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A Misconception on the Misconception of MMO Costs...


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#1 MrIllusion

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Posted 29 December 2011 - 06:36 AM

There seems to be some sort of internet meme on this forum where some posters like to link to a certain post from 4thVariety regarding the costs of running an MMO.

Posted Image

However it seems like some people are just looking at the image he inserted without actually reading the rest of his comments.

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If you take a look at NCsofts revenue, you notice that the quarterly earnings from Guild Wars alone are be sufficient to pay for all that. Still, NCsoft has high costs, because they have a lot of staff to pay. That's where the money goes. This is where your subscriptions end up, staff and earnings paid to investors. Running the servers has nothing to do with it. MMOs requiring $15 per user and month to keep the server running is nothing but a myth created by the players. No company will challenge this belief though, capitalism, you know. Why educate the user? What's to gain from that?

His main argument is that the cost of running an mmo isn't as high as we believed, and I believe his argument still stands. However somewhere along the line, people twisted the original intent of the article to mean that server and bandwidth costs are miniscule or negligible.

The currency is listed as "KRW in MN". You need to multiply whatever is listed by 1 million Won. The original poster of course understood that (he converted the numbers to USD in his post). But  I get the feeling most people glossed over that, such that when I mentioned the converted amount in USD in a thread recently, I got some surprised queries.

There's a reason why all the successful MMOs (and even not so successful ones) are being backed by powerful publishers. If this was some instant gold mine, everyone would have been on it, but it's mostly controlled by corporations which have the necessary means to put the initial capital.

#2 Lord Bazaah

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Posted 29 December 2011 - 08:45 AM

I haven't kept up on the massive discussion posts but I believe the original point was: "while not negligible, the hosting costs are nowhere near a level where a subscription is necessary."

So yeah, you yourself can't go out and host an MMO, but most MMOs could still be profitable at 30% of their income.

#3 MrIllusion

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Posted 29 December 2011 - 08:59 AM

Lord Bazaah said:

I haven't kept up on the massive discussion posts but I believe the original point was: "while not negligible, the hosting costs are nowhere near a level where a subscription is necessary."

So yeah, you yourself can't go out and host an MMO, but most MMOs could still be profitable at 30% of their income.

I'm sure that was the tone of the original thread from last year.

But the recent ones border on:

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servers and bandwidth costs are negligible.

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The server cost arguement. Those are so miniscule that NCSoft gives them a footnote on their yearly cost report. Its a joke.

It's like that game where we whisper a secret message to the person next to us, and he has to pass it on to the next person. By the time the last guy gets it, the message is completely mutilated.

#4 Alot

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Posted 29 December 2011 - 09:09 AM

You see what I do not understand is that it still costs Blizzard 200 million dollars a year to keep their servers for WoW running.

#5 MrIllusion

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Posted 29 December 2011 - 09:16 AM

Alot said:

You see what I do not understand is that it still costs Blizzard 200 million dollars a year to keep their servers for WoW running.

Are you asking about the value of $200 million or why it hasn't changed?

#6 Alot

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Posted 29 December 2011 - 09:28 AM

MrIllusion said:

Are you asking about the value of $200 million or why it hasn't changed?

Fail. /faceslaps face into oblivion, only to get fivehundred Dremora Field Arrows shot in the knee

Those $200 million dollars are what the upkeep has cost for ALL of Blizzard's expenditures for WoW from 2004 to 2008. I failed.

#7 MrIllusion

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Posted 29 December 2011 - 09:40 AM

Krazzar said:

So you were so upset that joke of a thread was closed you made a new thread that doesn't say anything just to continue the cyclical argument.

If you must. So only "powerful publishers" can produce and run MMOs, huh. That must mean you know the publishers of all these MMOs and they must all be "powerful publishers". So you reserve the right to complain about all these MMOs being made by no-name development studios and publishers and then turn around and say they require powerful publishers with deep pockets to run. Interesting, but stupid. Truth is MMOs are made and run like games were made and run since the inception of games, selling as a product, once server costs needed to be covered and sub fees made sense, today it's just an additional charge with no justification. It's identical to paying double at restaurants to better make up for normal costs of operation.

It's more like someone quoted a source with easily discernible data and you simply don't believe it and so try to come up with any excuse to fight the clear facts.

You obviously didn't read what I posted.

My issue is not with the info provided by the OP. It's with misinterpreting the original message.

Whatever opinions you may have about payments methods is not of interest to me here.

Based on the NCSoft financial reports, do you believe that the server costs are miniscule and negligible, or not? It's a simple question.

And it's good that you linked to MMORPG, because if you sort the list like this, you can see which are the ones at the top.

Edited by MrIllusion, 29 December 2011 - 09:47 AM.


#8 Krazzar

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Posted 29 December 2011 - 09:41 AM

So you were so upset that joke of a thread was closed you made a new thread that doesn't say anything just to continue the cyclical argument.

If you must. So only "powerful publishers" can produce and run MMOs, huh. That must mean you know the publishers of all these MMOs and they must all be "powerful publishers". So you reserve the right to complain about all these MMOs being made by no-name development studios and publishers and then turn around and say they require powerful publishers with deep pockets to run. Interesting, but stupid. Truth is MMOs are made and run like games were made and run since the inception of games, selling as a product, once server costs needed to be covered and sub fees made sense, today it's just an additional charge with no justification. It's identical to paying double at restaurants to better make up for normal costs of operation.

It's more like someone quoted a source with easily discernible data and you simply don't believe it and so try to come up with any excuse to fight the clear facts. There are costs to operating a business, sub fees are not required in the least to handle those costs. That's the whole point, making up a caveat doesn't change that in the least.

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Your entire point is there are more costs than just servers and bandwidth. That doesn't change anything about how businesses run. Not much of a thread, but congrats on being able to read a post and one page of a report.

Are server and bandwidth costs negligibly small? Apparently so considering it is not a primary cost, which is also because, as pointed out, it is a relatively fixed cost. Negligibly small means your company does not make decisions based on that cost, which means any payment model or release model is completely unrelated to those costs. Small or not it's made irrelevant to the decision-making process, unless your next argument is on how the reporting process is misleading.

Edited by Krazzar, 29 December 2011 - 09:49 AM.


#9 MrIllusion

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Posted 29 December 2011 - 09:48 AM

Krazzar said:

So you were so upset that joke of a thread was closed you made a new thread that doesn't say anything just to continue the cyclical argument.

If you must. So only "powerful publishers" can produce and run MMOs, huh. That must mean you know the publishers of all these MMOs and they must all be "powerful publishers". So you reserve the right to complain about all these MMOs being made by no-name development studios and publishers and then turn around and say they require powerful publishers with deep pockets to run. Interesting, but stupid. Truth is MMOs are made and run like games were made and run since the inception of games, selling as a product, once server costs needed to be covered and sub fees made sense, today it's just an additional charge with no justification. It's identical to paying double at restaurants to better make up for normal costs of operation.

It's more like someone quoted a source with easily discernible data and you simply don't believe it and so try to come up with any excuse to fight the clear facts. There are costs to operating a business, sub fees are not required in the least to handle those costs. That's the whole point, making up a caveat doesn't change that in the least.

-----------------
Your entire point is there are more costs than just servers and bandwidth. That doesn't change anything about how businesses run. Not much of a thread, but congrats on being able to read a post and one page of a report.

No my entire point was that some people did not see KRW in MN.

#10 Krazzar

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Posted 29 December 2011 - 09:51 AM

MrIllusion said:

No my entire point was that some people did not see KRW in MN.

Are you serious? That's even more entertaining. Did you not see how people were using the figures in a comparative manner to various costs on the report? All the figures are in millions, and still bandwidth is relatively low, the actual value is irrelevant when comparing costs.

Lets compare which is larger:
Payroll: 50,316
Bandwidth: 2,801
Payroll is far larger.

Payroll: 50,316,000,000
Bandwidth: 2,801,000,000
Payroll is far larger.
Aren't ratios just magical?

So I guess your point is all costs are higher than some people thought by a factor of one million, which doesn't invalidate or even change their conclusions or logic.

Edited by Krazzar, 29 December 2011 - 09:56 AM.


#11 MrIllusion

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Posted 29 December 2011 - 09:55 AM

Krazzar said:

Are you serious? That's even more entertaining. Did you not see how people were using the figures in a comparative manner? All the figures are in millions, and still bandwidth is relatively low.

Bandwidth costs more than 4 entries on the list. Bandwidth and rent is about 5.2% of total costs.

It is not negligible.

In absolute costs it amounts to $2,430,579.61 for that quarter.

The cost alone is already a high entry barrier for new entrants.

Edited by MrIllusion, 29 December 2011 - 09:58 AM.


#12 Krazzar

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Posted 29 December 2011 - 09:59 AM

MrIllusion said:

Bandwidth costs more than 4 entries on the list. Bandwidth and rent is about 5.2% of total costs.

It is not negligible.

Here's the beauty of accounting; it is because it's not listed with all the relevant costs. It is not relevant to normal operations. According to GAAP and international accounting regulation that cannot be misrepresented, and bandwidth cost has appeared as a footnote since I first looked at NCSoft reports in 2004.

You might think it's relevant to operations and thus not negligible, but NCSoft, and anyone that actually knows how to read those reports, does. Its amount is irrelevant.

Seems it's you that have the misconception.

Edited by Krazzar, 29 December 2011 - 10:01 AM.


#13 Minttunator

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Posted 29 December 2011 - 10:08 AM

Sorry, what are you trying to say with this thread exactly? Are you saying that server bandwidth makes up a significant part of the total cost of running an MMO? Because based on the picture you posted yourself, it clearly doesn't...

#14 MrIllusion

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Posted 29 December 2011 - 10:23 AM

Krazzar said:

Here's the beauty of accounting; it is because it's not listed with all the relevant costs. It is not relevant to normal operations. According to GAAP and international accounting regulation that cannot be misrepresented, and bandwidth cost has appeared as a footnote since I first looked at NCSoft reports in 2004.

You might think it's relevant to operations and thus not negligible, but NCSoft, and anyone that actually knows how to read those reports, does. Its amount is irrelevant.

Seems it's you that have the misconception.

Where are you getting this from? And would you like to elaborate on the purpose of bringing GAAP into the picture?

Minttunator said:

Sorry, what are you trying to say with this thread exactly? Are you saying that server bandwidth makes up a significant part of the total cost of running an MMO? Because based on the picture you posted yourself, it clearly doesn't...

No I believe that the costs are small. But this is very different from the idea that the costs are negligible.

Edited by MrIllusion, 29 December 2011 - 10:25 AM.


#15 Minttunator

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Posted 29 December 2011 - 10:35 AM

MrIllusion said:

No I believe that the costs are small. But this is very different from the idea that the costs are negligible.

Thanks for clarifying! I don't think there can be a lot of interesting discussion about that, though, since it really depends on one's definition of 'negligible' which just boils down to a semantics argument (is 0.1% negligible? How about 1%?). :p

#16 MrIllusion

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Posted 29 December 2011 - 10:55 AM

Minttunator said:

Thanks for clarifying! I don't think there can be a lot of interesting discussion about that, though, since it really depends on one's definition of 'negligible' which just boils down to a semantics argument (is 0.1% negligible? How about 1%?). :p

You are definitely right on this. But here's another thought:

If I have a subscription base of 11 million players, it's very easy to draw criticism about my profits and expenses.

But if I'm struggling with a subscription base of 200,000. Then I'm sure you can understand why I would not agree with people dismissing it as negligible.

The bandwidth costs would of course decrease (less players), but then my servers would be underutilized.

There is quite a bit of dynamics that goes on behind it. I'm perfectly fine with people discussing about it in a specific context. My main beef is that the original message seems to be lost, and now used in broad sweeping statements.

#17 Corsair

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Posted 29 December 2011 - 10:56 AM

MrIllusion said:

No I believe that the costs are small. But this is very different from the idea that the costs are negligible.

The costs are negligible because of the scale. GW, a 4 year old game (at the time) managed to make the server costs for Lineage, Lineage 2, GW, Aion, and City of Heroes. 5 fairly popular games representing millions of players. Now, a smaller developer wouldn't need to provide quite so many servers, as they would not have that customer base. Thus, the cost drops off a cliff. Grow as your user base (and therefore revenue!) grows, get more servers as demand needs, since whatever your revenue model is should be sustainable. A new game by an unheard of developer isn't suddenly going to pop up with 1 million players.

Do you know how much that is in USD? http://www.wolframal...9.61 krw to usd 2.2 THOUSAND dollars.

Edited by Corsair, 29 December 2011 - 11:02 AM.

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#18 MrIllusion

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Posted 29 December 2011 - 11:07 AM

Corsair said:

The costs are negligible because of the scale. GW, a 4 year old game (at the time) managed to make the server costs for Lineage, Lineage 2, GW, Aion, and City of Heroes. 5 fairly popular games representing millions of players. Now, a smaller developer wouldn't need to provide quite so many servers, as they would not have that customer base. Thus, the cost drops off a cliff. Grow as your user base (and therefore revenue!) grows, get more servers as demand needs, since whatever your revenue model is should be sustainable. A new game by an unheard of developer isn't suddenly going to pop up with 1 million players.

Do you know how much that is in USD? http://www.wolframal...9.61 krw to usd 2.2 THOUSAND dollars.

I agree with your post, but the last part is exactly what I'm talking about.

The $2,430,579.61 that i mentioned is in USD.

We cannot possibly have a proper discussion if the numbers we are looking at are off by 3 zeros.

#19 Memilish

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Posted 29 December 2011 - 11:17 AM

But aren't the server maintenance and bandwidth costs the only part of those books that are comparatively unique to an MMO? Even if you develop a "normal", subscription-less game you'll have to pay for staff, marketing, production costs, maybe even some server and continuous costs if you're doing a multiplayer service and "content" (maps in the example)/balancing patches a la Battle.net for Starcraft 2... Of course it's on a different scale than keeping thousands of people running around in the same world, but still.

Edited by Memilish, 29 December 2011 - 11:21 AM.


#20 Corsair

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Posted 29 December 2011 - 11:17 AM

Allright, I misread that part. Point still stands. Put under an other category in accounting means a relatively predictable and negligible cost.  It still only accounts for 2.8% of their total costs. Trust me, if something is stopping a company from making and keeping an MMO successful, it's the payroll. Because with an MMO you need constant support for the players. If the bandwidth costs are prohibitive, they have other problems that need to be addressed first.

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#21 MrIllusion

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Posted 29 December 2011 - 12:34 PM

Memilish said:

But aren't the server maintenance and bandwidth costs the only part of those books that are comparatively unique to an MMO? Even if you develop a "normal", subscription-less game you'll have to pay for staff, marketing, production costs, maybe even some server and continuous costs if you're doing a multiplayer service and "content" (maps in the example)/balancing patches a la Battle.net for Starcraft 2... Of course it's on a different scale than keeping thousands of people running around in the same world, but still.

Not necessarily. We shouldn't be looking at unique entries to determine cost allocation.

If you run an MMO, you may be required to hire customer service staff, have an in-house tech team, you may need to have a ticketing system to handle customer complaints, or maybe even build/buy one etc. All these won't have unique entries; they will be included in the main entries such as Accounts Payable, PPE, Inventories.

If your customer service staff falls under Payroll, should Payroll be excluded from the costs of running your MMO? If you decide to terminate your MMO, and focus on your single-player game, will you still keep your customer service staff? Or downsize them?


Corsair said:

Allright, I misread that part. Point still stands. Put under an other category in accounting means a relatively predictable and negligible cost.  It still only accounts for 2.8% of their total costs. Trust me, if something is stopping a company from making and keeping an MMO successful, it's the payroll. Because with an MMO you need constant support for the players. If the bandwidth costs are prohibitive, they have other problems that need to be addressed first.

I don't understand where this sentiment came from.

Even in the consolidated reports from NCSoft, the figures are clearly expanded upon under "7. PPE".

It's not like they are swept under a rug.

Edited by MrIllusion, 29 December 2011 - 01:22 PM.


#22 I swung 4 times

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Posted 29 December 2011 - 12:36 PM

http://www.joystiq.c...-to-play-itera/

Still B2P is going to be an up hill battle over Subscription.  Regardless of the "Truth", the mindset of the consumer will still be something to contend with.

#23 Coooturtle

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Posted 30 December 2011 - 02:59 AM

I have always wondered, if P2P is SO desperately required for an MMO, then why are there so many popular MMOs that don't require a subscription fee working properly. GW is a prime example. It requires no subscription fee, just expansions and micro-transactions. Yet it runs perfectly fine, with frequent content updates (even recently there had been updates here and there). And they have GW2 on the way. I have always thought that P2P was always a stupid idea, ya it brings more money to the people working on the game, but at $180 a year AND the cost of expansions, it is really working.

#24 HawkofStorms

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Posted 30 December 2011 - 03:21 AM

It is negligible.  People hear millions and start to freak the hell out, when that's really not a lot in the business world.  I know the small local office that has 5 people in it, and the expenses are around 900k a year.  
Yes it is "a lot" in the sense that some random guy in his basement can't just invent an MMO and run the server it off his desktop.  But with investors in a massive corporation... pfft.

#25 MrIllusion

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Posted 30 December 2011 - 04:29 AM

Coooturtle said:

I have always wondered, if P2P is SO desperately required for an MMO, then why are there so many popular MMOs that don't require a subscription fee working properly. GW is a prime example. It requires no subscription fee, just expansions and micro-transactions. Yet it runs perfectly fine, with frequent content updates (even recently there had been updates here and there). And they have GW2 on the way. I have always thought that P2P was always a stupid idea, ya it brings more money to the people working on the game, but at $180 a year AND the cost of expansions, it is really working.

I don't think it's needed to run an MMO at all.

I do think it makes it easier to convince investors to throw in their support. If you are an investor, which would you choose? MMO A has to break even on sales, if they don't meet the sales target you won't recover your investment, if they exceed you profit. MMO B has a sub model, even if we don't meet the sales target, as long as we hold on to a minimum number of subs, you will recover and profit in X years.

What I want to know ask is, why isn't NCSoft adopting the same model for all their MMOs, instead of just GW2?

#26 Ritter

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Posted 30 December 2011 - 10:55 AM

Obviously because P2P model is more profitable(allegedly) than B2P model.