The Unknown Warcraft Subscriber

There’s been a flurry of commentary recently on the recent earnings call by Activision Blizzard, where they provide some highlights on their third quarter performance. If you’re interested in reading through the entire transcript of the call you can find it at Seeking Alpha.

There are a couple of quick facts to pull out: Warcraft has dropped by nearly 2 million subscriptions to 10.3 million worldwide. Most of the loss is thought to be in China, an area which represents over 50% of the total subscriber base. The estimated rough split is approximately 5 million subscribers in the Far East, 3 million in US/Aus and 2 million in Europe/Russia.

There’s also the news on how much money Blizzard has made in the last quarter. The developer made nearly $300 million in revenue and $140 million in income – that’s a healthy profit margin of around 40% once tax gets factored in. Whichever way you slice the cake, Blizzard’s in a strong position considering that it’s not had a major release this year.

There’s only one snag with the information that’s been given to us. Although it’s easy to judge the overall performance of the company, it becomes difficult to judge the performance of Warcraft as an MMO. People will point to subscriber numbers going down and predict that this means doom for the game. That’s just simply not possible to do with the information we have available.

The Great Unknowns

One of the things that sticks out to me is how little we know about the average subscriber. If you look at earnings calls from other service business such as cable companies or cellphone networks, they go into detail about their subscriber base to help investors understand how the market is evolving. With MMOs we just don’t get that picture.

To start with, we don’t know how much it costs Blizzard to gain a new subscriber. There’s the marketing and physical media costs, usually offset by players buying the game and expansions. Then there’s the cost of offering Diablo 3 with the Annual Pass. There’s also the conversion ratio – how many people who take up a free trial end up converting to a full account?

Once a subscriber has been won, how much do they spend on average every month? Are they freeloading on the infinite trial or do they have multiple subscriptions, buy pets regularly and transfer server every other month? Are players slimming down to just one account or are they sacrificing other things to maintain their Warcraft account at the same level? Without knowing how the average revenue per user changes over time, we can’t track how changes in discretionary spending impact the MMO.

There’s also no indication of the average subscription lifespan. How long has the average player been playing for? If you’re recruiting for a new guild, what’s the average time a recruit will stick with you before quitting the game? There’s a strong feeling that the playerbase is constantly changing at the moment – if you leave for six months the social landscape has changed completely by the time you come back.

That leads on to probably the most important figure that we don’t know – churn. It’s no good having a high number of subscribers if you have to spend huge amounts on drawing in new players to replace those who have quit. For any service business, reducing churn and improving subscriber retention is crucial for long-term success. The Annual Pass is part of Blizzard’s strategy at improving this, but will anyone outside the business be able to analyse it’s effectiveness as a strategy?

Ramifications of the Unknowns

I’m going to lay odds that the information I’m after is an “open secret” within the halls of Blizzard and other companies. They’re not published because investors don’t push for them, but they’re calculated and analysed regularly internally to track performance of the game.

The impact of this is two-fold. The most obvious one is that we don’t have the numbers to accurately judge the performance of games like Warcraft, which leads to rampant speculation and over-analysis of how games are performing based on subjective opinion rather than objective fact. At it’s worst this can be downright misleading, as Tobold recently pointed out. There is nothing worse than coming up with a hypothesis then hunting for data to match it, instead of being presented with a complete data set.

It also means we can’t do a direct comparison between different MMOs. Does Warcraft pull in more money per subscriber than Rift? Do EVE subscribers spend more than others? Does LOTRO suffer from short-term subscribers only sticking with the game for a couple of months? We have our theories based on anecdotal evidence, but there are no hard facts.

At the end of the day I want to be able to invest in a game over the long term, both in terms of the money I spend on a subscription and the time I spend playing it. I don’t want to buy a box and start a character only to find it substantially change or shut down because the game fails to break-even. But can I tell which ones will succeed and which ones will fail? At the moment, not at all.