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Why The MMORPG Subscription-Based Business Model Is Broken

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Famed game developer and analyst Scott Jennings recently announced on his blog that he’s quit online game publishing giant NCSoft to join John Galt Games. His new home is the small casual game startup developing Web Wars, a sci-fi game played via a browser plug-in, where web sites themselves are territories to fight over. (Sort of RocketOn meets battle cruisers.) The move is a bit like a top Hollywood producer quitting the movie business for an obscure online-video startup; it’s such a big jump, you want to know why.

Known by gamers as “Lum the Mad,” Jennings is practically synonymous with the subscriber-driven MMORPGs that major game publishers still largely favor over free, web-based virtual worlds. But now Jennings says that business model is broken — “an arms race that few can even hope to compete in, much less win,” he says.

To fix the online gaming model, Jennings said some innovative thinking is required. “Embracing open source development, crowd-sourcing content, targeting different platforms such as the Web or mobile phones, all of these are valid,” he suggested. With few exceptions, however, game publishers have been unwilling to take risks. “They aren’t responding to the changing market because they don’t understand how to work things like web technologies into their current income models,” he said. “So instead they keep doing the same things– just more of them, and with higher budgets.”

Jennings points to the ballooning costs of MMORPGs — World of Warcraft is estimated to have cost $40 million to $50 million to develop, and while Age of Conan cost just $25 million, the game is having retention issues, largely because the budget wasn’t big enough, he says. By contrast, he notes, small companies produce low-budget web-based MMOs like Club Penguin and RuneScape that post far higher profits.

So with Jennings making the jump, I suspect we’ll see more developers following his lead. Especially if publishers refuse to evolve.

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34 Responses to “Why The MMORPG Subscription-Based Business Model Is Broken”

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  2. Beside the business troubles inherent with monolithic beasties dominating the industry, there’s also the chokepoints that the sub model puts on the game design itself. It almost demands a treadmill approach to pad the length of the content so that people don’t burn through it. Considering the ROI and investor mentality, the more static the world, the more profitable the game. Fancy treadmills, loot gambling, and class/spec warfare can disguise a lot of core design flaws.

    To me, that’s just as stifling for the genre as the trouble with breaking into the user base.

  3. mustafa

    @Daniel Golding: I’m not clear on what you’re suggesting Daniel. Are you saying that new MMO developers should try to follow WOW’s lead since they’ve obviously been so successful? Might as well put all your investment cash in a big pile and BBQ in my opinion.

    If you want to try for the $1B business then you better be ready to put $50-75M at risk. Oh, and don’t forget that monetizing the resulting product by subscription is a winner-take-all, go-big-or-go-home proposition. Yes, WOW makes $1B. But, how replicable is that as a model for everyone else? Especially now given WOW’s dominance at the top of the heap? How likely are you to make back your $50M in that environment? Perpetual…Flagship…care to talk about their profit margins?

  4. Daniel Golding

    Ridiculous. $50m is a drop in the bucket, when compared to WoW’s revenue. It would be cheap at ten times the price. Annual revenues top $1b and its the gift that keeps on giving, expansion after expansion. I’m all for new models, but please…

  5. mustafa

    bilbo your numbers for Maple Story are old and only reflect US sales. if you look at global sales, Maple Story is way ahead of games like penguin or runescape.

  6. All the man is saying is that it requires a lot of investment to create a new MMO game, and since the big ones are established, you aren’t going to see a lot of innovation the small markets will produce. Which means these games will chew through teeny boppers time but not produce new, interesting, or innovative games. Because the concepts are new and because the ego structure is developed. It’s kinda like how FPS gaming hasn’t really evolved a great deal since the original CS; Tribes was a right step in the direction, as is crisis, but a lot of games just plain suck.

  7. If you look at it from the perspective of breaking into the market, I think he is right. It will be very difficult for a company to compete with Blizzard’s Warcraft using the same model. Their game has been out for years now and they have the 1 billion dollars a year of cash flow to polish what they have. It is gonna take some creativity and inventiveness to take them on.

  8. jakeblaine

    Age of Conan wasn’t ready to be released as a finished game. Anyone that actually still has an active account can tell a person why the game failed to maintain its subscription momentum. Game crashes, lack of content and near total lack of customer service will doom a new MMO.

  9. Good article. But, one thing caught my eye. Game developers are afraid of risk. They like sticking to the tried and true stuff that’s proven to make money for them and not be a bust like some games. Taking a risk on a game for developers is very risky. Some large innovative things could end up totally being a bust. But, this is where i assume that opensource hops in as well as beta testing on a chosen audience of testers and developers to at least see if an innovative risk should be persued or abandoned. Other than that game devs don’t like taking risks for good reason. Fear of risk may be their slow undoing or keep them where their doing great. It’ll take a risk to tell which one of those is true.

  10. Scott Jennings

    Also, I’m not saying subscription MMOs are dead by any means. Just that it costs an awful lot to bring one to market successfully; and when you spend over $50 million on a single project, innovation and creativity become risks.

  11. Scott Jennings

    Saying the business model is broken is an easy way of saying I’m just not good enough to compete. Age of Conan issues were poor execution

    It’s fairly easy to say “Well, you’re not good enough, and Funcom’s not good enough”, but given the polish of Age of Conan’s early game vs. its later game, it’s really apparent to most observers that Funcom simply didn’t have enough money to polish the entire game.

  12. Scott Jennings

    Explain where Maple Story dwarfs Runescape and Club Penguin please?

    You’re counting global revenue for Runescape and Club Penguin, and US-only revenue for Maple Story. They have multiple franchises for each national territory.

    I can’t find anything later at the moment, but in 2006 Nexon made 15 billion Won ($17 million) a month (not year, the other figures quoted are annual revenue) according to this:

  13. Runescape USD50 Million revenue
    Club Penguin USD65 Million revenue
    Maple Story USD30 Million revenue

    Explain where Maple Story dwarfs Runescape and Club Penguin please?

  14. Saying the business model is broken is an easy way of saying I’m just not good enough to compete. Age of Conan issues were poor execution, and not living up to the hype (not surprising from FunCom). In that way it is like the movies – if the initial reviews of the game are bad, it’s not going to pick up new customers and are likely to lose those that they have.

    If a really good MMORPG were to emerge it would not have a problem with the subscription model. Early MMORPGs are still surviving, and EA Mythic is about to release Warhammer Online. Hopefully, they get the execution right, as expectations are high for it. Not likely to be a WoW, but can still be a profitable endeavor.

  15. Scott Jennings

    I wouldn’t really compare Scott, with all due respect, to a top hollywood producer.

    After watching Tom Cruise’s turn in Tropic Thunder, I hope you wouldn’t, either.

  16. Scott Jennings

    I just have yet to see a casual MMO that can challenge Runescape or Club Penguin that is NOT subscription based.

    Maple Story is a free-to-play casual MMO that has revenue that dwarfs both of those examples.

  17. Chris Clark

    Bear in mind that it was Blizzard that created such a large fanbase for MMOs in the West and which in turn has meant that a small slice of the pie for LOTRO, Conan etc is fine because, thanks to Warcraft’s success, it’s such a big pie. Compelling IP – because, darn it, some people *do* see a difference between being a Warcraft Orc and a Starfleet captain – will help grow the market, as will focusing on servicing specific gameplay needs (such as the forthcoming Warhammer game being more suited for PvPers). Non-Warcraft games will fit into niches until the time comes for one of them to knock Warcraft off the top, just as Warcraft did to Everquest, by which time the numbers playing and paying should be even larger. And while totally free and partially free games will also grow, it’s not going to be one of them killing Warcraft by making the cost of entry lower – like the Fermi Paradox, if that was going to happen, it would have happened.

    Put it another way – the failure of your indie band to fill the same size stadia as the Rolling Stones does not mean that the model of charging for tickets is broken, or that the bands selling out mere 5,000 seat arenas should quit.

  18. While this article has a valid argument, I can’t agree with it. The feeling I’m getting from Jennings is that he’s sore that Blizzard has essentially scooped up the entire MMORPG fanbase. With Nearly 11 million active accounts for World of Warcraft paying $15 a month…well…

    So it’s really not about costs. If you’re Blizzard.
    It’s not about execution or business model. If You’re Blizzard.

    Until WoW dies, people have gotta come up with something game changing. Not just another MMORPG.

  19. Jim Rankin

    I wouldn’t really compare Scott, with all due respect, to a top hollywood producer. Scott’s not been lead on a major project, for instance. He also didn’t quit: He was laid off.

  20. Shenzhov

    Subscription based MMORPGs are not going away. People will take free, but they will pay for fun, quality games.
    World of Warcraft may have cost 50 million to develop, but they make something like a billion a year. Not a bad investment me thinks.

    The problem with Games like Conan and its clones is the fact that they pour tons of money into developing these games and they all look like they were written by a bunch of ex Windows 3.1 programmers. You need a $500.00 graphics card and you can see breasts. Look at Warcraft. Look at a level one creature like a rabbit lets say. It moves and sounds like a real creature. The WoW programmers spent a lot of time studying movement and it shows in the game. IN all these other games things move like they are floating as they walk. Warcraft, even with the cartoon look, adds a level of realism to the game and makes it enjoyable to play.

    Couple that with the fact that it takes about 10 seconds for a new person to figure out how to control their character in Warcraft. All these other games it takes a book and a tutor to just learn how to move around and I think you see some of the things that have made Warcraft sucessful.

    Free will have a nitch online, but it’s certainly not the future of gaming.

  21. You do realize that Club Penguin and Runescape derive the vast majority of their income from subscriptions right? Further, WOW has a MINIMUM of 7,000,000 subscribers all paying $15 a month to play it. For everyone following along at home that is $105,000,000 A MONTH! Is $50,000,000 too much to pay for that? I have to say I’m on a much lower level so I am unfamiliar with the issues involved when you get to a billion in revenue a year. That said, I can do basic arithmetic, and a billion minus 50 million is still a lot. Even if they spent that 50 million EVERY YEAR, which is far from true, they would still be making a lot of money.

    The casual MMOs are good for indies, that is true. Does that mean the subscription model is broken? As the top revenue generating casual and ‘Hollywood’ MMOs ALL use subscriptions I suspect the model is still good. Time will tell though. I just have yet to see a casual MMO that can challenge Runescape or Club Penguin that is NOT subscription based.

  22. Games have shown that they can make huge amounts of money but if they are not browser based they also cost a fortune to make, launch, improve, and maintain. So for a small start up browser based is the Indie way of making movies and the only way to go. This doesn´t mean that “Hollywood” type games are dead. I think we will see a coexistence going forward.