The Economics of an Expansion: A look at SWTOR: KotFE

Back from the abyss

I want to start off by saying I’ve missed writing this blog very much.  I am working through the exams to earn one of the more significant professional designations in my field and putting forth a worthy effort on the test required me to adjust my priorities away from the blog temporarily.  I’m hoping to get back into a groove and bring back much of my recurring content from before soon!  I have also been working on some exciting things behind the scenes and hopefully will have some cool initiatives to announce in the next few months.

Knights of the Fallen Empire

So, we’re getting an expansion in October!  I am happy to see Electronic Arts and Disney supporting a significant expansion for Star Wars: The Old Republic first and foremost.  I enjoy this game very much and am always happy when I see it staying in the strategic plans of the large companies that control its fate in the end.  Personally, the turn in the story makes me a bit uneasy because I like my Star Wars universe to have the clean dichotomies of Jedi opposite Sith, Republic opposite Empire, Light opposite Dark, etc. but I realize that there more complex stories possible in this universe so I’ve tried to reserve judgment in this regard until I experience the content for myself.

There are a number of game structure decisions that have been either hinted at or disclosed by the BioWare team so far that are the motivation for this look at the economics of the expansion.  The developers have made a number of announcements that seem to alter the current status quo for the SWTOR community that I don’t think anyone was expecting necessarily, but it is also very early in the announcement cycle of the expansion so much more will be revealed over the next few months.

Content Cycle

The announced timeline for content release begins with subscriber rewards at the end of the months leading up to Knights of the Fallen Empire which include a companion, some blasters, a coat, and a swoop mount.  Everyone with an active subscription at those four break points also receives early access 7 days prior to the official release of the expansion in late October.  The plan has been outlined that the initial release will include the first 9 chapters of the new storyline, with an additional 7 chapters planned for monthly release in 2016.

It is difficult to render a verdict on what that means relative to prior content cycles until we find out what each chapter entails.  If each chapter is equal to or greater than the recent Rise of the Emporer content then monthly releases are an increase in the frequency of the story content.  There are looming questions that are being actively avoided by BioWare mostly regarding the role or status of various end-game content within this new paradigm.  I am very concerned about this aspect of the content cycle, but am trying very much to reserve judgement until an official announcement.  The announcements and explanations of their plans will become more clear over time, but my opinion is not based on my personal desire to play end-game content because I have only begun running Operations content in the past few months and happily played this game long before that as a more casual player.  My concern is very my an economic one as I see BioWare trying to have their cake and eat it too…

A Return to the Subscription Model?

The final sentence of the content cycle paragraphs deserves its own analysis.  Here is my thought process regarding the business model of SWTOR and why I’m concerned that BioWare might be reaching a bit.  The content cycle of the Knights of the Fallen Empire seems to be a return to focusing on subscriptions for a game that has been very friendly to non-subscribed players for a long time now.  I suspect that BioWare is seeing a major decline in subscriptions in 2015 so far which is motivating this decision to directly tie the expansion to subscription status.  They pride themselves on being a studio that uses data to drive decisions about the game, but I am increasingly concerned that it is not data analysis of the rigor that would be used in finance or engineering.

Why does the subscription model exist?  It was introduced to align costs and revenues in long-term game development in the MMO genre.  If a developer will continue to produce new content for the player base, the subscription model allows revenues to be less front-loaded than the previous dominant system of buy-to-play.  The core feature of games that require ongoing subscriptions is that the replay-ability of the game is very high due to multiplayer content, either Player-versus-player (PVP) or Player-versus-Environment (PVE) group content.  I cannot find any precedent for a successful recurring revenue model that lacks one of the two core multiplayer game types.  Even in console gaming, the features of games that require subscriptions are the multiplayer content mechanics like multiplayer PVP in first-person shooters (FPS) games.  It is a very bold leap to plan on subscription revenue to support a gated single-player content cycle that is still without a single announced multiplayer content piece from a game that has a poor history of reasonable content cycles for end-game multiplayer content.

So BioWare has announced a single-player story progression expansion based on a subscription model.  Especially for a game that has not required subscription for years, this is a very odd business choice.  I cannot think of another explanation than my decreasing subscriber numbers theory, but this is where the data analytics concern comes to the forefront.  BioWare seems convinced that story content is the primary demand within the player base, but how does story content demand compare to end-game content demand among their subscribers?  There is also a key concept of survivorship bias which is common in investment analysis, the basic premise is that you have to include investments that performed so poorly that they ceased to exist (mutual fund that closed completely, for instance) in any historical analysis or your results will be biased.  So the real question that BioWare should be asking is not whether story is the penultimate demand of all current players, or even current subscribers, but rather all players that have ever subscribed.  If players have already left since launch due to a lack of end-game content, which the consensus would support as a viable theory, then BioWare is allowing survivorship bias to dominate their decisions.

I will end the section with a loose quoting of Snave, a prolific SWTOR streamer, during the last episode of Ootinicast.  His point was that just because everyone spends most of their day at work does not mean that everyone prefers work over leisure, but that BioWare’s approach to data analysis would think this was the case.  Player behavior data is not a pure indication of player preference, but rather an indication of player preference relative to the current quality and freshness of various content in the game.  The apparent lack of discernment between those variables by BioWare is extremely concerning to me, since I want this game to succeed for the long-term.

Game Identity and Target Audience

Finally, any business needs to define its target audience and its own core strengths.  BioWare seems to be taking this thought process by emphasizing its return to its story-telling roots, but the target audience aspect seems to be giving them trouble still.  As discussed above, the business model is leaning even more heavily toward the MMO staple of subscription revenue.  However, BioWare’s focus on its story-based core strength is most appealing to single-player RPG fans, who are largely used to buy-to-play games.  The interviews since E3 have been very interesting to me in this regard, because I think BioWare realizes this dilemma.  The developers that are being interviewed attempt to avoid the term MMO completely, which makes sense if the studio has decided that RPG players (not MMORPG players) are its target audience.  The issue is that the business model choices are not aligned to that player base and the existing subscription base is full of MMORPG players that expect more end-game content than BioWare seems willing or able to provide.  There is a tension here that BioWare seems leery to face, they must decide what this game will be and who its target audience will be, and communicate that effectively.

Conclusions

I am legitimately concerned about the business decisions that I’m seeing so far in Knights of the Fallen Empire because of potentially flawed data analysis and a bold assumption about players’ willingness to pay subscription cost for story content.  BioWare wants the revenue that its MMO players provide through willingness to pay for subscriber status, but it cannot provide the content that this group requires to remain subscribed.  If BioWare refuses to accelerate its end-game content cycle, the amount of subscribers will fall precipitously in the next 6-12 months.  If BioWare does not realize this fact then the game will encounter significant financial hardship as well.  I want this game to succeed very badly and I enjoy playing the game very much, which is even more reason that I fear the business decisions being made by EA and BioWare executives will be a detriment to the developers of this game.

*Note: I’ve tried very much to approach this topic as I would an investment recommendation, but I’m too attached to SWTOR to be neutral.  I am not trying to be negative about the game, but I feel that I cannot honestly analyze the business model decisions without criticizing BioWare because if BioWare were a publicly traded company these are the type of reasons I would give to not invest in the company.  BioWare’s current status as a subsidiary of a larger company shields them from this sort of criticism of their business decisions, but it would be quite interesting if they had to defend their decisions to shareholders in my opinion.

– Andrew | SWTOR Economics

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13 thoughts on “The Economics of an Expansion: A look at SWTOR: KotFE

  1. Very interesting post. As a solo player who has nevertheless subscribed to a few MMOs over the last five years or so, this is an important topic to me.

    Despite being a solo player, I would rather have The Old Republic, even with all its multiplayer elements, than KotOR 3. The thing I love about it is the scale – eight separate stories, all taking place in the same huge setting. The combination of all those different perspectives, and the way that they’re interwoven, is simply awesome.

    But I know full well that the budget required for such a thing would never have been approved if it weren’t for the prospect of long-term subscription revenue. And, as you say, ‘subscription’ has always meant multiplayer. So, if the game wouldn’t exist without multiplayer, then so be it.

    But I, for one, would be willing to pay subscription even for a fully single player game. As you say, historically, justifying a subscription has required replayable competitive or cooperative multiplayer content. As a solo player, what would justify a subscription to me is: long-term investment in my game characters. Specifically, investment in the choices they’ve made and things they’ve achieved in the story, and any and all sorts of customization that makes them feel like MINE.

    For example, I got very invested in my Warden from Dragon Age Origins. That was a game where you just really got attached to your character. If you could pay a subscription and keep getting new content for that game, I’m sure I’d still be playing it today – and the reason is, my Warden. (In that game, a lot of the customization came from mods, but SWTOR’s cash shop has done a good job of providing appearance customization – and I’ve been willing to pay for that on top of a subscription.)

    Admittedly, a big issue is the content cycle. All I can say is, if all of their customers were like me, that wouldn’t be a problem. I’ve been playing since early access, and none of my characters have yet finished chapter one. If they had 10 million players like me, they would have had time to create the next three (or six, or nine) chapters of the class stories before we finished the first three. But, back to reality…I guess we’ll just have to see how they do.

    I also find story content with choices to be more replayable than a lot of people apparently do. I play every class and I wouldn’t dream of skipping a side quest with any of them, because there are different vocal performances, choices, companions, etc.

    So, it’s very interesting to me to see them going in this direction. I hope it’s successful – because a subscription solo games are exactly what I want – but it IS unprecedented, and the challenges seem enormous. At this point all I really want is for the servers to stay up until I’ve finished the vanilla content. (I don’t really care if I never see anything from the expansions.) Whatever they have to do to achieve that is fine with me.

    Having said that, I’m also not too enthused about Fallen Empire thematically. It just doesn’t seem very Star Wars-y.

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  2. This may be an oversimplification but what if their data points to this: it is faster and cheaper to produce story content rather than raids and warzones as end-game content for subscribers? Story content is 100% accessible by all customers, whereas operations and even flashpoints will always have a gear/group barrier. Speaking from personal experience, I would subscribe for monthly content that I could play through on all my characters as long as there are differences (preferably major, but even many subtle ones) based on the choices I make or the class I am playing.

    I don’t have any data, so this is just opinion, but I feel that there are and will be more people like me that don’t raid and want stories to enjoy alone and with friends, than people that need nightmare modes of existing operations, new operations, and warzones. Although I think if they focus on story and PVP that would be the best mix.

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  3. Bioware advertises its newest expansion with an epic CGI movie; it was voted the best trailer of E3. It puts one of the most popular side characters from the previous trailers as a bonus companion if people subscribe four months prior to that content’s release. So, for what looks like SWTOR 2 (story-wise) or a 9-part DLC, Bioware is getting $60 from each player. That is assuming that each player only subscribes through the end of October to get the first 9 chapters. I don’t see how that is a big gamble by Bioware. In my guild alone, we have about a dozen or so players that have declared their intent to come back just for the new content. Even the die hard raiders have adopted the “I love the new content. We’ll see if they add operations to KEEP my subscription.” At worst, Bioware sees a short-term gain in subscribers. They reap the benefits of increased money to put out new content. ‘Fickle’ end-game players drop their subscription after getting the first nine chapters, only to come back next November (2016) to get the next 7 chapters and possibly end game material. That still nets Bioware money, and they don’t have to continually work their butts off to appease all the end-game players about buffing/nerfing certain classes.

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    • I think the leadership of the vast majority of guilds in the game play end-game PVE/PVP content at a very high rate, so even if they are a small percentage of total players they represent a disproportionately important player demographic for the health of the game.

      I think we just have very different assumptions about the subscription behavior of single-player focused subscribers and end-game focused subscribers. Working through those assumption to build a consensus theory is what drew me into economics, so this is the fun part actually!

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  4. Andrew, great insights.

    Regarding “A Return to a Subscription Model?” Let me offer a broader point of view.

    WoW, the gold standard of MMOs, has been hemorrhaging subs throughout the year; they lost nearly 3m subs in 2015Q1. Their subs have effectively been diminishing over the the past 5 years. Still, they have a larger sub base than SWTOR so they can absorb this churn rate, to some degree, better than SWTOR could. Perhaps SWTOR’s attrition isn’t this high; however, if I was Jeff Hickman (or the head of any studio who has an MMO) I would be worried about a sustainable business model for my game as the subscription standard appears to be failing.

    Thus, if we assume the current model is broken, how would you recommend they make money from the game?

    Consider WildStar failed and its promise was difficult PvE content. SWTOR 3.0 has shown that BioWare is capable of creating difficult PvE content; however, its playerbase is not capable of clearing it. In other words, the average SWTOR player isn’t deriving any utility from the current HM operations. Beyond difficult content, I have heard from a trusted source that something like only 30% of SWTOR players have ever set foot in an operation. Thus, it seems ill advised to recommend BioWare focus on multiplayer PvE content of any difficulty.

    Next look at the current state of PvP as well as its state at any point in the game’s history. To me, it appears as if PvP has never been BioWare’s focus; I trust this is because their data tells them it is not the most profitable part of the game. Thus, recommending further develop for PvP seems like bad advice.

    Where does this leave us? It seems the majority of multiplayer content doesn’t actually work for the majority of the SWTOR players. Thus, I am not surprised that BioWare is doubling down on what they know they do well: story. This may not be the best idea, but considering the other options it seems like it is the least worst option. As you point out there really isn’t a precedent for subscription single player games, but that doesn’t mean it won’t work.

    To conclude, I appreciate survivorship bias as well as Snave’s observations, but what if the data shows the same thing regardless of broadly you define you subscriber base? Subcription MMOs with frequent and engaging multiplayer content are not a sustainable model. Incidentally, doesn’t WoW’s recent loss demonstrate this? Thus, if you are not the market leader isn’t it your responsibility to innovate and find a new model that does work?

    Regarding Misleading Data Analysis: This has been a big concern of mine as well as it feels like BioWare is making decisions in spite of the data they have. I see two possible explanations. They really are so arrogant as to believe their interpretation of the data is the only right interpretation. After all, it is fairly easy to find data to re-enforce your beliefs regardless of what they are. Or, we as concerned community members really do not understand the full scope of their revenue model. Thus, all of the assumptions we make about it are invalid. I don’t know which reality scares me more.

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    • I think I’m going to put some time into researching more time-series and current snapshot comparisons of MMO (and gaming in general) business models and write a follow up post just about that realm. That’s obviously right up my alley and I’m struggling to find in-game economy content that interests me enough to write about it right now.

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      • To be fair in game economy is kind of boring since there really isn’t much of one to speak of. That said I enjoy reading your content and ciphering it for ways to make a quick cred.

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      • I too know very little about MMO/gaming business models although I have more experience in subscription businesses having worked in FP&A at DirecTV and Netflix. Given this, I would suspect MMOs are very sensitive to their churn rates, SAC and ARPU. Considering the minimal marketing SWTOR appears to do I would suspect their SAC is low even if they aren’t actually acquiring many new subs. I would theorize that ARPU is dropping gradually as there are only so many packs people want to buy. Presumably, there is a material difference between ARPU for subs and F2P aside from subscription fees. Thus, I could see the goal being increasing subs even through episodic single player content, and hope this leads to additional subs, which would lead to higher ARPU beyond subscription revenue. Further, I could see a lot of data suggesting this, including the fact that F2P players only play on story content. The real question is whether their interpretation of the data is accurate. Is there a correlation between story content and subs?

        Anyway, I would be very interested in your findings.

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  5. I have always thought swtor gave away the meat of their game for free anyway by giving away the story to all FTP players. This game’s strength has always been the 8 class stories and the solo content. Giving that chunk away for free never made any sense. I would echo several posters here that just because this isn’t the defacto model for this type of game doesn’t mean it isn’t valid or capable of working. Also that to produce quality end game content fast enough to satisfy the end game players is not a realistic expectation by any measure.

    In the end I think that if this new model gets BioWare X subs (some number more than they have now) for any months before october and specifically between the months of August and October then any extra subs for subsequent months to gain access to those new episode roll outs then it was a successful plan.

    I don’t know what’s going to happen with swtor going forward but I am excited about seeing the new content and I hope that it succeeds.

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  6. Stumbled upon this six months late, but I’m loving the heck out of this blog and wanted to raise a point about business models. I suspect that SWTOR derives a lot of its revenue from selling Cartel Coins. On my server (Begeren Colony), it’s not at all unusual to log in on a Friday and find Fleet Chat (in either faction) full of people saying, “Woot! Payday! Just dropped $100 on CC, let’s open some boxes!”

    Each of those players is worth exponentially more to EA/BW than a regular subscriber, and that may explain some of their development decisions. If whales (the industry term for people who drop huge amounts of money in in-game shops) are more likely to log in and buy CC if they’re subscribers, and whale+subscribers prefer playing single-player story content, then creating more single-player story content and linking it to subscription status could make economic sense.

    Put more simply, the business logic here may be that they want to create content that will drive whales to log in more often. There’s an analog in the retail banking industry, which presses profitable customers (those who have credit cards, for instance) to sign up for other services (like personal checking accounts), even if those other services run revenue neutral or at a loss, because customers who use those other services use the profitable services more often and are less likely to jump ship to another bank.

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  7. There are A LOT of big white elephants that people are not honestly talking about nor resolving when it comes to SWTOR, EA in general and therefore, I have to seriously doubt (at this point), Disney’s ability to properly launch and manage any SW MMO.

    I was in early BETA for and played both Galaxies and SWTOR. Galaxies owns some of my most epic moments in gaming. They got the SW fan base and they gave us a level of immersion that since that time, nothing has come close to. But Galaxies also had LOTS of problems around things to do, a steep learning curve, many other problems. So it would be epically fun in some days and then not, for weeks.

    I have never been a fan of EA. There is a reason they were voted worst company to work for two years in a row. And there is a reason Disney chose to overlook that. EA is big and can handle volume distribution. And that WILL bite them (Disney) in the behind if they don’t better understand the gaming world, whose revenues not outperform Hollywood.

    Ive also played lots of other MMOs and in most, a microtransaction is just that, a tiny charge to get “X” item or quality of life perk or to change the look of your armor. Thats not what SWTOR does which leads us to our biggest white elephant of all, profit over players- ALWAYS. In TOR.

    Their Cartel system charges very high prices and a lot the time, you are paying that high price to gamble on the hope that you “might” get the item you were hoping to get (versus just flat out offering it). Layered throughout the game are constant gimmicks that EXPLOIT the player base, to get them to spend more real life dollars. It’s a horrible way to treat your customers and grow your base. But where else can we go?

    Two additional random examples of mismanagement with no one at Disney saying, enough- we can’t do that.

    #1- The monthly Cartel Coin awards are all over the map as to when they are issued and are rarely consistent. So if I sign up on the 5th, there is zero guarantee that on the fifth of each month, my CC will be issued. Its been a long term problem that they blow off, which speaks to a lack of integrity and care for their customers.

    #2- Its happening right now as I write this. They play games with the Cartel market to drive their revenue at the expense of the players. There were tiered purchases for armor, decor, etc.. that ranged from bronze to gold with the latter being best. To improve sales of their most recent cartel packs, they removed the option to buy those tier based items. When asked, they told the players those options would reappear at some point. You cannot treat your customers however the heck you want, whenever you want. The Cartel concept has been horribly managed and remains so to this day.

    Enter in the massive success of the movie. When parents have a bunch of their kids wanting to play this game or even adult gamers and the annual expense soars to (easily) $250-500 a year to play a GAME by the time you add up all the stuff you have to pay for, it won’t go over well. They are exploiting the fact that this is the only SW MMO in town.

    A basic rule to stabilizing any revenue model in today’s world is to (a) personally connect with your core consumers to build trust (purpose-driven brands DRAMATICALLY outperform their competitors) and, (b) consistently overachieve in the type of experience you offer them. These core concepts drive some of the biggest brands out there and they are not even in gaming, where the experience is everything!

    In Galaxies, houses were houses, not tucked away server space only you could see. You could pop into a complete strangers house that you bumped into in the middle of nowhere, if their permissions were set to allow for that and check out their look. And there were no extra charges. No massive hoops of gathering tons of items and pushing them through a convoluted system just you could get the rug or table you wanted. But that is how SWTOR manages their MMO.

    At SWTOR, it has never been (from a purely business model experience), how do we offer people the best, most epic SW and MMO experience we can?

    Another example.

    There is an item I really like and would like to get for my stronghold. The only way I can get said item is to somehow find between 3-6M credits just for the one item (to buy the relics needed) or redo the same content 49 times!!! That is not immersion, it’s torture. If it’s an epic item, then give me an epic quest to get it. But in so many cases, they don’t think that way.

    There many things I love, almost all of which are centered around the stories. Some of the stories are a blast and I like having companions that I get to know. But now, due to SWTOR choices they have destroyed that system as well. I now have to farm companion gifts to level up my companion.

    People want ethical treatment, micro NOT macro transactions, no gamble to get it schemes, and more than anything – to play a game and/or have a SW experience that they really enjoy. Some of that is being delivered, a lot of it is not and it does not appear Disney cares either way.

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