[MUD-Dev] Criminalize Community Volunteers?

[Koster]

> -----Original Message-----
> From: mud-dev-admin at kanga.nu 
> [mailto:mud-dev-admin at kanga.nu]On Behalf Of
> Madrona Tree
> Sent: Wednesday, September 06, 2000 12:08 AM
> To: mud-dev at kanga.nu
> Subject: Re: [MUD-Dev] Criminalize Community Volunteers?
> 
>       $8.45
> x     16 hrs/week
> -----------
>     $152.00
> x      4.3 weeks/month
> -----------
>     $653.60
> x     10 employees
> -----------
>  $6536.00
> x     24 shards
> -----------
> $156,864 / month

I think your math is off by at least a factor of four in terms of number of
volunteers; you're also not counting the (considerably higher than minimum
wage) cost of supervisors for all those people.

Lastly, though, you're not comparing these figures to the bottom line. To
wit:

> Out of the purported 200,000 subscribers, that's about 16k 
> subscribers'
> money going to a counselor program.  It seems like a lot, but 
> really it's
> only 7.9% of the subscription rate -- or about $0.79 per 
> month.  Not too
> many people would balk at $10.75 versus $9.95 if that was the 
> original cost
> of subscription.  Perhaps next go-round, companies will build 
> this cost into
> their cost-of-business... as Customer Service *is* a cost of 
> doing business.

Well, of course they do build customer service in. Just they happen to use
the volunteer model (which is far from being without costs, of course).

So in practice, using your math, you're not looking at $156,864 (let's round
it to $150k), you're really looking at four times that, which is around
$600,000. There's some proportion of those people who are in supervisory
roles and get more, but let's just go with that, it's enough to illustrate
my point.

Assuming a $10 fee a month, times 200,000 subscribers, you get that $2
million a month. But you can immediately throw away around 50% of that
(there's scaling benefits in the numbers, actually, and also good design can
lower your fixed and variable costs per month, but that's a good ballpark
figure). The costs there include cost of customer service (800 lines, phone
bills, cost of GMs, cost of email support, cost of phone support),
infrastructure costs (depreciation of initial hardware, rack space,
bandwidth--this latter cost is huge btw), ongoing support (dev teams & their
salaries, community relations, tape backups, new hardware, etc), and last
but not least marketing and PR costs. So now you have $1 million in profit a
month.

If you chop out an additional $600,000, you're now down to a profit margin
below 25%. And if that happens, well, companies won't make MMORPGs.

Why? you ask. After all, other service industries scrape by on profit
margins a tenth of that. Yes, but they are mature industries. And the
computer game industry is anything but. Here's a post I made to Usenet a
while back on this issue. I have added interstitial quotes with [[brackets]]

start quote--->
On Sat, 13 May 2000 20:47:55 -0700, "Bob Perez"
<bob at deletethis.bobperez.com> wrote:
 
>I find it interesting that in Steve Bauman's article (cited below),

[[the article referred to is at
http://www.cdmag.com/articles/027/136/retailb_feature.html]]

> the
>discussion suggests that massive multiplayer online games represent a great
>new opportunity for the industry [primarily because of the recurring
revenue
>model] and that the only skeptical comment comes from Trip Hawkins.
Hawkins,
>head of 3DO (publishers of Meridian 59) seems to think that the MMORPG
>market is technologically cool but not very successful from a business
>perspective. Someone should politely point out to him that maybe his
>perspective is more a result of Meridian 59 than the genre itself.
 
A lot of it has to do with the perspective you take on it. For
example, a typical PC game takes between $500,000 and $5 million to take,
and sells under 75,000 copies lifetime. The vast majority of games do not
make money. A "hit" game is one that gets well over 100,000 units. To place
in the top ten in PC Data, you pretty much have to sell over 50,000 in a
week. (BTW, many of the critical darlings are often commercial
disappointments in the lifetime units sense, despite a lot of press and
awards: Fallout, Freespace 2, System Shock 2, for example).
 
[[Turns out that Fallout and System Shock 2 did better than that over the
long run, although to a monster like EA, SS2 may well have still been a
disappointment. Fallout 2 did better than the first Fallout. Also, the
definition of "hit game" has moved up in the last few months, in large part
thanks to Diablo 2. I'd say the bar is now at 250,000 units at least, and
probably over 350,000, to be considered a "hit" title.]]

A lot of the reason why is distribution. So consider a title by a proven
hitmaker, say EA. The expectation there is going to be that a title earn
500% what it cost to make.
 
[[Yes, you read that right. A 5-to-1 return on investment was what they
always hammered at us.]]

A massively multiplayer RPG is banking on recouping its (substantially
higher) development costs off of the box sales; otherwise you will be
amortizing those costs over the subscription revenue--more on why you don't
want to do that in a sec. 
 
[[With the rising cost of making competitive MMORPGs, I think recouping in
the first few months is going to be standard.]]

Figure on $5-10 million for development costs, and several more
millions for infrastructure deployment (depending on what deals you can work
and how your infrastructure is set up). With a premium-priced game, the
publisher can figure on getting $25 per box. That will tell you how many
units you need to sell. (If you want to use UO as an example, don't--the
Charter Edition that cost $100 and was sold direct skewed the numbers
substantially).
 
Now, once you're past recouping the initial investment, you have to consider
the backend costs. Some of these costs are fixed and some vary based on your
number of customers. Let's say you shoot for a 50% return per subscriber--a
good number to shoot for. Half your
subscription fee money is going poof the instant it arrives, to pay for GMs,
server rack space, bandwidth, etc. Special marketing
promotions (reacquisition programs, buddy programs, etc) cost even more
above and beyond that. One-time charges for opening new servers or launching
in new territories is also a factor.
 
To bring it all home: there's no doubt that the gross on UO or
EverQuest is comparable to say, Quake. But the NET is a lot lower. It is
however, reliable income, and well above the line for the vast majority of
games made. Also consider that like any service industry, 80% of the revenue
comes frm 20% of the customers, and the nascent MMORPG industry has barely
begun to tap that; the way that cable TV does it (for example) with premium
channels, special one-time event programming, and pay-per-view, is likely
the way that MMORPGs will evolve as well, with ancillary revenue from things
like action
figures, alternate media, etc.
 
When a big publisher like 3DO does the math, what they are saying is "we'd
rather take the bigger risk, big return plan." With a publisher with
expertise in brand-building, that may well make sense--they may not consider
it to be much of a risk to release another Army Men game, or another EA
Sports game, so the math makes sense.

<---end quote

Basically, my fear would be that if the entire MMORPG industry suddenly has
to cut their profits in half, that you're going to see a lot less players.
As it is, the players have to have deep pockets. (cf some of Jessica
Mulligan's articles on Biting the Hand about that).

-Raph



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