Optimistically, it might make $3 - $5 million per year, assuming that sales don't drop during that time.
Let me say up front that in arguing with you, Tony, I in no way do not hold you in high regard and respect you. Quite the opposite. If I didn't respect you so much I'd not spend so much time on our discussion.
However, I stil, respectfully, disagree, and I want to explain why.
I think a lot of the people pouring over the figures for NCsoft were estimating that CoH was generating between $3 million to $5 million a year in profit. So they agree with you here. But this neglects two major factors.
First is that Paragon was massively overstaffed with developers, many of whom were apparently working on new secret projects that were generating no revenue, and did not contribute to earnings for CoH. Lets imagine for a moment that all of the 80 devs were on pathetic wages of $25k a year, and that's $2 million just in the wages they take home, before factoring in taxes, pension contributions and the various other costs. In the companies I've been involved in we usually estimate it costs double the actual wage for each member of staff, so $4 million if all of those 80 developers were on a lowly wage of $25k a year. Cutting the developers working on new secret projects unrelated to CoH, reducing staff to levels needed to maintain and develop CoH directly, would most likely
double the profit of CoH at a stroke, and very possibly more than double.
Second is that CoH was pretty poorly monetized generally. The in-game store was doing fairly well, but we all know it was still getting traction, and that much more could have been done with paid add-ons. The attempt to add an advertising based revenue stream was frankly bad, and doomed to fail from the start. Nothing was done with sponsorship, and merchandising (Mugs, Mouse-mats, Bags, Jackets, etc) was barely thought of. Usually, again, these kinds of revenue streams can double the overall profits.
In other words, proper marketing, not being dictated Korean style from a thousand miles away, could have easily had CoH earning at least $12 - 15 million in profit a year.
Let's face it, a
huge part of our shock and surprise over the closure of CoH is because we
all knew instinctively that it should be making good profit, and we'd all seen things NCsoft just didn't seem to see, or in some cases, actually dragged their heels over when the ideas came from Paragon itself.
NCsoft would have known precisely how much of the potential profit of CoH was being spent on staff, premises, and other expenses, and just how much of those expenses were effectively used in long-term investment rather than actually on keeping CoH profitable. If they are valuing the company high, there is probably reason for it, and not all of that reason will be ego.
None of it will be unwillingness to sell at the right price. A board of directors isn't allowed to do that. They have to serve the interests of the shareholders, except occassionally where duty to the stakeholders may dictate taking a short-term loss to maintain a long-term position.
If you'd like some illustrations from other businesses, I'll happily share some, like how Amazon was losing billions of dollars a year in the early years to gain volume. Many who don't know such strategies compared their practices to selling dollar bills for 50 cents a shot and thinking that if they only sold enough of them they make a profit
. Fact is it got them the volume to negotiate deals from suppliers noone else matches. Amazon can now sell goods for a profit at less cost to the consumer than most stores can even buy the goods from the manufacturer. Such is the power of bulk discounts. Some very strange seeming practices are loss-leader tactics that make solid sense, even when outsiders don't see it.
Suppose it valued at $20 million then. That is $15 million lost to get something back that they could have just kept in the first place.
Exactly right. Plus add in the thing that there are two sides of value. The value to the buyer, and the value to the seller, and they don't always coincide. That you can't see
why NCsoft value CoH so high is going to be partly because that's the point. A company doesn't want all its strategies to be transparent and visible. They obviously do believe that CoH is more value to them by far than any offers made, but explaining why might only open the door to rivals hoping to exploit the same knowledge.
Stick to a fact - Guys who have built a multi-million dollar game, who have that much business knowledge and strategy, value it higher than those outside do, right now. Each have their own reasons and bets behind their positions. NCsoft are not mad, or stupid, so when you work out the other reasons for them not selling cheap, you'll be closer to working out their true position and strategy.
If we are in a fight with NCsoft, the last thing you ever want to do in a fight is underestimate your opponent, especially in terms of his strategy. It is much safer to assume he knows exactly what he is doing, and prepare for that in your own moves, than to assume he does not. There is good reason that many corporate executives study Sun Tsu, and understand that hiding your true intentions in moves is good strategy. Appear stupid and you will always beat your opponent while the fool is still laughing at you.