23 Jan 2012

How SWTOR Will Make A Profit

There’s been a lot of talk recently about how Star Wars: The Old Republic was going to be BioWare’s most expensive mistake, ending up consigned in the footnotes of history as a video gaming failure. It’s easy to see where this comes from – at a $200 million price tag this is one of the most expensive games yet made. Yet it will, in time, make a profit.

When looking at console games the main driver is to make back the cost of the game in boxed sales. An XBox 360 game that shifts 2 million copies globally equates to roughly $120m in sales, of which the publisher is likely to see roughly $30m. If your game comes in at less than this budget or you sell more copies than the forecast then you’re into profit territory.

MMOs break this mold by placing some of the budget for the game against forecasted subscription, micro-transaction or “in-life” revenues. The Old Republic pushed this further than most, assigning a huge chunk of the project budget against these in-life revenues. It’s a bit of a gamble, which is why building up preorders is so important. But in this case, it should also pay off.

Looking at the first month sales we know that over 2 million copies of SWTOR have been sold. What we don’t know is the proportion of people who bought the boxed copy, Collectors Edition or Digital Deluxe from Origin. This is important as a publisher only tends to receive about 25% of the retail RRP for boxed copies but can earn much more from an online store offering digital downloads. Assuming that EA earned a minimum of $15 per sale, earnings for the first month would be around $30 million at a minimum. That leaves EA with around $170m to bring in from subscriptions.

Last week I took a closer look at how many subscribers are likely to stick with SWTOR after the first month, coming up with an answer of roughly one million. Assuming these subscribers stick around for the whole year that’s a further $180m earned from monthly subscriptions at $15 a time. There are currency variations and multi-month discount deals to factor in, as well as people who prefer to use game time cards, so overall it should even out.

Offsetting against this income are operating costs. SWTOR uses three datacentres located in East Coast USA, West Coast USA and Ireland in order to provide players with servers near to them to play on. That said, it’s unlikely that these facilities would be dedicated to supporting the MMO, instead providing support for Origin as well as console-based multiplayer sessions. The entire EU server cluster is likely to squeeze into 10 to 15 racks, with each rack measuring 80”x40”x24”. A typical large datacentre costs $10m a year to run, but colocating in existing EA facilities should bring operating costs down significantly.

There’s also customer support requirements. Again these are likely to be an expansion of existing EA facilities rather than dedicated BioWare installations, although SWTOR support might be made up of a dedicated team. Even with a team of 100 staff on an average salary of $30k per year the overall support cost would be $3 million per year. All in, the annual run and operate cost for SWTOR should be significantly less than $10 million and probably be in the $4m to $6m mark.

To recap, a $200 million game that made $30 million in first month sales has $170m still to recoup from subscriptions. SWTOR is likely to retain 1 million subscribers, earning $180 million in the first year. Operating costs are likely less than $10 million.

From my crude napkin-maths, Star Wars: The Old Republic should break even by the end of the first year, with anything beyond that being healthy profit margin. It’s possible that the forecast was for the game to pay back within three years, in which case it’s easy to see that the game should make a substantial sum even if subscriber numbers drop.

As with any rough calculation there are assumptions. The first big one is not taking payment processing, debt refinancing, currency exchanges and other fiscal operations into account. The second one is the cost of ongoing development and maintenance. it’s not clear how much future content was ‘baked in’ to the $200m cost, or if BioWare will be looking to dip into some of their subscription earnings to fund further development.

It’s likely that we’ll never know the real numbers from BioWare, as these costs tend to be competition and marketplace sensitive. Either way, it’s clear to see that BioWare have produced a game that stands up to financial scrutiny as well as critical acclaim.

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