SWTOR Numbers Revisited

There’s been some heat over my recent pieces of commentary on Star Wars: The Old Republic’s prospects for profitability. Brent took me to task for this on the last Shut Up We’re Talking, not listening to which would be an unforgivable crime. In retrospect, I’ve probably been a bit too glib with the “fail” label, although I still think my actual point holds up, based on the best information we had at the time.

However, as of toady, we have some new info that should be accounted for, from the comments made my EA CEO John Riccitiello on Star Wars: The Old Republic’s ability to turn a profit. What he’s essentially said is that at 500K subscribers, SWTOR would be modestly profitable, and that with “anything north” of a million
subs would make WTOR “very profitable.” He also says that the EALouse $300 million figure is “vastly higher than anything we’ve ever put in place.” This changes my projections pretty dramatically.

How much SWTOR is costing is hard to pin down from the numbers we have, because there’s a big gap between the $100 million that EA seems to think WoW cost and the $300 million that rumor said EA is spending. I’ve tried to run the numbers and they just don’t fall out unless EA thinks SWTOR will sell 3.5 million copies, or if the budget is less than $100 million. I don’t think either scenario is terribly likely. What’s more, profitability analyses have been wrong before, and it may well turn out that the game won’t retain 500K subs – market history suggests it won’t, in fact.

Nevertheless, we do have a flat denial that the currently-touted $300 million figure is close to correct. Between that and the 500K subs quote, that’s a lot more than we had before. And it makes SWTOR’s prospects for profitability much rosier than my earlier analysis indicated, especially considering that some form of in-game cash shop is going to be in place as well, in addition to the subscription fees. There’s a lot of room between $100 million, which is about the smallest believable budget for SWTOR, and $300 million, which is just crazy. IF SWTOR’s budget is “only” $225 million, for example, it’s still going to be very difficult for EA to turn a profit on it, regardless of what Riccitiello says.

However, my wild guess (and that’s all it is,) based on the quotes, is to take SWTOR’s budget as being something like $125-150 million. Which is still an awful lot of money, but makes it possible for SWTOR to be profitable without being some kind of success that’s either a huge paradigm shift or an outright overthrow of the market leader. This I think is very likely, as I suspect that SWTOR will do about 2 million in retail sales in the first month, plus or minus half a million. This is a huge but conventional success. So maybe SWTOR won’t fail. I’ve said all along that I hope it doesn’t, but $300 million made that seem almost inevitable.

3 responses to “SWTOR Numbers Revisited

  1. You will note that on the call, he said that profitability would turn on a dime or some such as soon as they shipped. He was clearly speaking of immediate cash flow, the game would take in more than they were spending on it for a current time frame, but never really mentioned paying down the amount of money invested to get the project going. So, in the first full quarter of the game being available, it will take in more money than is being spent on it for that quarter, this be profitable in the usual, short-term Wall St. view of the world.

  2. I see what you mean, and you’re probably right, but that’s some dancin’ doubletalk, there. However, I’m about talked out on this issue, and I suspect readers are tired of hearing about it as well. This was intended to be my farewell post on the subject until the thing comes out, either fails or succeeds, and settles the damn issue once and for all.

  3. I just think it is interesting that so many people are focused on the return on investment for SWTOR, which is something that would be very difficult to calculate externally.

    A public company cannot lie or mislead, not without getting sued, but they can always carefully define their own terms. There was a stretch of something like 19 consecutive quarters where HP wrote off “one time charges.” I think they stopped more because people were starting to point and laugh than through any major change in how they operated.

    And even in a public company, who know how things are really accounted for internally. They are only required to show certain high level items publicly.

    I have worked at public companies with almost no concept of getting a return on investment for projects. R&D or Development’s budget was set as some percentage of gross revenue for the company (12-18%), and with that you staffed and bought equipment and made stuff. It was just a simple cost, more a matter of the project manager telling us how we were going to use our time than a budget. And we made stuff that never sold along with stuff that was very successful and only the gross revenue for the current quarter (which was brought in by stuff we had already shipped) had any impact on us.

    On the flip side, I once worked for a company that got very serious about ROI for dev projects and declared we wouldn’t do anything unless we were sure we could get back 20x our costs. We shipped nothing after that, laid off half of our staff, and eventually got bought by a company that had an R&D budget set based on gross revenue.

    Companies can be stupid in almost and direction.