In one of my previous posts, I calculated the maximum possible number of WoW players, but those figures did not include alternative revenues collected during the same time frame.
Since the quarterly figures also included such sales as transfers, faction changes, and other paid account services then it would mean that the WoW player counts are even less. But since this transactional information is not public, it's impossible to tell what percentage of their overall Net Revenue is related to subscriptions vs paid services.
Blizzard is under a lot of pressure from their "boss" to introduce new products or add new sources of revenue to combat World of Warcraft's decreasing revenue: "If consumer demand for World of Warcraft games declines and Vivendi Games has not introduced new MMOG or other products that replace World of Warcraft’s potentially decreasing revenue, or added other sources of revenue.."
And it's very interesting to see the strategic deployment (ie, "well timed" delivery) of new account services or virtual products that have been planned for months or possibly years. It's as if the new revenue streams need to be constantly introduced each quarter to combat significantly declining player counts.
(Note: This list does not include major content releases/patches.)
2nd Quarter ending Jun 30 2010 - $289 Million Net Revenue
- Celestial Steed & Lil’ XT Pet introduced at the beginning of the quarter (Apr 15th, 2010)
- The horse was just a reused 3D model so it hardly cost them anything. But it sold at $25 for a minimum of $3.5 million on the first day. Because those sales were part of their Net Revenue, that actually amounts to about 100,000 players. So instead of a maximum of 6.7M players during that quarter, it would be a max of 6.62M.
- Exclusive RAF Flying Mount introduced Apr 30, 2010.
- Remote / Mobile Auction House service ($3 per month) introduced at the end of the quarter (Jun 2010). So many of the profit increases won't be visibile until Q3 2010.
1st Quarter ending Mar 31 2010 - $306 Million Net Revenue
- Celestial Steed leaked to the public to build up interest.
4th Quarter ending Dec 31 2009 - $294 Million Net Revenue
- Race Change service ($25) introduced at the start of the quarter (Oct 09)
- Pet Store introduced in the middle of the quarter (Nov 09). $10 to $25 virtual pets.
Interesting Note: They had a "special" on Pandaren Monk's where they donated 50% of the sales to charity. That special ended on Dec 31, 2009 (coincidentally, the end of quarter). Not only that, but they sold something that cost $0 to make, made quite a bit of profit, while simultaneously receiving tax relief and public relations. Brilliant. =]
3rd Quarter ending Sep 30 2009 - $301 Million Net Revenue
- Faction Change service ($30) introduced at the end of the quarter (Sep 09)
2nd Quarter ending Jun 30 2009 - $324 Million Net Revenue
- Nothing new introduced.
1st Quarter ending Mar 31 2009 - $314 Million Net Revenue
- Nothing new introduced.
4th Quarter ending Dec 31 2008 - $325 Million Net Revenue
- Character Re-customization service ($15) introduced at the end of the quarter (Dec 08)
- Wrath of the Lich King released (Nov 08)
3rd Quarter ending Sep 30 2008 - $271 Million Net Revenue
- PvE to PvP Paid Transfers ($25) introduced at the end of the quarter (Sep 08)
- Recruit a Friend program introduced in the middle of the quarter (Aug 08)
2nd Quarter ending Jun 30 2008 - No Quarterly Report
- Nothing new introduced.
1st Quarter ending Mar 31 2008 - $275 Million Net Revenue
- Character Transfer and Character Name Change cooldown reduced from 3 to 1 month. (Feb 08)
4th Quarter ending Dec 31 2007 - $279 Million Net Revenue
- Name Change service ($10) introduced in middle of the quarter (Oct 07)
3rd Quarter ending Sep 30 2007 - $269 Million Net Revenue
- Scroll of Resurrection introduced at the end of the quarter (Sep 07)
2nd Quarter ending Jun 30 2007 - $324 Million Net Revenue
- PvP to PvE Paid Character Transfers ($25) introduced at the end of the quarter (Jun 06)
(That's just a quick run-through, but if I missed anything I will update it.)
It's very interesting to see that all of the major paid services were all introduced at the end of each quarter. Based on those trends, we might see something new (probably a remote service of some kind) introduced in September 2010. And then next quarter (Q4) is when Cataclysm will be coming out.
Not only that but there's another interesting trend: New paid services (or any kind of alternative revenue stream) are introduced just before quarter end (e.g. 1-2 weeks prior) when the most amount of sales are made! You see, there's a rush because of the new service and everyone wants it as soon as possible. In the end, that rush pads their Quarterly Report profits. And because they can introduce the services any time they want, they only have to release them if they are showing poor performance for that quarter. Of course, follow-up quarters will have significantly less sales, but I'm guessing that there are probably major content releases between each of these activities to keep users interested. =]
Note: Did you notice that major services/changes are released when profits are low for that quarter? But when profits are high, nothing new is introduced.
As you can see, their Net Revenue has remained very close in proximity from 2007 to 2010 as well. If that number is remaining constant (although it's actually trending downwards), but they keep deploying more-and-more paid services over the years, that would indicate that player counts are declining even faster than predicted in the previous post.
The big next step to increase profit is getting WoW players back into China with the WOTLK and the Cataclysm launch. I'm sure we'll see a lot more "alternative revenue streams" (ie, paid services) after the Cataclysm launch, or possibly PR stunts to increase sales of an existing service or virtual item.
Much of this will depend on the success of Cataclysm (mentioned a lot in earlier posts).
What do I think those services could be?
- A lot more mobile services definitely! The Remote/Mobile AH is just a start.
- Checking in-game mailboxes. Inventory, bank, character, and talent management through mobile. (*EDIT: Apparently, the new "Mobile Armory" does some of this already. Guess I was right =] )
- In-game chat with Guild, General Chat, Trade Chat, etc through mobile/remote.
- Integration with Battle.net to allow chat between accounts (e.g. SC2 and WoW players).
- Mobile application that alerts you when other WoW players are nearby, giving you details on their avatar after you "handshake".
- Further integration with Facebook, linking the virtual world with your profile page.
- "GPS tracker" so your Facebook friends know where you are in Azeroth.
- More virtual pets, mounts, and special character customizations only available for real money (special hair cuts, glowing eyes, imposing skull faces, exclusive dances, flaming horns, jewellery, fashion wear, etc.) I think there would be many people who would pay $5-10 for bright glowing eyes.
- Special virtual pets sold with very limited quantities so that people rush for the one-time-only "elite pet" or charity pets for those with a soft heart.
- Depending on the success or failure of Cataclysm, we might see more non-vanity and game-effecting virtual items being sold.
- Change all vanity pets so that they can engage in special combat with each other (they level and grow) to sell even more vanity pets. This would be very easy to do.
- Reduced price structure of existing Paid Account services to attract more players - "Weekend specials", "Christmas Gift Specials", etc.
- Guild Paid services for entire Guild Transfers or group/individual rates for multiple character transfers, realms transfers, renaming, and faction changes.
- Blizzard has been experimenting with Player and Guild Housing, but they also don't want cities to appear empty. It's therefore hard to say if this will ever be introduced, but if it is, the Blizzard store will have house items for sale (e.g. paintings, rugs, bookshelves, etc.) Personally, I don't think this will ever be introduced.
- More "community" integration between Battle.net's games, like pets/mounts for playing the other game, and then once you're hooked: paid premium services.
The list can just go on and on. There are a ton of possible alternative revenue streams, but those are just the simple ones off the top of my head.
This will probably be a boring read for some of you, but I found it pretty interesting.
It's the risk assessment section of Activision Blizzard's SEC filings / reports that discusses Vivendi's concern regarding the MMORPG platform which has been re-iterated every year until about 2009. Just to make it clear to Blizzard and their investors. =]
I particularly like the first introductory paragraph:
Risks Related to the Vivendi Games Business
"Vivendi Games is dependent on Blizzard’s World of Warcraft franchise."
Here are some other tidbits:
- "The majority of Vivendi Games’ total net sales are derived from Blizzard’s World of Warcraft franchise."
- "To remain the leader in the MMORPG category, it is important that Vivendi Games continue to refresh World of Warcraft or develop new MMORPG products that are favorably received.."
- "A substantial portion of Vivendi Games’ revenues are derived from subscriptions paid by World of Warcraft subscribers."
It sounds like they put all of their eggs into one basket. :)
- "If consumer demand for World of Warcraft games declines and Vivendi Games has not introduced new MMOG or other products that replace World of Warcraft’s potentially decreasing revenue, or added other sources of revenue.."
- "..if new business models emerge that offer online subscriptions for free or at a substantial discount to current MMOG subscription fees, Vivendi Games’ revenue and profitability will decline."
This might be evidence of pressure put on by Vivendi that "encouraged" Blizzard's new paid services. (e.g. Server transfers, class/faction changes, character customizations, and other microtransactions.)
If they can't reverse their declining numbers, they might be forced to start selling additional virtual items: gold, gear, levels, etc. =]
- "The development of MMOG products requires substantial up-front expenditures. Vivendi Games may not be able to recover development costs for its future MMOG products."
- "..if future MMOG products do not achieve expected market acceptance or generate sufficient sales and subscription revenues upon introduction, Vivendi Games may not be able to recover the development and marketing costs associated with new products, and its financial results could suffer."
Blizzard, your next gen MMO better not screw up! I know.. It's highly unlikely.
- "Consumer preferences for games are usually cyclical and difficult to predict, and even the most successful titles remain popular for only limited periods of time, unless refreshed with new content."
This is very interesting and so true. That's why I'm looking forwards to the opening day sales reports of Cataclysm. I want to see if their new approach will significantly improve sales. If they don't get 5+ million sales in the first 4 weeks, it clearly demonstrates waning interest in the game - which is one of Vivendi's fears.
Blizzard will play it up though, and announce the total sales made during the first 24 hours of the Cataclysm release. (Let's hope it's atleast 3 million). After that, there won't be any more announcements and they'll conveniently skip the following week.
I'm also predicting that they'll only announce sales, but make no mention of new "Active Subscriber" counts. And if they don't meet the minimum requirements (sales) mentioned above, player counts will continue to drop unless they can re-open the Chinese market. (Keep your fingers crossed!)
- "In order to remain competitive in the MMOG market, Vivendi Games must continuously develop new products and enhancements to existing products."
Develop new products and enhancements.. but don't innovate. Stick with what we know.
- "If World of Warcraft subscribers become dissatisfied, they may chose not to renew their memberships in order to engage in other forms of entertainment (including competing MMOG offerings) and Vivendi Games may not be able to replace lost subscribers."
- "..if general economic conditions decline, consumers may decrease their discretionary spending on entertainment items such as MMOG games and users may choose not to renew their World of Warcraft subscriptions. A decrease in the overall subscription base of World of Warcraft could substantially harm Vivendi Games’ operating results."
This is common sense, but I wish Blizzard would pay more attention to it. There are bad reviews, declining customer support satisfaction, support lines are tied up for weeks at a time, and they're still laying off support staff. They're also adding/removing unwanted features (not listening to the customers.) It's already hurting Vivendi's operating results, and unless this gets fixed soon, they'll be losing even more subscribers that they won't be able to replace.
* UPDATE:
The original article below was from August 2010, when World of Warcraft's total subscriber base was 11.5 million. However, for a more updated version (e.g. 12 million subscribers and taking a different approach to estimate numbers), please look here.
____________________________________________________
Unfortunately, mmogchart.com stopped tracking World of Warcraft's growth back in 2007. However, based on announcements, Blizzard has stated that they have over 11.5 million "Active Subscribers".
Here's an approximate chart of their growth:
Actual Sales Figures
Something always troubled me though..
According to vgchartz, here are Blizzard's most recent sales figures:
How is it possible that they have 11.5M "Active Subscribers" but less than 7M upgraded to WOTLK (released almost 2 years ago) and 7.4M upgraded to Burning Crusade? Let alone, 4.5M players are still playing Vanilla WoW, and there are over 11M players that have been apparently active for over 6 years. Something funny is definitely going on. =]
In February 2010, CEO Mike Morhaime stated that only 30 percent of new World of Warcraft players ever make it past level 10. That's an extremely low retention rate. He also stated that subscription levels had not grown since December 2008 - they had the same number of subscribers now that they did then.
Given their sales numbers, low retention rate, but high claims of "active subscribers" - it just seems impossible. So, let's look at the factual numbers.
Investor Statements
Here are their financials over the most recent 3 month period:
World of Warcraft Gross Profits: $301.75 million
World of Warcraft Operating Costs: $12.75 million (Source)
World of Warcraft GAAP Net Revenue: $289 million (Latest Quarterly Report)
(Note: GAAP means "Generally Accepted Accounting Principles" but when corporations use non-GAAP methodologies, they can inflate or stretch numbers in their books. So it's safe to say that GAAP is the more "honest" figure. If you review their other Quarterly Reports for 2008 and 2009, they also show similar rates.)
Sales during those months were negligible, so their monthly subscriptions totaled approx. $301.75 million gross worldwide.
At a rate of $15 per month, that only accounts for 6.7 million active subscribers! That's almost 50 percent!
(Note: Chinese players pay on average ~$7.27 USD per month and account for ~23% of all worldwide players. However, most CWOW players have multiple accounts. All other geographies pay approx. $15 per month. More details here.)
But they said 11.5 million subscribers, how is this possible? Rather than focusing on just the latest 3 months, let's look at WoW player growth and loss for the past 4 years.
Player's Who Have Left World of Warcraft
Since there isn't any public information on the number of players that have left WoW, let's look at players who have been BANNED in North America and EU alone.
Here are the official Blizzard announcements since their launch:
Mar 2005: 1,000 accounts
Dec 2005: 18,000 accounts
Apr 2006: 5,400 accounts + 10,700 temp banned
May 2006: 30,000 accounts
Jun 2006: 59,000 accounts
Oct 2006: 76,000 accounts
Nov 2006: 105,000 accounts
Mar 2007: 100,000 accounts
Apr 2007: 114,000 accounts
Blizzard was banning approximately 100,000 accounts EVERY MONTH until they abruptly stopped making announcements. It's now been 3 years since they have made any official announcements regarding player banning, even though the banning still continues to happen.
Well, of course they stopped making announcements. Nothing shakes customer and investor confidence like knowing over a million accounts per year were being banned! =]
* UPDATE:
In May of 2008, it's estimated that Blizzard banned 350,000 to 500,000 accounts over a 3 day period in one of the biggest ban waves ever (most Glider accounts were associated with this ban).
Blizzard never made any official announcements regarding this ban though. It's not unheard of though for Blizzard to ban several hundreds-of-thousands of accounts. Remember when they banned 320,000 B.Net accounts in Apr 2010 and 350,000 B.Net accounts in Nov 2008?
Also of interesting note, check out the exhibits from the MDY v Blizzard lawsuit. Part of the evidence is that MDY sold over 100,000 Glider keys and that the majority of Glider users owned multiple WoW accounts (several had 3 or more). Glider users, on average, purchase one additional WoW account.
What do these trends show us?
There are, of course, many variables that leave open margin for error (e.g. abandoned accounts, players that get banned and stop playing, hacked accounts, etc.) but all of those figures are negligible and to keep things simple, the approximations below will favor Blizzard's figures.
The banning trends showed that approximately 1.0 to 1.5% of the total subscriber base were being banned on a month-by-month basis.
Even though that number was increasing, let's assume that only 1.0% were being banned per month.
On the other side of the coin, World of Warcraft's growth rate is approx. 2.0% per month (1.9138% per month to be exact) starting from the same time as the bans. (Note: Between Mar 09 and now, their growth rate is actually negative, but let's ignore that factor for now.)
So we know that almost 500,000 players were banned by April 2007. Between Oct 06 and Apr 07, World of Warcraft's user base grew from 7 to 8 million players. However, during that exact same time frame 400,000 players were banned.
The mathematics need balance.. so if WoW is growing by 2% per month (Active Subscriptions) but they are also banning 1% per month.. where does that extra 1% come from that properly balances the total number of subscribers?
When a player gets banned in the middle of the month, they typically activate a new account. However, their subscription was already paid for at the beginning of the month. On the books, that amounts to 2 "Active Subscriptions" per month because the banned account expires at the end of the month. =]
That missing 1% are actually WoW sales by banned players who purchase a new account within the same month or next.
So "active subscriptions" are actually double the number of real players. Blizzard's statement that they have 11.5 million "Active Subscriptions" is indeed accurate.. but with a twist, they're not referring to real players on those accounts. They're paid subscriptions, not players.
Summary
According to their official financials, there are currently 6.7 million paying customers. On average, about 100k players were banned per month, however since their growth rate has reduced the ban-rate would go down as well. So there could be anywhere between 6.4 million to 6.7 million real active players currently.
That number actually makes a lot more sense and satisfies their sales figures of WoW and the two expansion packs.
And according to growth (vs banned) statistics over the past 4 years, there were probably between 5.75 and 6.9 million real players during it's prime. Based on annual averages, the subscription count would be double that number, giving you the "11.5 million active subscriptions" figure. Even after favoring Blizzard for high and low figures, it's plain to see that during the course of their constant growth (see chart) about 50% of that profit was made by player-bans who purchased new accounts.
I think what had happened was that at one point World of Warcraft reached about 7 million players, but 40% of those players were banned and they purchased new accounts with new subscriptions which then created their "11.5 million Active Subscriptions" boast (averaged over several months to a year).
Blizzard has also not updated their official "11.5M" statement in over 2 years, so that is the figure that all of their employees "stick with" whether it's accurate or not today. It reminds me of Cingular's "fewest dropped calls" marketing strategy. They aggressively marketed a statistic based on a singular group's highly questionable findings and told the world that out all of all of their competitors, they had the "Fewest Dropped Calls" and the "Allover Network" citing said group as "the leading independent research company". =]
Their marketing strategies are actually quite brilliant and I admire it from a business perspective. I've discussed Blizzard's reputation management in the past and this is just another great example: It's all about wording and how they perceive the numbers. =] They've lead the entire world to believe that they have 11.5 million active subscribers (thinking "players"), when in fact it was really half that amount (possibly less than half.)
(Note: There are players with multiple accounts (ie, 2 accounts, 5-boxers, 10-boxers, etc), but it's a very small percentage and left out of these figures.)
Since growth has stopped and player-bans are down (50% of profit), this is actually a very excellent time for release of their expansion pack, it will help bolster their profit from sales and allow them to restart the cyclical process mentioned above.
So, this is just another interesting side of Blizzard most people don't know about. I love the company, not just from a gaming perspective (I've bought all of their games and will continue to do so) but also from a business perspective.. all of their business processes and methods are as polished as their games.
* Update:
Just a quick note regarding a comment made by one of the readers. Their net revenue / gross profit would also contain the sale of services and virtual items. (For example, transfers, race/faction changes, the Celestial Steed, etc.) I've been giving Blizzard favorable numbers to determine maximum possible number of players. However, if their net revenue contains 20% sales of services, for example, that means that there are even LESS players. So there could be anywhere been 6 and 7 million players, assuming that all profits are based on subscriptions. Include sales of anything else WoW related - and that reduces the number of possible players drastically.
Keep in mind, that merchandise sales are separate. The authenticator, tshirts, mugs, WoW keyboard/mouse, etc are not included in this sales figure (different vendors.)