ANALYSIS: MMOGs Risk vs Reward

Date: 05-03-2008 Views:
KeyWord: MMOG, MMOs, wow, mmorpg
Summary:The website of released an interesting article which analyst Piers Harding-Rolls examines the gambles involved in publishing premium online games.

The website of released an interesting article which analyst Piers Harding-Rolls examines the gambles involved in publishing premium online games.

Analyst Piers Harding-Rolls examines the gambles involved in publishing premium online games.

It is clear that for those companies that succeed, the MMOG subscription model can be extremely lucrative and benefits disproportionately from scale. In other words, once past a certain level of subscribers, operating expenses#DY# impact on profit margins falls heavily, allowing for great returns. Operating profit for well-adopted premium subscription MMOGs can reach as high as 70 percent and are routinely around 50 percent, representing fantastic margins, which are higher than many other online entertainment opportunities.

The financial success of WoW since the end of 2005 we estimate that this title alone has generated more than 700 (1,400) million in western subscription revenues since launch has prompted significant investment in the sector. Many publishers that were not active in MMOGs but have been tracking the success of Blizzard and Vivendi have been looking at ways to access this lucrative sector or to adopt MMOG-like strategies for their content to drive revenue growth. Screen Digest MMOG research also shows a market that is growing strongly, with more content than ever before and more gamers involved. It would appear, therefore, that investing heavily in MMOGs and collecting a substantial return on this investment represents a straightforward strategic decision for the game#DY#s publisher. In fact, although the rewards are substantial for those that succeed, the likelihood of failure is higher than ever in a sector dripping with risk.

For one thing, competition in the subscription sector is currently at its peak. Growth in the market has prompted new market entrants from a number of different directions; some have expanded from their local markets in Korea and China to take a slice of the pie, while other traditional game publishers have increased their exposure to what is considered a high growth games market opportunity. Although more gamers than ever are playing MMOGs, the increase in subscription content is not commensurate with the growing opportunity.

The other key factor about the nature of the competition in the incumbent subscription market is that much of the revenue is concentrated at the very top of the market. The fact that only ten titles accounted for 85 percent of 2006 western subscription revenue confirms a market that is teeming with commercial risk. This competitive situation is compounded by the market domination of WoW, a title that is expected to have a lifespan of a good few years yet. In 2006, WoW alone represented 54 percent of the subscription market in North America and Europe. Unfortunately, the reality is that many subscription MMOGs in development will fail commercially, as the market is shared between only a handful of titles.

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