Author Topic: $800k/month profit? I think you mean revenue?  (Read 21101 times)

RogerWilco

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$800k/month profit? I think you mean revenue?
« on: September 25, 2012, 11:20:30 AM »
I have a question for VV/ML based on the two posts below. I've seen this number of $800k/month profit that you mention being used in all kinds of discussions. For example this one: http://boards.cityofheroes.com/showthread.php?t=297559

I think this number cannot be the profit, but instead seems to be the revenue. I think it' important to clear this up, because misinformation isn't going to help us make our case to potential investors. The numbers I have to go on are the NCsoft Earnings Releases: http://global.ncsoft.com/global/ir/earnings.aspx
The "Game Sales" in the Consolidated FactSheet clearly states a revenue of about 2800 million won per quarter, or roughly 2.5 million dollar. This number is within a few percent of the $800k/month that you mention.

Unless the entire Paragon Studio staff was working for free, I can only assume that the profit was much less, unless you have numbers I don't have access to.

I know that in the Netherlands, where I live, it takes just over a million euros to run a software company of 22 people. Extrapolating from that, including server and bandwidth and the overhead a larger organisation has, it would take about 8 million dollar to run Paragon Studios, except that Silicon Valley is probably more expensive than over here. So it's much more likely that PS was running somewhere in the 10 million/year range, or about breaking even. Granted, not everyone at PS was working on CoH, so the game itself was probably running at a profit, but can't see the quoted number being anything but the revenue.

Thank you if you could clarify this.

First off, this post is NOT meant to discourage you guys.  Just remember we have to deal in facts as well as hope.

Larry did some fact-checking and money-tracing (he's the brains of our operation, I just do the heavy-word-lifting).  This is what he found.

"The essence of it all appears to be as simple as this: NCsoft is owned by Nexon Co. Ltd., and Nexon has a record of only being interested in what benefits Asian gamers, and last quarter, their push was heavy East and EU.

Paragon Studios employed 80 people.  Nexon employs 3,400.  City made $800k clear profit a month.  Nexon's quarterly was $242 million, and their latest 1 of 60 MMOs registered 3 million players in China last month.  Nexon has been at a steady $1.1 to $1.2 billion dollar company for 3 years.

As big as CoH has been to us, City wasn't even a blip seen from Tokyo and Seoul.  Someone 5,000 miles away (who likely never played any game the corporation owns---and even their largest shareholder only has a 21 percent share) said "reduce North American assets," and this happened.  And with a billion people in China as a market for Nexon's free-to-play/micropayment 2D MMOs versus a highly-technical American-based 3D MMO, they saw no reason to bother (or, really, even take notice)."

This is actually something we can parlay.  I mean, hello?  $800k PROFIT PER MONTH with an 80 person staff?  That sounds like a THRIVING small business to me!  This is something worth investing in!  If any of you actually write on small business blogs, this story would be worth starting over there--giant asian firm DUMPS profit-making business.  This could get any potential investor worth his salt salivating.
I don't know where Larry got his numbers, but I am confident they are solid, given that Melissa "War Witch" Bianco told me on the day of the shutdown that "We were doing WELL!"

billymailman

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Re: $800k/month profit? I think you mean revenue?
« Reply #1 on: September 25, 2012, 01:08:25 PM »
The "Game Sales" in the Consolidated FactSheet clearly states...

Does that include Paragon Points? Because something like "Game Sales" suggests to me that it's only the direct subscriptions, meaning you might be leaving out a large chunk of revenue.

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #2 on: September 25, 2012, 01:21:54 PM »
Honestly? Even if that's "revenue" and not "profit," $800k a month is a lot of money. It translates to $9.6 million/year.

If we assume most employees are earning in the $75k/year range, with maybe a fourth (and that's assuming heavy bureaucracy) earning an average of twice as much, we have an effective 100 employees at $75k/year, for $7.5 million/year in employee salaries. I will note that $75k/year is firmly middle class for a family; it's approaching upper class lifestyle (if not necessarily super-wealthy) for single people. I don't know Paragon Studios's employee roster and have no clue how accurate this figure is.

That leaves, after this generous employee salary package, $2.1 million/year for operating costs and whatever profits are left over. Office space in Mountain View, CA seems to run at about $300/square foot. I will assume that's per year, though I could be wrong. If it's per month, then my very rough numbers show an unprofitable company if we assume $800k/month is gross, not profit.

However, I hope this at least gives some very rough ideas on what the numbers might translate to. Given that they were supposedly profitable, $800k/month was either plenty of revenue, or was, in fact, profit.

RogerWilco

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Re: $800k/month profit? I think you mean revenue?
« Reply #3 on: September 25, 2012, 02:48:54 PM »
Does that include Paragon Points? Because something like "Game Sales" suggests to me that it's only the direct subscriptions, meaning you might be leaving out a large chunk of revenue.
You can look at the spreadsheet yourself. Unlike all the rumours, these numbers are cold hard facts. As far as I can see, this is total revenue. The table is labelled "Consolidated Sales Breakdown by Game (Excluding Royalties)". The total for all games adds up to the totals for "Sales from online games" and "sales from merchandize" in their Consolidated Income Statement.

But don't take my word for it, look it up.

downix

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Re: $800k/month profit? I think you mean revenue?
« Reply #4 on: September 25, 2012, 04:19:15 PM »
Honestly? Even if that's "revenue" and not "profit," $800k a month is a lot of money. It translates to $9.6 million/year.

If we assume most employees are earning in the $75k/year range, with maybe a fourth (and that's assuming heavy bureaucracy) earning an average of twice as much, we have an effective 100 employees at $75k/year, for $7.5 million/year in employee salaries. I will note that $75k/year is firmly middle class for a family; it's approaching upper class lifestyle (if not necessarily super-wealthy) for single people. I don't know Paragon Studios's employee roster and have no clue how accurate this figure is.

That leaves, after this generous employee salary package, $2.1 million/year for operating costs and whatever profits are left over. Office space in Mountain View, CA seems to run at about $300/square foot. I will assume that's per year, though I could be wrong. If it's per month, then my very rough numbers show an unprofitable company if we assume $800k/month is gross, not profit.

However, I hope this at least gives some very rough ideas on what the numbers might translate to. Given that they were supposedly profitable, $800k/month was either plenty of revenue, or was, in fact, profit.
That is per year.

Now, remember, Paragon Studios was working on more than just CoH. Most of those employees were unrelated to City of Heroes.

So, now we cut, let's say half of those unrelated employees. Your annual costs drop like a rock, yes? If it was profit concern, CoH has been operated by as few as 15 staffers and *still* was updated. You cut down staff to minimum, move to smaller office, put CoH into a long-term maintenance mode like GW, congradulations, you're pulling in a solid $5 mil year net.

Chaos Ex Machina

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Re: $800k/month profit? I think you mean revenue?
« Reply #5 on: September 25, 2012, 04:27:30 PM »
I think the emphasis should be how a large number of employees were not related to the game and it can operate with far less.

An additional point can be the potential to increase the profits by employing a better business model.  The F2P conversion actually was not particularly F2P and really got most of the profit from veterans instead of attracting new customers.

downix

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Re: $800k/month profit? I think you mean revenue?
« Reply #6 on: September 25, 2012, 04:59:20 PM »
I think the emphasis should be how a large number of employees were not related to the game and it can operate with far less.

An additional point can be the potential to increase the profits by employing a better business model.  The F2P conversion actually was not particularly F2P and really got most of the profit from veterans instead of attracting new customers.
Indeed. Also the migration did hurt some vet players, I was a bit miffed at how costly it was to unlock my characters again for instance.

I figured out once, for me to unlock everyone I had made would cost me over a year sub.

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #7 on: September 25, 2012, 05:55:16 PM »
A lot of opening-up of the f2p model can be done via things like what have been suggested in the in-game advertisements thread. They're revenue streams that cost the players nothing, provided they're done well.

And, if I can get into this the way I want to - the whole reason I'm interested in saving this MMO on a personal note (rather than as a sympathetic fellow human being who hates to see others miserable) - it will gain a new and unique feature that I need an MMO-like environment for which to serve as a proper testbed.

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TheFlea

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Re: $800k/month profit? I think you mean revenue?
« Reply #8 on: September 25, 2012, 06:01:36 PM »
To be honest? This is why we're pushing for other developers or companies to look into CoH. I've seen two surprising recommendations but I don't know if we can push it. Steam - whose F2P model seems sensible and PWI - who's F2P model is amazing. As a former player of CoH told me - they got it right.

And before people say 'But PWI have CO....'

Yes. And how many 'Fantasy' MMOs has NCSoft kept going at the same time? Dungeon Runners, Lineage, Guild Wars. Cornering a market is as viable a tactic as having the strongest in the market.

Keep up the noise folks.

And dear god let's get someone with a sound F2P model.

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #9 on: September 25, 2012, 06:03:33 PM »
There have been Marvel/DC crossovers.

Imagine a CO/CoH crossover event.

TheFlea

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Re: $800k/month profit? I think you mean revenue?
« Reply #10 on: September 25, 2012, 06:07:27 PM »
There have been Marvel/DC crossovers.

Imagine a CO/CoH crossover event.

Well, considering how much of CoH started off as background developed from a CO game....


Paindancer

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Re: $800k/month profit? I think you mean revenue?
« Reply #11 on: September 25, 2012, 06:32:32 PM »
I have always assumed this was revenue and not profit.  Most businesses keep their profit margin pretty close to the chest.
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B_L_Angel

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Re: $800k/month profit? I think you mean revenue?
« Reply #12 on: September 25, 2012, 08:59:36 PM »

And dear god let's get someone with a sound F2P model.

Why is f2p a must have ?

This game had a free trial with pretty severe restriction. I managed to hit the wall by the third day and bought the game because I was hooked. If it had of been f2p the way other games are now I might never have paid for it, or paid considerably less.

In terms of our game I can't see what the benefit was.

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #13 on: September 25, 2012, 09:12:04 PM »
Free to play opens up other options, like the advertising revenue stream, that subscription services close off due to a sense from players (rightfully, in many cases) that they PAID for it so they should not have to allow for any other revenue source.

It also, if done right, is typically more profitable than subcription-only, because well-done free-to-play microtransactions allow a combination of impulse buying, tipping, and customizable play experience based on your ability and desire to pay. You get the people who would buy a subscription anyway at that level. You get others on a few microtransactions they wouldn't have paid a subscription to access.

Add in in-game advertisements, and the free-to-play model makes every free account a little bit more you can charge for those ads. Or for "store front" or "retail space" in the game. Because it makes a larger audience that is liable to see it.

Rae

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Re: $800k/month profit? I think you mean revenue?
« Reply #14 on: September 25, 2012, 11:24:56 PM »
That is per year.

Now, remember, Paragon Studios was working on more than just CoH. Most of those employees were unrelated to City of Heroes.

So, now we cut, let's say half of those unrelated employees. Your annual costs drop like a rock, yes? If it was profit concern, CoH has been operated by as few as 15 staffers and *still* was updated. You cut down staff to minimum, move to smaller office, put CoH into a long-term maintenance mode like GW, congradulations, you're pulling in a solid $5 mil year net.

Oh. This is awkward. Because paying customers and profit don't mesh with our new direction. We're more about swords. Swords are good.  Who needs a profitable game and loyal customers whrn you have swords?
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TimtheEnchanter

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Re: $800k/month profit? I think you mean revenue?
« Reply #15 on: September 25, 2012, 11:26:55 PM »
Free to play opens up other options, like the advertising revenue stream, that subscription services close off due to a sense from players (rightfully, in many cases) that they PAID for it so they should not have to allow for any other revenue source.

True, but then... Cable TV started out with the same intentions. Pay for access so no commercials. And look how well THAT worked out...  :roll:

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #16 on: September 26, 2012, 02:20:12 AM »
I'd agree, except we have a counter-example of it not working in CoH itself. Customers were displeased with ads in-game last time it was tried because they were paying a subscription fee.

Mantic

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Re: $800k/month profit? I think you mean revenue?
« Reply #17 on: September 26, 2012, 03:07:55 AM »
Free to play opens up other options, like the advertising revenue stream, that subscription services close off due to a sense from players (rightfully, in many cases) that they PAID for it so they should not have to allow for any other revenue source.

Tell that to all these cable television stations I pay a premium for...

From my perspective, the hybrid model CoH had going was very good already, with room for improvement. It needed time to build up more of a library of market items, but it was doing well enough to keep me spending quite a lot above my subscription. I have to admit I don't understand the perpetual free player mindset;my way of thinking is that free play should be a form of endless "trial," with enough limits to make subscription worthwhile (perhaps CoH had the wrong limitations... the anti-spam measures were problematic, at least). I also thought it was a terrible mistake not to repeat the "loyalty reward" incentive for maintaining subscriptions on a regular basis. I saw that reward sell subscriptions, and far too often later I saw longtime players using the F2P situation to justify letting subscriptions lapse, rather than as an excuse to throw MORE money at the game (how I saw it).

I'm rambling. In short: I believe subscriptions were a necessary part of maintaining steady CoH profit margins, with or without the market.

Burnt Toast

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Re: $800k/month profit? I think you mean revenue?
« Reply #18 on: September 26, 2012, 03:27:42 AM »
I spent way more with CoH Freedom than I did beforehand; not that I am complaining mind you. It used to be that being F2P meant you were shutting down, but if you look at alot of the MMOs out there - microtransactions are what are helping save them. I personally liked CoH Freedom as it gave me more flexibility and options than before. Things that would have irked me off under the traditional system for example would have been: Beast Mastery, Street Justice, Nature Affinity, and Titan Weapons...just not my cup of team. With Freedom the amount of powers and costumes that they were churning out gave me the ability to pass on the ones I did not like/want :)

Segev

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Re: $800k/month profit? I think you mean revenue?
« Reply #19 on: September 26, 2012, 03:33:31 AM »
Oh, nobody's talking about doing away with subscriptions. Just keeping the free-to-play in place and perhaps seeking to improve it.