Massively Overthinking: MMO business models in the face of recession

    
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Massively Overthinking: MMO business models in the face of recession

MOP reader Sray posed us an interesting question this past week focused on how MMO business models interface with the global economy. “The last major worldwide recession largely ended subscription only access as a business model for MMORPGs,” he posits.

“Outside of WoW and EVE online, [relatively few] of the MMOs that predate the 2008 financial crisis maintained sub-only business models through the economic downturn. Today, [among major MMOs] only WoW and FFXIV are still subscription-only, but now not only are we entering another recession, now these games must also compete with catalog services from Microsoft, Playstation, and Ubisoft, with more to come as Amazon gets ready to enter the game streaming wars. And all of that is for the same price or even less than $15 monthly. And their subscription fee also frequently includes months of no new content versus an identically priced service like Xbox Game Pass that is continuously adding new content on a weekly basis. While we’ll undoubtedly see the SWTOR/ESO hybrid subscription model continue, how likely is it that we’ll see WoW and FFXIV be able to continue with their current business models in the face of yet another recession combined with competition from dozens of full featured free-to-play and buy-to-play MMOs that did not exist 10 years ago, and multiple catalog services that objectively offer more for the same price or less?”

There’s a lot to unpack here. Do you think the late aughts’ economic recession was the biggest factor in shifting the overall business model for online games? Will we see it shift again, and will the final sub-only holdouts be forced to rethink their model now that we’re struggling with another economic crisis? Let’s Overthink it.

Andy McAdams: There’s a lot to say here. Let’s start with the what caused the rise of the F2P MMOs. The answer is something as simple as “a recession,” but the answer to that is objectively “no.” Financials from the time showed the games as a whole were more successful during the 2008 recession. Blizzard specifically pulled in a metric shit-ton of money. Where other industries were crushed under their own weight, video games sailed through relatively unscathed. While F2P games might have seen a rise as people sought out free entertainment, they were clearly not impacting gaming’s overall bottom line. It’s impossible to pin the FTP transitions of games like LOTRO, DDO, and RIFT on the recession when the financials from the rest of the industry showed people spending more money in games, not less.

And let’s not forget one incredibly simple truth of F2P games: Developers made the transition to F2P not because it’s “free” for the player. People without money might play the game, but they definitely aren’t keeping the lights on. Developers switched to F2P because they made more money than they did on a subscription game. The success of F2P has nothing to do with the players who are playing and not paying anything – it’s just those 2ish percent who spend more than the other 98% combined, and more than a 100% of all players under a subscription game. The assertion that a recession somehow helped the rise of F2P games just doesn’t make sense.

It also completely ignores the fact that F2P didn’t just suddenly birth itself into being with the advent of MMOs in early aughts. F2P has a long and storied history involving shareware, demos discs, and mobile success long before it became a high-profile thing in MMOs. The trajectory and velocity of the F2P movement was in play well before the recession, and nothing suggests that the recession in 2008 had an impact on that trajectory or velocity.

That brings us to the current state of the world. I don’t know if we’ll see a shift back to the sub model, and it’s unreasonable to expect that WoW or FFXIV will be transitioning anytime soon, mostly because of those games are printing money just as they are – you don’t fix a thing that isn’t broken. This recession is going to be different than the housing recession because coming out of this people are going to be behaving very differently than we were in January. I’m a firm believe in the idea that COVID-19 has irreversibly changed our society. What I expect to happen is a significant expansion in virtual worlds as people make social distancing more a part of their every-day lives post-crisis. I think we’ll see an expansion in virtual worlds as people go virtual and want a more complete experience there.

All in all, I expect to see greater growth in the hybrid approach of B2P/F2P+sub that allows for the stickiness of longer term play, but the flexibility to continue to spend or not in-game as an ongoing decision, as opposed to one that’s set marked by an all-or-nothing kill-switch. I also expect to see an increase of video game spending, just like we saw in 2008. We are already seeing this as consoles sales are spiking. Assuming this follows generally the same in 2008, I actually expect better outcomes for gaming here because of its natural inclinations toward social distance.

Brianna Royce (@nbrianna, blog): I am hard-pressed to argue against anything Andy said in regard to correlating the decline of subs with the 2008 recession. Maybe coming at it from another angle would be better; we could argue (and have argued) that there was a collapse in small-to-mid-budget MMOs and MMO studios thanks in part to the recession, which led to a scramble for more money – and free-to-play was the fastest, easiest, cheapest way for those companies to boost market share to potentially stay alive a little while longer. Some of them made it. Others didn’t. The key sub games were fine, indicating there was a lot more to it than the barrier-to-entry of the sub – like mobile, the rise of subgenres and esports, the centering of Steam, and the expense of building full-fledged MMORPGs.

Business for Blizzard and other major online gaming studios is once again booming right now. Even smaller congloms like Gamigo are benefiting. I can’t see why FFXIV or WoW would need to change anything right now or in the next few years. If anything, the most money-conscious MMO players see those two games as relatively inexpensive entertainment destinations to wait out the storm, especially since subs haven’t budged much in two decades (while “F2P” costs keep skyrocketing). What happens to the smaller companies in the meantime will depend on, as Andy said, just how long this recession goes on, whether it springs back to life as expected, and whether the world stays more “virtual” going forward.

Carlo Lacsina (@UltraMudkipEX): I wouldn’t worry too much about WoW or FFXIV. Say what you will about WoW, but the sub numbers come from both its legacy and the overall quality if the game. (Sure, it’s doing a terrible job right now, but because of its very large fanbase, I’m pretty confident it’ll be fine.) The same goes for FFXIV, a huge game with a legendary legacy will probably do just fine with a subscription. Both games are still safe bets when compared to games like BDO or TERA; it’s got the widest appeal and thus will have a much larger audience.

Even then, I don’t think it would be a recession that knocks out those two holdouts. It would have to be a major philosophical shift in the game’s vision. And in many ways that’s a luxury. The subscription model most likely be making a comeback anytime soon, but I’m pretty sure FFXIV and WoW will stay being the only ones for a long time.

Tyler Edwards: While I wouldn’t entirely rule out the possibility of an economic downturn having some kind of an impact on sub games, I think Andy is right to point out that correlation doesn’t prove causation in regards to the 2008 recession causing the boom in free to play. In actuality free-to-play exploded simply because it proved itself a more successful model. People voted with their feet and with their wallets, and bar a handful of holdouts coasting on brand recognition, free-to-play (and buy-to-play) won out. It’s amazing how much people try to find explanations for the death of subscriptions beyond the fact that it turns out a lot of people just don’t like them all that much.

Every week, join the Massively OP staff for Massively Overthinking column, a multi-writer roundtable in which we discuss the MMO industry topics du jour – and then invite you to join the fray in the comments. Overthinking it is literally the whole point. Your turn!

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Mordyjuice
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Mordyjuice

I don’t really think the last recession was the death of subscriptions, it was the rise of F2P because floundering studios that couldn’t justify a sub any more needed a new way to pull in money to stay solvent; just look at the current 3 major MMOs on the market now WoW (still a juggernaut, though not omnipotent any more), FF14 millions of players with millions of subs, and ESO with a healthy Hybrid model.

I’ll give an honorable mention to BDO with it’s predatory Hybrid model that seems to have mastered the art of triple dipping between it’s optional sub (though strongly encouraged), P2W Micro Transactions, with it’s deceptively cheap B2P entry fee; they’ve pulled in so much money they effectively bought EVE and are bankrolling 3 new MMOs in a time where it’s not very cost effective to make new MMOs (unless you’re Bezos with more money than you can spend poorly to go broke).

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Castagere Shaikura

I just don’t understand why more games just don’t follow the GW2 business model. It just works and the game is still in the top 10. They make so much money from that cash shop. Would love to see more games switch to the B2P model.

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Ozzie

Isn’t GW2’s profits in the NCSoft financial report very low, though? I mean, I guess it could still be profitable in relative terms to their playerbase, I just think it’s not really a money-making machine.

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Castagere Shaikura

All I’m saying is isn’t it in the top 10 or maybe top 5. That can’t be a bad place to be with all the MMO’s on the market.

Mordyjuice
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Mordyjuice

For all my criticism of GW2 it still holds a special place in my heart, that said I’d be hard pressed to even consider GW2 one of the major MMOs and more, with it’s low financials, the skip in the typical 2 years expansion cycle, and it’s revolving door in management GW2 is firmly in the B tier now as opposed to FF14/ESO/WoW; perhaps Cantha will be their version of a Legion come back , I’m certainly optimistic about that.

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Oleg Chebeneev

Because f2p is vastly superior model

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Bryan Correll

In my opinion it’s not simply one thing or another. Both the recession and long term changes were factors, but the biggest issue (my opinion) was the sheer glut of titles available. In the wake of WoW everyone wanted a piece of that sweet, sweet MMO business But Joe Averageguy isn’t going to maintain a sub for a large number of games. And few are going to stop the sub to a game they know they like to try out something they only might like. That’s where we got a lot of the “free but not really” games. With so many options for players they have to hook you before they can reel you in. And now that there are so many “I’ll try it when it goes free to play” people there’s no going back.

Edit: reworded because it started as a reply to a now absent post

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styopa

I think recessions drive people to evaluate their entertainment dollars more critically, and IMO MMOs remain – even subscription ones – massively better on an ‘hours of entertainment for your dollar’ basis than anything else I can think of, even if in the era of banal dailies you consider each hour intrinsically LESS entertaining than say, sitting in a movie or hitting at a batting cage.
The sub-based MMOs show that with a firm enough playerbase, it’s still a very viable model…but I suspect the difficulty for any new game trying to ape them there’s a much higher barrier to entry due to the market being fractionalized now across many alternatives.

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Slaasher

Nah, game companies were starting to change their business models before the 2008 recession. Business plans are largely made 5 years into the future for larger companies so the FTP/BTP & cash shop models were well underway, making the argument moot:

“The last major worldwide recession largely ended subscription only access as a business model for MMORPGs,”

So I guess I agree with Andy

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Oleg Chebeneev

I dont think that WoW or FF14 gonna switch to F2P model anytime soon. Not with millions of fans still eager to pay for subscription. But somewhere in the future it will happen. Its inevitable since playerbase will eventually decline and they’ll have to do something about it.

Also its not 2008 crisis that led to F2P model popularity. It was success that MMOs like DDO and LoTRO showed when turned into such model. And rise of competition when market grew flooded with quality F2P titles. And necessity to do something with servers becoming empty in many old sub-based MMOs

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Dug From The Earth

Less parties
Less beer
Less going out to the movies
Less trips to starbucks
Less eating out at restaurants
Less trips overall to places that cost money

= More money for gaming

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Hurbster

Depends what money you are on if you are furloughed. I’m not going out, true. But I’m also on reduced wages. But saying that I have nearly a year of Gamepass sub left and I redid my ESO sub just before I was furloughed so I don’t really need to spend any money on gaming right now.

Mordyjuice
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Mordyjuice

Speaking as a non practicing alcoholic, most of us got our drank on at home any way as it’s safer and more cost efficient.

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Ashfyn Ninegold

Thanks, Andy. Great information and perspective.

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Utakata

I don’t think so…correlation does not always imply causation. And take it away, Mr. Andy.

That said, I will add one thing though. I am of 2 thoughts here how this coronarecession will play out on the MMO spheres of things: That is…

1) Due to the economy shutting down, there will be less money all around to spend on games.

2) But due to having no where to go socially, people will more gravitate to games and spend anyhow.

…and that’s how things appear to be shaking and shaping up. o.O

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Hikari Kenzaki

What Andy said. Lock thread.