Lawful Neutral: Reverse engineering World of Warcraft’s subscriber numbers

Do you know what time it is? It’s almost quarterly financial report time! We probably won’t see a full quarterly report from Activision-Blizzard as it will be going through the motions of being unceremoniously devoured by Microsoft; indeed, it’s been a very long time now since we’ve even seen a proper investor call. But it’s always interesting to me to see the reports every season – especially considering that Blizzard has been playing fast-and-loose with staff layoffs and what seems like inconsistent internal messaging regarding the health of its games and that whole MAUs thing.

The latest round of layoffs in Hearthstone spawned, ironically, yet another wave of “WoW is dying,” messages. It made me think of a topic that’s been knocking around in the back of my mind for a while: How might we figure out roughly how many subscribers WoW has, using the info we do have available today?

The easy answer to this question is to say, “Not as many as it used to!” That’s a true statement, just not especially helpful. But how could we figure out a ballpark figure for the number of subscribers for WoW? This week’s Lawful Neutral will try to answer just that using publicly available information in the earnings reports and some good old-fashioned logic.

Now, I must note that I am not a finance professional. I deal with finance quite a bit in my day job, but I’m sure I won’t have all the nuance of an expert. And originally, I wanted to lean more heavily on actual industry figures here, but as I found out, there’s not much information publicly available about the business of running MMORPGs. Companies don’t publicize the successful strategies as much as the failures.

But WoW is interesting in that it seems as if it’s as much a success as a failure, and you have to be pretty adept at reading the tea leaves to figure out which is which. As I try to reverse engineer WoW’s subscriber numbers, I’m going to look at revenue numbers for 2023 (we have two reports so far with Q3 on the way next month). According to the Q2 report, Blizzard had generated a total of $1.5B in net revenue and a total of $466M in operating income (loosely, this is profit) in the first half of 2023.

Metrics we care about 

We are going to focus on a few key metrics that help establish the profitability of a company: Average Monthly Revenue Per User (AMRPU), Cost of Goods Sold (COGS), and Net Revenue. If we can guess the AMRPU, the COGS, and the portion of Blizzard’s overall revenue we think we can attribute to WoW, can we backtrack to a rough number of subscribers?

Average Monthly Revenue Per User

AMRPU is straightforward, at least at first. It’s the average revenue per month that’s generated per user. Blizzard wants this number to be as high as possible. But the math to come up with this number can be a little bit dicey. It’s tempting to say that the average revenue per user is $14.99 because that’s the price of WoW for a one-month subscription. But you can also buy three months at a discount and six months at an even bigger discount. That means that the average revenue from subscriptions is going to be less than $14.99 per month. So let’s assume the average revenue per user is closer to $13.99, just to split the difference. 

If you’re Blizzard, you want that $13.99 to be higher. How do you accomplish that? You add a price point above it. Enter the WoW token, which costs $20 and can be redeemed for a one-month subscription (among other things). So now, when we have people who pay for a subscription through a WoW token, it increases the average monthly revenue per user. Even if you, personally, never buy a WoW token from Blizzard (or you buy it from someone who did using your in-game gold), the fact that other players did buy that token with real money raises the amount of revenue an individual is worth to Blizzard. For the sake of argument, let’s say that adding the WoW token bumps our AMRPU up to $14.50, a little lower our one-month subscription cost. But it’s still $0.51 more per user than before. An additional $0.50 across several million players is still several million additional dollars in additional revenue. 

We have two other sources of revenue that factor in here as well: cash-shop purchases and expansion purchases. Dragonflight cost $50 for the base expansion, with upsell options to $90. Let’s assume here that Blizzard averages $60 per user in expansion sales, with the assumption that active players will likely buy the expansion (which may or may not be true given the existence of the WoW Classic population, but we don’t have those breakdowns either). We would then take that $60 and prorate it across 24 months – the average lifespan of an expansion – for an additional $2.50 per month of revenue per user, bringing our AMRPU to $17.00. 

Finally, we get to the part that’s hardest to quantify because we have no actual numbers here: cash shop purchases. There are no clear data about how much revenue Blizzard generates through the cash shop, but people transfer, rename, and race-change all the time. For the sake of argument, let’s assume a big number and guess that Blizzard generates $5 of additional monthly revenue per user on average from the cash shop. So that brings our AMRPU to $22.00. (If we multiply that by a possible 3M subscribers just to get a sense of scale for the figures, that’s $66M in gross revenue each month, and $792M in gross revenue each year. At 5M subbers, that’s $110M and $1.32M, respectively.)

Let’s stop for a moment to emphasize this point: I know that we’ve stacked a lot of assumptions and guesses on top of each other here, and you might be thinking this is a very generous estimate for monthly per-user revenues. It is. But even so, the gross revenue guess is still only a portion of the net revenues the company has pulled in for all its games so far this year. We’re at least in the ballpark here.

Cost of Goods Sold (COGS)

The Cost of Goods Sold refers to average cost, per user, to keep the game running. The COGS for WoW includes server costs, customer support, engineering staff, technical support – anything that’s related to enabling you to play the game. There is no accepted industry standard for what a good COGS number is per user in MMOs, but at least we have the industry benchmark for COGS; it’s around 20% of the AMRPU. Taking 20% of our AMRPU, we get $4.40 per user. If you multiply that across our arbitrarily chosen example of 3M subscribers again, we get $13.2M in costs just to run the game for a month. At 5M subbers, that’d be $22M.

Net revenue

Net revenue is what’s left over after we subtract the COGS per user from our AMRPU – $17.60 per user. This net revenue has to cover all of the remaining costs of the business, like research and development salaries, insurance, rent, benefits, future development, administrative departments like human resources and finance, go-to-market functions like marketing, events like BlizzCon, and funding other games, all while still having money left over for profit. If we assume from above the hypothetical 3M subscribers and $66M in gross revenue per month, we are down to $53M in net revenue per month, or $633M in net revenue per year.

So how many subbers are likely?

How accurate my guesses are is completely driven by the average monthly revenue for user. All I can definitely say on that front is the that number is equal to or greater than $12.99 per month (the cost of a six-month membership). I know it’s higher, but we don’t have the exact breakdown on how much. All we can do is estimate. Likewise, we can be fairly confident that the number is significantly smaller than Blizzard’s self-reported stable-wide monthly active user figure (which was 26M last quarter).

Indeed, since the revenue reports show us Blizzard as a whole and not broken out by game, we also must guess at how much of that number is generated by WoW rather than by the other games in Blizzard’s portfolio. A huge portion of the net revenue from the Q2 2023 earnings, of course, is likely attributable to the launch of Diablo IV. So we might instead look a quarter earlier, Q1 2023, when Blizzard’s net revenues were $443M and operating income was $56M.

In our hypothetical situation above, WoW would theoretically be generating $198M net revenue per quarter, which would be about 45% of all Blizzard’s revenue. That feels a little high to me; I would expect WoW to sit around 30% or so of Blizzard’s normal quarterly revenue. That would be about $133M per quarter.

Let’s look at some different scenarios:

There’s a lot of guesswork and assumptions and speculation here, but I think we can get a decent sense of the number of WoW subscribers. There are obvious “definitely not” ranges like the double-digit millions; the more likely figures are in the 4-6M range. My own hunch before taking a stab at running the numbers was around 5M, so I suspect it’s somewhere in that band.

Ultimately, this exercise confirmed at least for me what I suspected: that WoW is smaller than it was before, but isn’t dying and is likely paying the bills for other Blizzard games that don’t have recurring revenue but do provide persistent services. 

Every other week, Andy McAdams braves the swarms of buzzwords and esoteric legalese of the genre to bring you Massively OP’s Lawful Neutral column, an in-depth analysis of the legal and business issues facing MMOs. Have a topic you want to see covered? Shoot him an email!