Funcom: "We're not going to play it safe"

What people forget is that, by the numbers at their height, a Zynga made about $1/user/year. (As per their IPO documentation.) Secret World brings in $180/user/year just in subscriptions. So 200,000 subscription users is equivalent to 36,000,000 f2p users. ($3 million in revenue per month.)

Thats quite a financial success, actually.

The market has clearly bifurcated. There is a "lowest common denominator" micro-transaction market where you have to keep cost per user very low in order to see any profit, and there is a premium subscription market of successful niches where you can make a lot of money *if* you go deep and really provide unique value to that niche.

Funcom has successfully done the latter, and I am sure is chuckling all the way to the bank at their nay-sayers.

Edited 6 times. Last edit by Jeffrey Kesselman on 3rd September 2012 5:10pm

Posted:8 months ago

"Funcom saw revenue drop to $2.6m, compared to $3.1m for the same period last year. In terms of profits the company actually saw a loss of $49m, compared to $3 million the previous year."

I highly doubt they are chuckling all the way to the bank at the moment. I hope they will, though!

Posted:8 months ago

This is absolutely expected. Their other primary game is hitting the tail of the revenue curve all MMOs go through. There were some % of AoC players who were just hanging around because it gave them an edge on getting into TSW.

I have no doubts they will do very well going forward. Remember, in a private company, what matters is not quarterly growth or shrinkage, its income to expense. A company that is still generating profits is still a successful company. If you don't believe me, ask Warren Buffet. Thats how he and his share-holders got rich-- by investing in income generating companies with stable returns, not gambling on growth.

Edited 1 times. Last edit by Jeffrey Kesselman on 3rd September 2012 6:42pm

Posted:8 months ago

But that's the point, unless I'm misunderstanding. They are not generating profit, they're generating revenue. I hope they can be profitable - their efforts for trying something different should be rewarded - but 49 million $ is quite a gap to fill.

Posted:8 months ago

@Laurens

No, read closer. The article says their profits are down last quarter, there is nothing that says they are operating at a loss that I can see. They launched a major new game last quarter, that means they also had a big one-time marketing spend that going forward they will be reaping the rewards from (At $3 million a month.)

And 200,000 users at $15 a month is far from disappointing. WOW didn't hit that in their first quarter

(http://www.google.com/imgres?imgurl=http://www.wikinomics.com/blog/uploads/chart21.jpg&imgrefurl=http://www.mmo-champion.com/threads/670772-REQUEST-WoW-Sales-Chart&h=410&w=600&sz=42&tbnid=khS-j4bIVAP_UM:&tbnh=85&tbnw=125&prev=/search%3Fq%3Dwow%2Bsales%2Bchart%26tbm%3Disch%26tbo%3Du&zoom=1&q=wow+sales+chart&usg=__2H9DKu6h1MIWKDTiONl-GelXkQI=&sa=X&ei=Yu5EUJvIEJPV0gHf34HAAg&ved=0CCwQ9QEwAQ&dur=69)

Having said this, I don't think anyone expects this to be a WoW level success. The market is different now and more segmented. It is doing *very* well as a niche game.

Edited 2 times. Last edit by Jeffrey Kesselman on 3rd September 2012 6:54pm

Posted:8 months ago

I'm reading as close as I can, and the way I understand it is this:

It's not saying their profits are down $49 million. (As in: Our profits were $100 million, now they are $51 million.)
It's saying their net income is minus $49 million.

I'm reading it like that since I cannot imagine FunCom ever having made over $49 million dollar in profit per quarter and reading it your way must mean it did.... eh... right? Because it is implying there is still profit.

Financial mumbojumbo certainly isn't my strong suit so I'd be the first to admit I'm wrong, but I'm taking it to mean a net loss of $49 million.

(Check this out, page 36: http://l3cdn.funcom.com/funcomportal/pdf/investor/2010/Funcom_2010_Annual_Report.pdf)

Anyway, $3 Million a month in revenue is only part of the equation. It means $0 profit if it's costing you $3 million a month to keep the servers running.

Edited 2 times. Last edit by Laurens Bruins on 3rd September 2012 7:55pm

Posted:8 months ago

Correct me if I'm wrong, but didn't they say they sold 200k, not that they have 200k subscribers? Like many, I bought the game but I didn't subscribe after my free month.

Edited 1 times. Last edit by Raphael Honore on 3rd September 2012 10:25pm

Posted:8 months ago

A fair comment. Unfortunately we don't have any subscription numbers yet. But even at a 50% loss, thats still billing over a million dollars a month. Thats a lot of money. And we aren't even counting the income from the box sales. (Quick estimate in my head is that this sounds like somewhere between 1 and 2 million dollars 'bonus', yes?)

I am sorry btw to hear that you bought the game and never subscribed, because it means you wasted money finding out you didnt' like it :( I bought the game and AM subscribed. I really hope more then 50% of those that bought the game had my experience, not yours. It would be very sad for them if they did.

Edited 2 times. Last edit by Jeffrey Kesselman on 3rd September 2012 11:42pm

Posted:8 months ago

@Laruens

I took a look at the report you pointed at. Unfortunately, by my reading it only goes to 2010 and shows an operating profit in 2010. I also looked at the article and these are 2012 numbers referenced. On closer reading I think it was my error and i do apologize. I think you are right that the author thinks its an actual 49M operating loss. However, as he or she gave no reference for his or her numbers I was unable to verify what the real numbers were from which he or she drew her conclusion.

Edited 1 times. Last edit by Jeffrey Kesselman on 3rd September 2012 11:34pm

Posted:8 months ago

@Jeffrey

Actually, I rather liked the game. I didn't subscribe because I think they will adopt a freemium model in a few month - buying a subscription then will almost certainly mean more value for my money. I sincerely hope this game is successful in the long run - I just don't think it will be if Funcom sticks to pure sub + cash shop.

Posted:8 months ago

In 2010 they laid off most of the Oslo's staff, citing financial troubles and then chased Montreal's tax breaks and opened a studio there. Then they were lucky again and got EA as publisher. Releasing the game with a subscription model was either EA's "clever" idea or another move to keep the business going on. You gotta give them: they're really good at keeping the company afloat, despite everything.

Posted:8 months ago

Jeffrey i feel you are way off base here. If you look at the numbers (and their statements), Funcom made a 49 million USD loss in the last quarter - largely down to impairment charges for TSW.

Q2 2011 saw a profit of -2.96 million USD, Q2 2012 saw a profit of - 49.19 million USD - yes it's written as profit but notice the "-" in front of the number...

Age of Conan sold close to a million units in the first few months but subscriber retention after the first (free) month was less than 20%. 6 months later subscribtions were below 100k user. That's why there was not immidiate massive staff cuts, but they came later on, together with a move to Montreal.
This time around they are cutting more than 50% of their work force (this goes way beyond QA and launch team) within 2 months after launch.
If you follow the same model as Conan, with 200.000 units sold, a 20% retention rate after the first month will give you barely 40k subscribers. for a game that has been in development for more than 5 years, with as many people as Funcom uses, that's not enough.

There were probably quite a few people who bought the game in the summer draught, to check it out during the free month, but with guild wars 2 out and WoW expansion about to launch, many of those will not be paying a monthly subscription. They might well return to the game later once it becomes free to play though (which really is inevitable at this point).

Posted:8 months ago