World Class Villains

Converting from a pure subscription-based title to a hybrid free-to-play (F2P) is something than more than one MMO title has seen happen. And generally the indication from the studio is that such a move makes mad bank. When Cryptic Studios converted Champions Online to F2P, they said revenue went up 1000%; when Turbine Studios converted Dungeons and Dragons Online, they indicated that revenue went up 500%. Then Turbine again indicated that Lord of the Rings revenue doubled (i.e. a 100% increase) when that title when hybrid F2P. Sony Online Entertainment said that DC Universe Online’s revenue went up 700% after going F2P.

"Since going F2P, our player base is up 100%!"

But percentages can be misleading. If Cryptic / Turbine / SOE were earning little from their subscriptions on those titles, it wouldn’t take much of a revenue improvement to show a high percentage increase that is quickly turned into a press release. Since neither Cryptic or Turbine announce their revenue figures, it is impossible to know the true impact of going F2P was on revenue in dollar terms. (Also I should recognise that some of those announcements were a little bit down the track from the F2P conversion – it wasn’t necessarily an immediate leap).

Which makes City of Heroes / Villains conversion to F2P interesting – the move to the Freedom version of the title – because its quarterly revenue figures are available for every month since it launched. The Q4 2011 figures have just become available and that time period coincides with CoH/V’s first quarter of going F2P. Freedom launched on September 27 2011, while Q4 started on October 1 2011.

A Question of Expectation

I’m using my typical approach I have to this guesstimation about how CoH/V is going so as usual you can trust the earnings report figure (CoH/V earned 3 435 M Won in Q4 2011, up from 2 812 M Won in Q3 2011) and the rest below is built on a few assumptions and limitations. The Korean Won strengthened against the $US, which didn’t help Paragon Studios this quarter.

Converting CoH/V’s revenue from Won to US$ sees Paragon Studios earn around US$2.97m in Q4. Outside of the revenue spike coming from the sale of CoH/V’s Going Rogue box expansion, this is the most the title has earned in a quarter since the start of 2010.

It's difficult to know if this result is great or disappointing, so I bestow on Paragon Studios the Could-Have-Been-Worse Muffin.

So, that’s a positive. But the increase isn’t huge – going F2P saw a 23% increase in revenue versus last quarter, or a 5% increase year-on-year. It certainly isn’t a 500% or 1000% revenue jump. Although certainly better than the alternative of continuing that downward revenue trend, there is also the cost of the F2P transition (including all that new content and systems) that needs to be factored in, along with the increased demand for new content that comes with going F2P.

It’s also important to consider that going F2P likely leaves the base subscriber revenue mostly unchanged. The core group of CoH/V players who love and subscribe to the game aren’t going to all run and hide at the shift to F2P – they’ll just keep paying their sub for a while. It is new and returning players that generate the bump in revenue. A key question (that the figures in the Q1 2012 earnings report will help show) is if these new / returning players stuck around to keep putting money into CoH/V, or if the conversion model didn’t offer enough to hold them.

And because I know how much you love charts, here it is:

It's a move in a positive direction for CoH/V, but more of a slight step than gigantic leap forward (click to enlarge the chart for more detail - blue is the official subscriber numbers, red is the estimated revenue in $US).

Paragon Studios said they were “blown away” by the response to Freedom, and maybe they were (but if you note Lead Designer Matt Miller talks about being blown away by the number of returning players, not revenue). It’s the first improvement in revenue for a long while (Going Rogue aside), so it isn’t hard for Paragon Studios to be happy about it.

But if there was the expectation that a F2P conversion would see revenue double (or more) then CoH/V has fallen far short of that target. I do wonder if revenue still isn’t at target levels, or if player numbers fell further after Christmas (and Star Wars: The Old Republic launched) given that Paragon Studios introduced variable ratio rewards that players need to pay real money for, aka Super Packs.

That said, Paragon Studios appears to have done better than other NCsoft West organisations in terms of revenue. NC Interactive (NCsoft’s US arm), ArenaNet and NC Europe all saw revenue declines over the past 12 months, with both ArenaNet and NC Europe generating about half as much revenue at the end of 2011 as they did at the end of 2010. NCsoft itself saw some pretty significant declines in key metrics, including operating profit. So although CoH/V’s revenue did move in the right direction, it was at a time when other parts of NCsoft didn’t perform quite so well.

So, About Those Player Numbers…

F2P destroys the ability to determine how many active subscriptions CoH/V still has. If I was using the ‘old’ method (dividing the revenue by 3 x $15 and then increasing the result about 10% given historical evidence that supports such an adjustment) we end up with an active subscriber equivalent in the 70k – 75k player range, which is a big jump over the previous estimate of 55k – 60k active players. However, since F2P kills the idea that CoH/V’s average revenue per paying player (ARPPU) is anywhere near $15, it’s a highly questionable metric about something that was always a guessimate. I (probably) won’t be estimating CoH/V’s player numbers again, even if I look at their revenue results again in future.

And As For Freedom Itself…

I went back to CoH/V when Freedom launched, looking to see what I thought of the changes. But I wanted to know what the ‘new’ player would see, not someone who has a lot of veteran points waiting for them, so I started a new account.

Once I got past the character creation phase – that wouldn’t let me through because I’d chosen a cape, but didn’t tell me that was the reason that I couldn’t progress – I ran smack into the communication restrictions I have strongly disliked for a long, long time. All it has led to is F2P players using the Help channel as general chat.

Sometimes you can wait too long, or fence off the wrong things, and find that you've missed the boat.

Plus Praetoria, the new showcase of what CoH/V can do, must be purchased to be unlocked (so much for those zones going free 2 months or so post GoRo’s launch). Yes, there is a new tutorial and refreshed starter zones, but those didn’t grab me (but that’s a subjective viewpoint – I actually liked taking on the Contaminated first, rather than the new “you must save the world on your first day as a hero / villain and fight a massive monster – well done! Now go fight street thugs!” approach). Praetoria was meant to be the alternative starting point for entry into the CoH/V universe, but it is locked away from most on the F2P model.

The other thing that may have impacted on people getting excited about CoH/V’s shift to F2P is that they did it after a lot of other titles, particularly Champions Online; DCUO converted to hybrid F2P about a month after CoH/V did. The people who love CoH/V really love CoH/V, but if a ‘fresh’ gamer looks at CoH/V versus DCUO versus Champions Online, CoH/V ends up looking very dated and slow. Time has seen CoH/V go from a MMO players complained was “too twitch” to a title with almost ponderous superpowered combat… at least compared to ChampO and DCUO.

I’ll be interested to see the revenue figures in Q1 2012 for CoH/V. I don’t believe that CoH/V is in imminent danger of NCsoft closing it, but I wonder how long it will have (at least at the current level of content production) if its revenue resumes the standard downward path the game has seen since roughly 2007.