sub price history, top end price points are usually set by the market leaders who have more certainty that their increased price isn’t going to drive players away.

So, unless your new MMO really is better than WoW – and not just better: 9 times (or more) better to get over a typical person’s loss aversion and preference for the status quo – you can’t charge more than $15 a month and expect large numbers of players to show up. Warhammer Online did a head feint that they were going to launch at higher than $15 per month, probably just to see what would happen. (They of course launched at $15 a month.)

All of that is why RMT is increasingly being added to sub-fee titles – it allows things like average revenue per user (ARPU) to go up beyond that $15 a month mark without touching that sub revenue. It’s also why more titles are going F2P – remove the sub fee and your title is no longer competing with WoW for sub money. Sure, you are competing with all the other F2P titles of varying quality, but none of them have the market strength of WoW, plus you can draw in more trialists.

Being free has its advantages.

The rapid growth of F2P titles – both from sub-fee MMOs turning to F2P or from planned F2P launches – is also starting to put pressure on the subscription model overall. Around two (or so) years ago, F2P titles were seen as cheap and nasty, but a number of recent launches have seen F2P titles appear that offer fairly strong offerings to the market. The push towards ‘freemium’ titles – nearly fully features MMOs that require some sort of payment to unlock certain convenient / time-saving features – is a growing in popularity with players. How long this move lasts is open for debate, but every F2P MMO competes not only with other F2P MMOs, but with those that charge sub fees. Some existing F2P titles are immensely successful with large numbers of attached players, while companies such as Turbine are indicating the move from sub fees to F2P / RMT has been highly beneficial to them.

The way people think about money changes how they value sub fees versus F2P. A F2P title can offer less than a sub fee MMO yet still attract greater interest precisely because a player has to contribute less to play it. With a sub fee, players ask themselves, “Is it worth paying the box fee (if applicable) plus the sub fee? Am I going to play this game enough to justify $15 a month?”. Under F2P, a player asks, “Am I having enough fun in this game, that cost me nothing to start, to kick in a few dollars for something that might make my play a bit more enjoyable?”. It’s a different mindset. Add in that the majority of players really only have time for one MMO title in their life and F2P offers the potential to greatly erode the sub fee market… with the exception of titles like WoW and EvE who really have captured their audiences.

Time and Tithe

One side effect of MMOs taking 3, 4, 5 or more years to come to market is that how the industry looked when development started can bear little relation to how it looks when their title comes up to launch. So if SWOR had a development budget and schedule signed off in something like 2007 when EA bought BioWare, it would have been made on assumptions at the time. One of these assumptions would have been that it would be competing in a subscription fee market, not one where sub fees and F2P / RMT methods are increasingly mixed. A different development mindset is required for sub fee-based development versus F2P development, with it being difficult to shoehorn a title developed for one revenue model into the other. SWOR was developed with subscription fees in mind, which in turn led to the size of its development budget.

However, the subscription fee model is losing ground to F2P (and related) titles. On the face of it SWOR has a good chance of drawing in a lot of players at launch, but that’s not where their money is – subscription revenue (plus I’m guessing a healthy stack of RMT / DLC) is the target for paying-the-bills purposes. Every month SWOR will be facing players deciding between paying the sub fee again or moving onto another title that might cost them nothing to play. This leads to a compounded set of problems – not only is SWOR expensive to develop and requires some near record-breaking results to be successful, it is also going to rely on a revenue model that is itself under pressure.

High risk indeed.