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Another look at what the NGE cost SOE
tman5
Member Posts: 604
Because it is apparently fun, let’s take at another view of what the NGE cost SOE, shall we.
Using the numbers provided by Abrahmm in another post, we’ll suppose there were 175k subscribers with SWG at the time of the NGE, 50k after the NGE and look at a 38 month period for each. Let us begin:
PreNGE revenue: 175k x $15 a month x 38 months = $99,750,000. Wowzers! That sure is a big number. Those stupid SOE guys just threw all that money away!
Not really, because any discussion of revenue without consider of cost is useless. This is a difficult concept for some, so I will illustrate. Assume you have a job, that job pays you $100 a week and you do not live with your mother. Does this mean you have $100 dollars a week to blow on beer? No, because you have expenses, such as rent, food, clothes, toilet paper. Let’s assume those expenses are $60 a week. This leaves you $40 dollars a week to blow on beer (100-60=40). Party on!
Likewise, SOE has expenses. Salaries, equipment maintenance, toilet paper. We will assume those expenses are $14 per subscription per month to run the game. The assumption here is SWG is profitable, but marginally so, which is what opened the door for the NGE.
Now, the math: 175K*$14*38 = $93,100,000 in cost, subtracted from that woody-popping $99,750,000 figure. This leaves $6,650,000 in profit for Smed to present the Sony board. I guess that’s not bad.
Usher in the NGE. For the moment, we’ll assume no change in costs. Again, using Abrahmm’s figures, we have 50k x $15 x 38 months = $28,500,000 in revenue. Subtract costs (50k x $14 x 38 months = $26,600,000). This leaves a profit of $1,900,00.
When comparing the two scenarios, we see NGE earned $4,750,000 less over the period than if SOE had left things alone. Nothing to be proud of, but significantly less catastrophic than Abrahmm and others make it out to be. This is a much more reasonable number to discuss.
Another way to look at this is earnings per subscription. This would be annual profit divided by number of subscriptions. Under the “no cost reduction” scenario, preNGE earns $2,100,000 a year, divided by 175,000 subscription, or $12 per sub. The NGE earns $600,000 per year, divided by 50,000 subs for earnings of - $12 per sub?! Damn, I guess Smed didn’t need the vets after all.
What does it mean? There is a good chance to make NGE more profitable than the old game with significantly less effort. Let’s assume, all told, SOE achieves a stated goal and manages a marginal reduction on game costs. The NGE game costs $13 per sub per month vice $14. A $1 reduction in cost means an annual profit of $1,200,00 - double what it was. This works out to NGE earning $24 per account per year, over the $12 per account under the old game. Put another way, preNGE must maintain twice the subscription level to achieve the same profitability of NGE.
Good luck trying to convince Smed to do a rollback now.
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Go ahead and argue my numbers if you wish. They are as meaningful or meaningless as any figures presented on this forum.
Enjoy.
Comments
So you are arguing addition by substraction? Interesting.
I have to give this a LOL.
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Ten Golden Rules Of Videogame Fanboyism
"SOE has probably united more gamers in hatred than Blizzard has subs"...daelnor
there was a lot of figures in there and im not entirely sure how certain your math is but i can see your point, even if i did enjoy the game a lot more myself prior to NGE.
Sorry, but I call BS on any "The NGE was done to cut costs so the game is more profitable with less effort" argument.
The draconian staffing cuts came AFTER 1/2006 when the massive sub loss was unaccompanied by the expected (HAH!) massive influx of "target audience" replacements. The expansion was also cut if you recall.
The NGE was made with the argument that 200K+ subs was TOO FEW for a game with the Star Wars IP.
(the biggest LOL irony is that today, NOT ONE SOE game even HAS 200K subs!)
It was made to appeal to the "casual" fan with it's "Starwars-Y and Iconic" and "instant gratification" (ie: Jedi at character creation) design. It would have been deemed a massive epic failure had it ONLY maintained a level of 200K+ is subs, much less fallen rapidly to sub 100K and down to sub 50K within a year, to sub 25K which is where it's at now.
Granted, the simplification of the game MIGHT have contributed to their ability to maintain it in a profitable state with today's skeleton crew of college interns and non-talents on 90% fewer subs, but that was NOT why the NGE was done.
Actually, you are wrong. The reduction of maintenance cost was one stated goal at the time. Smed said it himself. Yes, the staff cuts came later, but they may have well been already planned.
I don't recall any SOE statement that 200K was considered too few subscriptions for SWG, though they did say they were not happy with the game's sub numbers. This was said at the time of the NGE, when sub numbers were considerably less than 200K.
Regardless of the reasons for the NGE, my point is it did not "cost" SOE $99 million or some other imaginary figure of that magnitude, as some would have you believe. The actual monetary loss within SWG is considerably less.
The major loss to SOE is in industry standing and customer trust, which will impact every one of their projects for years to come.
Like somebody said in another thread: You don't have to do any math to determine if the NGE succeeded or failed. If there were more people playing today than there were in November of 2005 the NGE would have been a success. Despite what Badgersmaker wants you to believe there are not more people playing now or they wouldn't be merging servers.
They may be saving money by having a skeleton development staff and no paid support staff but they are still losing out on money they could have had if they hadn't screwed over their customers. Ask anybody who has taken Econ 101 about opportunity costs...
Sheer rubbish. For a poster who had such issues on estimates and specualtion regarding this subject, you sure are marginalizing the revenue loss by spinning the overhead as $14/month for every $15 a month. It is one thing to disagree with the loss of revenue that 175k cancelled accounts caused, but quite another to make up extreme estimates of operational costs just to buffer $OE's disastrous business blunder. Even using your numbers, if $OE was as incompetent as to have such an overhead, then even a million dollar *loss* is still a very big loss. With such a small amount of profitability per account, $OE would do well to have more subs than not. In fact, you feel that a few million is not worth the effort for $OE, then why continiue to operate SWG at all? Close it down and be done with all the overhead. After all, why bother for a mere $600k a year when $2.1 million a year isn't worth keeping?
Using your idea for figuring the loss of revenue, let us just say that 50% of the monthly fee is directed to actual operating costs (instead of 93%), which is $7.50 per account per month. The difference then is $11.25 miilion, which is certainly not chump change.
I took abrahmm's post as it was, just an estimate of incoming gross revenue lost with the cancellations of 175k accounts. It appears that was disturbing to you and you have spent time trying to minimalize the $OE's loss by either attacking him or spinning your numbers here. Believe what you wish, but I find his estimate on the loss of gross incoming revenue much more believeable than your estimates on overhead and net profit.
All of that and one dev who offed himself because he failed at every aspect of his life? Yeah. I hope it was worth it, SoE.
Its like those idiots screwing up Spore for the more simple minded gamers out there. Tons of complaints. But they don't care. As long as they turn a little bit of money as profit, its all good, right?
I wish SO BADLY that I had the power to order summary executions.
Frankly, intangibles still are not being factored in.
In the end, NGE was put in place on the gamble that it would bring in greater numbers of people who had not yet played or those who had quite due to the nature of the game mechanics. That assumption proved wrong because they forgot to factor in the issue of reputation. When the NGE rolled out, they angered their current subscribers, made the news for doing what the industry considered to be an unthinkable act and in the end created an air of distrust. This isn't guesswork. It is on the books now.
Now, had they had taken the resources that it took to design the NGE and funneled it into fixing bugs, adding game content and otherwise improving upon the game - they would have slowed down the loss of subscriptions and begin to try and reverse the numbers. Would it have succeeded? Guesswork at this point but I think its easier to start at a larger number and work up than to do what they did which was to reduce the number massively and work back up.
My thoughts.
/guffaw Well put kefkah at least that is what someone who is rationale would beleive.
All I can say for sure, is that it cost them my $45/month.
"Because it is apparently fun" lol. That really made me smile, thanks ^_^.
Btw, you're quite right that they were concerned about the huge team working on SWG pre-NGE. They wanted to cut back on their overhead, and make the game easier to work with. That was in Smed's open letter to the community.
It's really hard to try to guess the actual loss in dollar and cents for something like the NGE. Honestly, I wouldn't want to attempt it. I have a hard enough time with my own department when I have access to all the figures :P.
I think a fair comment would be that the NGE cost them more revenue than anticipated. I also think it would be fair to say that they hoped to increase the overall game population, and gross revenue as a result, and they clearly failed this objective.
In fact at the time, Smed had utopian ideas that the NGE would allow SWG to kick the crap out of WoW. He made that exact claim in an interview shortly after NGE time, before the bottom had completely fallen out.
So, is the NGE cheaper to run? Oh yes, I know that it is. Is it still profitable? Who knows, but I'd bet that it is. Does it bring in the same or greater net profit as pre-NGE? I doubt it, but like I said, I don't have access to the figures. Did the NGE increase the overall game population and gross revenue as intended? Not by a long shot. In fact it did the opposite. That's as balanced a view on this whole deal as I think I can come up with at this point; and it is of course just my opinion ^_^.
That was kind of fun too lol.
Your numbers look all fancy and sincere, but you are making one major flaw in your logic. You are assuming (and incorrectly) that all costs are variable in nature (thus the static 14/account cost).
Salaries are salaries are salaries and while there is SOME coorelation between # of accounts and personnel, it isn't a variable cost and must be used as a fixed cost when looking at cost analysis. Also, intrastructure is a fixed cost, not variable. Until now, they haven't reduced the number of servers, so while the amount of bandwidth is varialble, the maintaince, updating, depreciation and control of the servers is a fixed cost.
Thus, if you want to make the assumption that at 150k subs it was a 14$/account expense (which would be ridiculous when you consider they offer one year subs for about 12.95, you honestly think they'd want to take a loss of 1.05/account???)
So in that regard, with out what their fixed costs were, we can't do our own analysis.