Unrealized Expectations: Sales of the Secret World and Funcom’s Investor Disclosures

Unrealized Expectations at Funcom

Sale of the Secret World and Investor Disclosures

Update: New information on this story appears in our continuing discussion of Funcom’s financials.

The Story Continues in: An Obituary for the Subscription MMO

I need to begin this post with a caveat.  I am a big fan of The Secret World.  I like the game, I’m having more fun in an MMO than I have had in some time.  Considering that I started playing TSW sometime back in the closed beta, that’s a lot of logged hours with no diminishing satisfaction with the game.  It’s been literally years since a title has done that for me.  I also bought a lifetime subscription, in advance, so I want to see the game succeed.  These things certainly favorably bias my perception of the current state of things and my perceptions of where things are going.

Funcom: August stock prices

NOTE – These prices are in NOK, not USD
Funcom stock prices.
Closing prices for the month of August, 2012.

However, I am not just a fan who wants to see a game succeed.  In the not-so-secret real world, I actually engage in business analysis professionally.  Most of my work is in the domain of business strategy and I have some published research on the intersection between gaming and business.  So, the recent disclosures regarding the unrealized sales expectations of the Secret World hits a few personal buttons.  This post is more from the latter category.

The news cycle has been quite abuzz regarding the press release.  Indeed, Yahoo Finance indicates that the stock price for Funcom took quite the beating immediately following the release.

It should be noted, though, that the trading range for Monday 13-Aug was fairly tight, with stock prices moving between 3.40 and 3.10 NOK.  Although it did, once again, close at a low.

At this point, the language starting to surround The Secret World is that it’s a flop.  Indeed, the Blog Rock, Paper Shotgun, today referred to The Secret World:

 I don’t know what to say, really. Like SWTOR, TSW seemed a bit too late in the day, arriving after Moby Subscription had been slain, and I doubt I was alone in being put off by the dry combat (the narrative stuff seemed appealing, but I didn’t want to wade through hours of what, from the beta, wasn’t terribly engaging shooty-bang just to hear the dialogue). Unlike SWTOR, TSW wasn’t slavishly copying the competition and had high aspirations even if couldn’t necessarily realise them, so it’s tragic to see Funcom suffer. Hopefully they can bounce back, and will pour their energies into games that don’t require hundreds of thousands of subscribers to turn a profit.

Similarly, StockLink iMarkedet writer Asgeir Nilsen reports that technology analyst Espen Torgersen considers the game to have flopped.

I do not think the Board of Funcom can go out in the market to make an issue now. I think this would have been unwise. I think probably kind of M & A-run and that kind of stands highest on the agenda right now. Then, to restructure the company so as to buy time

Unrealized or Unrealistic Expectations?

Funcom: Weekly stock prices 15-Aug, 2011 to 13-Aug, 2012

Note: Prices are in NOK, not USD
Funcom: Weekly stock prices 15-Aug, 2011 to 13-Aug, 2012

To be fair, the stock market reaction is not unusual.  There was quite a run up in the price of the stock.  Records at Yahoo Finance indicate that the stock price appreciated from 7.59 to 23.90 NOK between December, 2011 and April, 2012 .

Most of this run-up is speculative based upon the perceived potential of the Secret World.  Additionally, at this same time it was becoming increasingly evident that EA’s Star Wars: the Old Republic was failing, it is inevitable that some would speculate that EA’s failure could become Funcom’s game.

Funcom added to these expectations in their 25-May financial projections.  There were several pieces of news in their Q1 projections.  First, both Anarchy Online and Age of Conan were cash-flow positive.  Second, while company earnings had been negative for several quarters, there were some signs that the losses were beginning to subside even without TSW revenue.  Finally, there had been over a million beta sign-ups for the Secret World.  So, while Funcom’s recent financial past was bleak, signs pointed to a better future.

What were the projections for the Secret World?

In that same report, Funcom sets forward to scenarios they believed were likely for the launch of the Secret World.

    1. Conan-like” scenario.  Sales of 1,050,000 in year one.  Poor retention rates of around 280,000 concurrent subscribers.  This would have resulted in $100mm first year revenue and a 43% profit margin.
    2. Target” scenario.  Sales 130% of AoC (1,365,000 units).  Healthy retention of 490,000 subscribers and an additional 35% of subscriptions from in-game sales.  This would have generated $157mm in first year revenue with a 53% profit margin.

So, armed with this information, Funcom’s stock remained strong right up until the launch of the Secret World.  However, the stock price began a fall-off almost immediately.  Initially, this was tied to the surprise resignation of CEO Arne Aas, with former COO Ole Schreiner stepping into the CEO suite.  This resignation, on 2-Jul predates the rundown from 16 to 6.99 NOK two weeks later.  Sudden, unannounced, changes in CEO’s are not commonplace and not a sign that things are going well.

I have always had a problem with the expectations for The Secret World.  I believe the product has performed well, the development team has delivered and the game has the ability to thrive.  I do not, however, believe this game was to be a World of Warcraft level title.  Nor did I believe that this would be a million plus sale product.  There are a number of converging elements that work against both of the posted scenarios.

  • This is a modern fantasy, horror title in an industry predominated by high fantasy  products.  While this does potentially offer a strong differentiator, it’s also an untested differentiator.  Will customers flock to a world without elves?
  • This is an M-rated product, which precludes certain promotional medium.  While that did not hinder Age of Conan’s ability to sell one million units, it does restrict the upper bound of the game’s sales potential.
  • The game followed the launch of Age of Conan, which was a flop.  Not only was AoC a flop at launch, but it did immeasurable damage to the Funcom brand name.  There was a lot of hate and resentment visible towards the Funcom brand and a lot of that turned into very unfair early negative buzz about the Secret World.
  • On top of that, for whatever reason, there was an immense negative buzz developed about game play in the Secret World.  Ranging from complaints about character customization, combat animations and other issues, it was clear from early on that something was afoul in market perceptions of the forthcoming product.
  • The Secret World is NOT an easy game.  It’s challenging and complex in an industry where content is generally spoon fed.  To mine a quote, “no one has ever gone broke underestimating human intelligence.”
  • TSW was launching as a subscription based product.  Putting aside the discussion of whether subscription models are dead for another post, it is fair to say that the subscription based PC Game market is smaller than the PC Game market simply by being a subset of that market.  A subscription model reduces the potential size of your total market.

None of these things, taken alone, were insurmountable obstacles.  The problem, though, is that these are not independent facts, there are interactions between them that matter.

There are plenty of m-rated, modern fantasy/horror games out there that sell, and sell well.  However, none of them are subscription based.  This introduces two interactions.  First, will the fantasy/horror players pay for subscriptions when they have not in the past (e.g. can you convert new customers a la WoW).  Second, will your existing consumers buy into a new genre?

The MMO market is not, in general, a high difficulty market.  The game play tends towards the easy side and the game design has become increasingly linear in past years.  While there are “hard” games out there that do well (EVE comes to mind), they do not generally dominate market positions.

On top of that, Funcom has a history and one that isn’t doing them any favors.  Anarchy Online, while a brilliant game, had a horrid launch.  Age of Conan had a smoke and mirrors launch where the shine of Tortage quickly dissipated into “where did the content go?” when players left the newbie experience.  While both AO and AOC have evolved into stable, content rich products, they hurt the brand at launch.  You never get a second chance at launch and you have a hard time undoing deeply negative impressions.  TSW was working uphill on marketing because of the sins of its kindred.  Fair or not, that’s how consumer minds work.

I have always seen TSW as a ‘niche’ MMO.  It’s the term I used repeatedly in beta and it’s the term I still use.  TSW is a great game.  It plays well, it’s fun, it’s engrossing.  But it’s not mass market.  I see this as more of an EVE type game.  While there are problems tracking MMO subscription data, MMOData.net suggests that EVE grew to 450k.  EVE did not sell a million boxes, initially.  Indeed, unlike the standard MMO model, EVE appears to have grown their customers over time by offering a superior, differentiated product.

That’s the game I perceive TSW to be.  It’s hard, it’s different and it’s innovative on a number of fronts.  Contrary to what fans will tell you on boards, that’s not always what they want.  They claim it, but they often buy what they know (risk aversion).  Games that break the mold usually have to grow into their business model, they don’t get to start that way.

Indeed, my perceptions seem to be what Funcom is now acknowledging.  The people playing the game seem happy.  The first update was quite successful.  We are past the free month period and while populations have dropped, the server populations are still very robust.  Their are lots of players still enjoying the content.

TSW does not appear to be going the way of recent MMO flops like Warhammer Online, Star Wars the Old Republic, or Final Fantasy XIV.  It didn’t sell to projection, but it’s retention rates seem high and satisfaction levels remain quite high.  That last gem was the bright spot in the Funcom investor relations release.  It’s been overshadowed in the gloom and doom, but it’s an important sign of where things are really going.

It’s all the fault of the critics, right?

That was a central point in the Funcom investor relations release.  Sales were below both scenario expectations and they attribute this, at least in part to “the aggregated score for The Secret World of 72 out of 100, which is to be considered low…”  Do critical reviews matter?

It turns out there is some empirical evidence that they do.  Uzzi and Spiro used critical reviews and box office revenues as separate performance variables in a related entertainment industry.  While their study is not about the voracity of reviews, it is worth noting that in their study (across decades of data), there is a very strong positive correlation between reviews and financial performance for Broadway musicals.  That’s not a 1:1 correlation, there are some high revenue shows that are panned by critics and there are some critical raves that fail to draw customers.  But, on the whole, reviews and revenues go hand in hand.

There are two cavaets here.  First, this isn’t a proven causal relationship (e.g. reviews cause sales) and second, it’s a different industry.  But the industries are related on the entertainment side.  Additionally, it’s not necessarily an issue of whether reviews cause revenues.  It could simply be that reviews are, at least in part, an indicator of the buzz surrounding an entertainment title.  If that’s the case, they are a useful leading indicator even if the review itself doesn’t create sales.

Like it or not, critical reviews do matter.  Whether its because reviews directly influence customers or whether its because reviews reflect market sentiment, reviews and sales seem to correlate.  So, when a venue like G4 pans the Secret World, even when the review is biased heavily by clearly beta state content, it doesn’t reflect well for the prospects of the product.

So, is the Sky Falling, or what?

On the whole, I would say that the cries of the demise of the Secret World are exceptionally premature.  There are a lot of people who want TSW to fail and they have used this story to jump from the pre-release fail stories to the “it’ll go F2P now for sure” bandwagon.  However, I see little that immediately suggests TSW is in trouble.

As I noted earlier, populations appear to be quite strong.  There are dozens of people in Agartha every evening.  The Looking for Group channels are going strong.  The new marketplace (bugs and all) is crammed full of items.  TSW does not appear to be heading down the TOR/WAR path.

On the other hand, that stock price is alarming.  A massive drop in stock prices usually triggers debt covenants which can, in turn, greatly impede a companies ability to operate until it restores its equity balance.  There are reasonable questions to be answered as to the cash position of the company going forwards.  However, these problems precede TSW.

The problems at Funcom are not the failure of TSW.  Rather, it seems that TSW fails by the criteria of not being a Hail Mary which single-handedly resolves a company’s historically poor financial condition.  TSW seems poised to be a profit center for the company and a strong part of Funcom’s financial restructuring.

There will be layoffs, there were going to be layoffs.  First, game companies overstaff near the end of development, some of that will go – and they were going to go.  Second, they did project too many sales and that will certainly lead to some cuts in customer service.  If you expected 1mm customers and only have 500,000 you don’t need as many CSR’s to handle issues.  Third, there will likely be some cash flow cuts – not as a reflection of the failure of TSW, but as a reflection of the failure of TSW to stem an already leaky ship.

As Torgersen notes, Funcom is actually attractive for “probably kind of M&A run.”  There are a couple of established MMO houses that would love to have a ‘failure’ like TSW in their portfolio.

Fans of TSW should be watchful, but not wary.  If you like the game, by all means keep paying and playing.  Not doing so pretty much guarantees the worst will happen.  However, until you start hearing stories about senior producers, developers and managers of The Secret World departing or leaving the team, as has been the case with certain competitors, you shouldn’t consider the ship sunk!

 The Story Continues in: An Obituary for the Subscription MMO

 

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37 Responses to Unrealized Expectations: Sales of the Secret World and Funcom’s Investor Disclosures

  1. Tippocalypse says:

    Really solid, mature analysis. I totally agree with you. I can’t help but feel like the game is doing well when I log in during non-primetime hours and have no problem filling groups and doing the content that I want to do.

    There’s no reason this game can’t survive.

    I think the only thing I’m hoping continues, is that they continue to get the development budget to deliver on their “issues” idea, as that is a great amount of what I use to justify the cost of my subscription.

  2. Young_Seal says:

    Very nice read, I’m in for the long haul with this game either way. Love the story and setting.

    Can’t help thinking something of this nature being posted on the forums by someone from Funcom would have been very welcome.

    • RyahlRyahl says:

      Can’t help thinking something of this nature being posted on the forums by someone from Funcom would have been very welcome.

      I very much agree.

      This has been the one thing really bugging me about this story. There has been virtually no response from Funcom.

      At the point I wrote this piece, the story had been out for nearly four calendar days. The forums and the gaming media in general had been writing gloom and doom, ship is sinking articles and posts. Public sentiment of the product was being damaged, potentially irreparably and literally no comment?

      To be fair, this is not the type of thing that Ragnar or Nusquam should be responding to. This is a business issue, not a product issue. If this were SOE, I would have expected a blog/post/letter/statement from John Smedley. Basically an executive level statement that “yes, things don’t look as good as we thought, but we’re confident in the product.”

      I suspect that the non comment was a hope that the story would drift away. Indeed, investor relations pieces rarely make for game industry discussion. But, in the wake of 38-studios, I suspect that will no longer be the case.

  3. Osprey says:

    Under what criteria are you able to call SWTOR a “flop” and turn around to say that TSW is not? If not meeting targets is your standard for proclaiming a flop, then surely TSW is showing signs already, at just over 1 month in, of being a flop? I’d hardly call a game with north of 500k (the “profitable but nothing to write home about” number) subs making a shift to freemium, which , if it follows the same pattern as other games that have made the switch, will see healthy revenues and profits while growing the overall playerbase a “flop”. I’d also say it’s too early to tell if TSW is a flop, but, like SWTOR, it’s certainly not a runaway success either.

    I agree that Funcom’s handling of AoC caused most likely irreparable damage to their reputation that is almost certainly a contributing factor to low sales and possibly even biased some reviewers ahead of time, but that’s on Funcom, they are reaping what they sowed with AoC, as unfair as that may be to the TSW dev team.

    It’s also way, way too early to tell in regards to their optimistic outlook on retention. Saying “first indication of churn is more positive than Age of Conan” isn’t saying a whole lot, as we know AoC’s retention was terrible, it’s positive spin on a less than rosy situation.

    I plan to stick around TSW, at least as long as I’m having fun, but am not blind to the fact that it’s showing early signs of trouble and there’s a limited window for the devs to add a ton of content and bug fixes if they want to turn the ship around.

    • RyahlRyahl says:

      Osprey,

      Thanks for the comment. You are correct that I’m guilty of my own charge with the TOR statement. TOR is a failure to reach its expectations, but should still be profitable (unless things have continued to deteriorate). However, when you start losing lead people, that’s a bad sign.

      I suppose the difference though is that TOR probably had good reason to expect super high numbers. They had an established IP with an installed fanbase. It was being developed by a production house with a stellar reputation (ME3 hadn’t happened yet, DA2 was the only blemish on their roster). It was following the WoW template. From an industry perspective, that seems like a “sure fire” recipe for success.

      The numbers Funcom projected for TSW seem, to me, a likely target for TOR, but a stretch (and a long one) for TSW.

      That said, any title that generates positive cash flow and positive ROI isn’t a failure. It may be a disappointment, but never a failure.

      Correction duly noted. :D

  4. VoXPCS says:

    In game GMs now take 2-4 hours to respond (Understaffed)

    3 of the major ending quests (I’m assuming the story as well Mortal Sins) have been purposefully bugged so you cannot complete them ( They were confirmed working and have nothing to do with the other bug fixes that were implmented)

    GMs no longer advance their lazy quest bugs. They provide excuses as to how they’re “Significant Encounters” C’mon, it’s a video game, one that is sinking like the TORtanic, give us what we want while you still have at least another 30 bucks (2months) coming from me before I quit for something functional

    PvP is an absolute joke, cannot be saved. Prices for black mark items are in the “KOREAN GRIND” numbers. 297? Are you serious? yes, yes they are. lol You can shove those us your asses actually. They’ll probably function properly there.

    Finally, little to movement on the testlive forums for actual, core, important, crucial updates. Their inability to prioritize the fixes that are needed now is completely laughable. 12 people in the whole game know about “tacos” and the rest could care the fuck less. Really? You’re going to “fix” that a save the quests that can’t be completed for a month later?

    The reality of it all is, young, lazy developers set free to do their own without a corporate suit threatening their job isn’t a good idea.

    Lesson learned, Funcom, SOE, En Masse and Bioware might as well pack it up in the MMO industry. It’s over kids

    • someone else says:

      Not all bad points were made here… but I had a problem with
      “The reality of it all is, young, lazy developers set free to do their own without a corporate suit threatening their job isn’t a good idea.”

      Reading that statement leads me to assume that you have no perspective of what it’s like to work as a developer in the game industry. Especially the final several months of development; people are clocking in late nights, weekends, time away from family and friends. It isn’t always “Grandma’s boy,” actually it rarely is…

      Their jobs are threatened, especially in Funcom’s case, with an IP that is relatively untested in the MMO genre. You work on a project for years that has an unfamiliar concept, stacked with the tarnished reputation of previous titles… and you want to prove the world wrong and see it flourish. When close to the opposite happens, you can feel cheated that you’ve spent so much time trying to defend something you wish would meet – at least one of the sales projections mentioned in the Q1 Financial forecast.

      Their jobs are threatened, their lives outside of work are diminished, they’re working on a title that isn’t easy to sell for a company that has had a beating of its’ reputation in the past; lazy developers? I hardly think so….

    • Merecraft says:

      “In game GMs now take 2-4 hours to respond (Understaffed)”
      First part is not true. I had a response to my last petition (4 days ago) within 20 seconds. I couldn’t believe it! Second part is supposition.

      “3 of the major ending quests (I’m assuming the story as well Mortal Sins) have been purposefully bugged so you cannot complete them”
      This is complete supposition unless you have proof.

      “GMs no longer advance their lazy quest bugs. They provide excuses as to how they’re “Significant Encounters””
      Not true. I had a bug during The Pick Up (levers in final room didn’t work) and a GM arrived and advanced the quest twice for me after trying a couple of other ways to fix it (such as a relog and UI reset).

      ” 12 people in the whole game know about “tacos” and the rest could care the fuck less”
      ok, now you’re just making shit up.

      ” young, lazy developers set free to do their own without a corporate suit threatening their job isn’t a good idea. ”
      I wonder if anyone told Blizzard that in 2004.

      In short, your post is full of meaningless tripe.

      • Serra says:

        Also people have to consider what their petition for the GM was for. Some petitions are handled quickly by less experienced GMs while some of the more difficult ones need to wait for an experienced GM. “My account is hacked” isn’t going to get a 20 second response, but “I’m stuck” might.

  5. VoXPCS says:

    ..P.S.

    I’ve cancelled as well. In reality this will help them. They’ll learn a hard lesson from a merciless market that doesn’t take shit from a no-name company like Funcom. Do it right the first time, pony up when you fuck up or don’t bother coming back.

    It’s a shame too. Another idea with years of potential destroyed.

    • LostJedi says:

      I don’t have any idea how you “help” FunCom by unsubbing. There are few enough producers of interesting games, especially in the MMO market, and if TSW goes into history as another fail of FunCom, they won’t recover, I fear. And you only learn when you live to learn…

      BTW, I never waited more than 30 minutes with a mission petition.

    • justadude says:

      lol look at VoXPCS’s raging at every thing that is not Blizzard. Ignorance is dripping from your mouth.

      Whats the matter you spent all of your allowance money on a game that you dont like? Mommy wont give you anymore to buy GW2? or the Next WoW expansion?

      Damn bro, you sound like a pathetic, raging nerd

  6. Molotova says:

    I do not share your optimism with regards to retention. The levelling (yes there is one), the questing, the story is fun… but the end game is a treadmill of the worst kind, especially the PvP grind: Atrocious prices and you’ll still be outgeared by PvEers.
    I expect the “casuals” will hit that wall, that realisation, around the time GW2 launches with all the bells and whistles, raving reviews and being subfree.
    The “hardcore” will wonder if it is really worth it to pay a sub for a game they log in a couple of hours every day to do their NM runs.
    I cannot see how you and Funcom can hope for a retention,… I wish I am wrong though.

    • RyahlRyahl says:

      I don’t think GW2 will have quite the effect you claim, but I certainly could be wrong. GW2 is a non subscription title, thus I suspect they may compete for play time, but not for pay time.

      If Funcom can provide fairly consistent updates, I suspect people would play both since they only pay for one.

      But, I certainly could be wrong too!

      • Berth says:

        And well people are always looking at the next big mmo coming out to save the world, guess that is one way to build expectations way to high and then get disappointed when the game is not what you expected.

        Haven’t played tsw much as of yet but i like the idea of having to think in a game.

  7. killikalli says:

    Do you have an axe to grind re SWTOR? I am detecting alarming levels of hate against Bioware in this article.

    • RyahlRyahl says:

      Oh no, no axe to grind at all.

      I didn’t like TOR and I do regret the purchase, it was the product they advertised but not the product I thought it would be (so the error is on me).

      But, right now, TOR is shaping up to be the big failure in the industry. Taking the mantle from both FFXIV, which took the mantle from both major 2008 titles (WAR and AOC).

      I just don’t think TSW is the failure it’s being labled as this past week.

      I do need to back down on the TOR criticism, though, that’s not the point of the post.

  8. Scythian says:

    You have said nothing on the investment vs return part of the “success/failure” equation. On the question regarding TSW vs TOR the fact that there was somewhere between 4 to 6 times as much money invested in TOR. Therefore TOR needs a much higher return than TSW to succeed. A game that sells enough to recover it’s investment costs and then still has a positive cash flow is a success while one that does not is a failure regardless of their relative sales/retention figures.

  9. Grimshanks says:

    Good article, well done.

    Just wanted to point out that the stock prices you refer to should be in Norwegian kroner (NOK) and not USD. This obviously doesn’t change how the price has developed, but it might say something about the financial situation.

    • RyahlRyahl says:

      I wasn’t sure on the listing. Yahoo often converts to USD, but I suspect that may only be for ADR’s. In this case, lacking labels on the charts, I opted for USD.

      But you are right, it’s the rate of change, not the specific currency denominated price that matters right now.

  10. Salurto says:

    Great analysis, I enjoy reading things like this even though I have no experience. One thing you noted regarding FC’s stock price and the announcement; for the May 25th projections, both AO and AoC were Cash-Flow positive. Is that to say they were profitable over their costs? If so, does that mean that TSW only has to recoup production cost and profit over it’s operation costs (salaries for additional development and support included) to remain a ‘live’ title? I’m not talking about games that SoE keeps on life support but have little to no development, I’m talking about games that are profitable and continue to receive attention.

    Would there be any reason or benefit to speculate regarding FC’s overall fate if TSW had not come? If they have two aging but profitable titles, is that enough?

    Finally, you mentioned EVE-O as a niche MMO. I agree, but I think the main difference between EVE and the larger titles has been there from the start. EVE and parent company CCP tend towards the philosophy of creating a unique product that is high quality and thus profitable.

    Additionally, I have slight issues comparing EVE with other subscription MMOs, becuase of their PLEX item. PLEX is a 30 day subscription which is also an in-game item. People trade and speculate on these items, as well as use them for subs. This means EVE exists in a strange niche; It’s a sub-based game that many people play for ‘free’ using in-game currency. The nature of EVE lends itself to two observations regarding subscriptions: 1. CCP is paid for every single subscription, but not necessarily by the player using it. 2. CCP has stated the average EVE player maintains 2.4 subs. What I’m driving at is that EVE’s sub base and player base would likely be significantly smaller under a standard sub model. In turn this would make EVE a worse game, since much of it hinges on large-scale PvP.

    Got way off track! Thanks again for the article and for the site in general.

    • RyahlRyahl says:

      One thing you noted regarding FC’s stock price and the announcement; for the May 25th projections, both AO and AoC were Cash-Flow positive. Is that to say they were profitable over their costs? If so, does that mean that TSW only has to recoup production cost and profit over it’s operation costs (salaries for additional development and support included) to remain a ‘live’ title? I’m not talking about games that SoE keeps on life support but have little to no development, I’m talking about games that are profitable and continue to receive attention.

      For AO and AOC to be cash-flow positive would mean that their year-to-year cost of operations are exceeded by their revenues from operations.

      TSW needs to be cash-flow positive this year to help Funcom out. However, that’s distinct from being a positive NPV project (e.g. a project that has recouped its developmental costs and also generated an appropriate return for investors). It would be great if TSW was also a positive NPV project this year, but I doubt that’s necessary for Funcom to survive or for TSW to be deemed a project worth renewed investment.

      Would there be any reason or benefit to speculate regarding FC’s overall fate if TSW had not come? If they have two aging but profitable titles, is that enough?

      Yes, Funcom has been in very bad financial situation since 2009. That’s primarily the AOC fall out. However, TSW was in development around that time so cash flow to the developmental teams did not help Funcom finances in 2009-2011. I suspect that, without the potential of TSW, Funcom would have been in bad shape prior to 2012.

      Finally, you mentioned EVE-O as a niche MMO. I agree, but I think the main difference between EVE and the larger titles has been there from the start. EVE and parent company CCP tend towards the philosophy of creating a unique product that is high quality and thus profitable.

      There are clearly differences between EVE and TSW just as there are clear differences between Funcom and CCP. You outline several of them and I do not disagree with your points.

      However in an industry with mega corporate behemoths Activision, EA and SOE, I think CCP is a more relevant comparative (and indeed benchmark) for Funcom.

    • The other thing to note about CCP and EVE Online is that initially EVE was a flop as well. It seems the story has changed to where their original publisher, Simon & Schuster stopped interactive publishing an thus CCP got back the rights to publish the game. The understanding at the time was that EVE underperformed in sales and S&S didn’t want to keep publishing it.

      It’s also my understanding that CCP got a lot of support form the Icelandic government during this rough patch, something that is not always possible in other locations (especially in the U.S. after the 38 Studios implosion). So, while EVE certainly has grown, it didn’t attract its users initially as most games did, and it grew under conditions that most other companies are unable to enjoy.

      I hope TSW does survive. I played the beta, but I’m super-busy right now and not able to dedicate time to another MMO. But, it’s nice to see a bit of variety out there in the MMO space.

      • RyahlRyahl says:

        @Brian

        The other thing to note about CCP and EVE Online is that initially EVE was a flop as well. It seems the story has changed to where their original publisher, Simon & Schuster stopped interactive publishing an thus CCP got back the rights to publish the game. The understanding at the time was that EVE underperformed in sales and S&S didn’t want to keep publishing it.

        I agree, that’s a big part of where I see these two games sharing common ground. Certainly they differ, EVE is a pure sandbox, TSW is a non-linear Theme Park. EVE is a PVP focused game, TSW has PVP. So, the differences are pretty profound.

        But they share similar complexities and I believe complexity has to build a clientele.

  11. Ravi says:

    Isn’t The Secret World already in EA’s house? http://www.ea.com/the-secret-world

  12. Andodx says:

    Really nice article, it hits the spot.

    Kinda stunned me to see that Funcom had extremely high expectations…
    “fool me once, shame on you. fool me twice, shame on me”

    I’ll stick to TSW, I really enjoy the setting. The hate for the endgame treadmill is still understandable, but we will see how it evolves after the 28th. :)

  13. Karl says:

    Very thoughtful analysis of what the effects are both in the short term and long term. I have to say after hearing about the “Conan Scenario”, I had orginailly thought that was the optimistic projection. I was floored to realize they actually thought tha TSW may exceed the initial box sales of AoC!

    I’m in the game for the long haul; so I have time to wait. My biggest worry is that they end up being acquired by EA or something.

  14. Jaedor says:

    Thanks for this analysis, it’s quite well done. Like you, I’m most concerned with the stock price movement, as it doesn’t bode well for Funcom.

    Hopefully you posted a link to this analysis on the forums.

  15. A Norwegian says:

    Funcom is listed on OSE (Oslo Stock Exchange) and they use Norwegian Krone (NOK) on shares listed there, not US Dollars told in this article. So the correct price on Funcom shares on the end of 16. Aug was 3.54 NOK (about 0.59 USD). Yahoo should have stated that the price is listed in Norwegian currency.

    A friendly correction ^^

  16. Bonghits says:

    I Honestly do not know why people are getting so upset about this game.

    My Thoughts:
    Quests:
    If you take into consideration that the game has thousands of quests, you cannot possibly expect a company to have everything polished and perfect. (The game is not even 2 months old.). I have only come across 2 bugged quests and I have finished all of them, none of the story quests where bugged and mostly I’ve had an amazing experience with questing in this game.
    If I had to compare this games quests to those of world of warcraft for example they are better, more entertaining and less grindy. So some of the quest are buggy, at least you don’t have to kill 20 forest bears for dwarf (Seriously, teh fsck), plus the cut scenes make for fleshing out the story line way better than any other mmo I have played to date, and I’ve played A LOT.

    PvP:
    Sure it does not have 10 pvp zones etc. but you have to hand it to funcom they have breathed a breath of fresh air into mmo PvPing by introducing 3 factions with different decks (not to mention the variety that the Wheel brings to the game).

    PvE:
    Nightmare dungeons are challenging and should take some time to complete for beginners, people getting boosted by cabal members with tricked out gear doesn’t count). So this part of the games content should take a while to complete and getting your character gear before they introduce lairs should take some time.

    All in all I think funcom have done an amazing job here and if this games population dwindles to that of Age of Conans I have no more hope for mankind.
    People should stop being unreasonable and stop comparing a game that is 8 years old to a fresh and completely new type of MMO.

  17. Zhiroc says:

    I’ve only played TSW in two free trials so far (the Celebration Weekend and the lastest 3/5-day one. But I don’t think I’ll buy the game.

    The issue for me is the lackluster PvE/storyline portion of the game. To me, its setting and story would have been a powerful draw. But then they gimped it by not giving my character ANY voice (literal, or even just text). I can’t participate in any NPC conversations. Even if it’s just an illusion of participation, this is what set SWTOR’s leveling experience on a whole other level from this and other games. And even then, I often got the choice to decide at the end of a quest whether to be ruthless or kind. The ability to at least “build” an IC persona is to me a big part of RPGs of any kind. TSW gives me little to no immersion in the story or character, which is a shame and a waste of the foundations they set up.

    In this, I think the sub model hurts them. I’m not going to spend lots of money unless I could see myself wanting to spend lots of time in the game, and for the reasons above as well a general malaise about WANTING to spend that much time with any one game, it keeps me from pulling that trigger. That said, I believe that F2P models have just as many if not more issues as the sub model. I might also say that MMOs in general have an issue with their “fun-model” which exacerbates the problems with their payment models.

    Second, I was there for Eve’s launch and for a number of years. One thing I would point out is that I’ve never seen so much “multi-boxing” going on there. I knew of many people with multiple accounts. If subs there are at 450K or so, I’d probably say that only equates to about 200-250K individual users. Also, it’s not so much that Eve is “hard”, but I guess the term I’d use is punishing. They replaced the level grind with a money grind. What makes it punishing is the length of time it takes to get to certain ship milestones, and how easily that can all be taken away in a flash. Eve is also a game that is centered around its PvP. I believe they were adding a bit more PvE as I left, but really, PvP is the engine that drives the game.

    • Christopher Ruiz says:

      I really would like to echo the comments on how well TSW is doing but just can’t do it. I know the server looks full and it appears that it has a large population but I wonder how much of that is due to the single world system that is being used.

      I canceled my account yesterday as I had quite literally finished all the mission content the game had to offer. I don’t play a lot and am not a hardcore gamer, I put in 3-5 hours a day during the week and about 7-9 on the weekends. Not a casual gamer but I wouldn’t call myself hardcore either and I have finished the release content in just over a month and there isn’t a expansion on the horizon (content patches which may bring me back but if they are like Unleashed I will finish the content in one weekend at most).

      I don’t consider myself unique and I have a sneaking suspicion that I am not alone and unless Funcom does something soon to fill out the content a lot of other people will be looking for something to do. My son and wife both canceled before I did, between the lack of content and the numerous mission bugs that prevented you from completing them, it is understandable.

      The really sad part is that I really want Funcom and TSW to succeed, not just for their own sake but for the sake of the genre as a whole. I hope other companies don’t look at TSW and say, “see, you need to stick to high fantasy or else”, Funcom did something different and overall did a decent job of it, the problem is that in the current MMO climate decent just isn’t good enough. . .

  18. Mick Swann says:

    It probably doesn’t help that Funcom have decided to freeze people’s accounts after a month of B2P and then send them a confusing and very poorly worded email saying that their “subscription” has now expired.
    Judging by the forum posts it looks like Funcom are committed to chasing away as many new TSW players as they can with their ill advised mail-outs and atrocious customer service.
    Oh, and the TSW fight mechanics are absolutely appalling, it’s pretty obvious the game was nowhere near ready and they just rushed it through because the accountants told them it had to be released.
    I’m looking forward to seeing Funcom crash and burn this year, no company can sustain itself with such substandard output and third-rate customer support, they’re doomed.

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