Exchange rate and perception

[FatherXmas]

There was some talk in another thread about how the exchange rate may have affected what the NCSoft mothership thought about the success of the game.

Now I posted the relevant numbers from the spreadsheet I put together after the closure announcement but a list of numbers is rather, abstract.

Q2 2004   11135   1161.21      $9.589
Q3 2004   9403   1153.77      $8.150
Q4 2004   10937   1084.59      $10.084
Q1 2005   6341   1020.28      $6.215
Q2 2005   5806   1006.62      $5.768
Q3 2005   6412   1027.84      $6.238
Q4 2005   15706   1029.57      $15.255
Q1 2006   6523   961.633      $6.783
Q2 2006   5532   935.032      $5.916
Q3 2006   7429   940.203      $7.901
Q4 2006   5532   924.872      $5.981
Q1 2007   5954   924.36      $6.441
Q2 2007   6370   922.454      $6.905
Q3 2007   5721   924.968      $6.185
Q4 2007   5401   919.505      $5.874
Q1 2008   5416   952.842      $5.684
Q2 2008   5743   1015.58      $5.655
Q3 2008   6193   1060.2      $5.841
Q4 2008   6835   1355.91      $5.041
Q1 2009   6837   1409.81      $4.850
Q2 2009   6673   1283.09      $5.201
Q3 2009   5471   1236.44      $4.425
Q4 2009   3928   1164.46      $3.373
Q1 2010   3348   1140.89      $2.935
Q2 2010   3491   1160.81      $3.007
Q3 2010   5709   1180.94      $4.834
Q4 2010   3239   1130.23      $2.866
Q1 2011   3051   1117.46      $2.730
Q2 2011   2787   1081.89      $2.576
Q3 2011   2812   1079.47      $2.605
Q4 2011   3435   1144.09      $3.002
Q1 2012   2890   1129.19      $2.559
Q2 2012   2855   1149.05      $2.485

And it sort of causes your eyes to gloss over doesn't it.  I'm more of a visual person so this is what I did.  I scaled the quarterly amounts relative to the first quarter of the game, in KrW and USD, to 100 and then plotted them.



The red line is the relative sales per quarter in USD, green in KrW.  The first spike is the game's first Christmas Holiday season, the next is CoV hitting the stores, the one in Q3 2006 I'll get back to and lastly the release of GR.

Now the GvE pack came out at the end of Sept 2006, the tail end of Q3.  Now the box was originally only available in Walmart for the first 90 days and many didn't have it on the shelf until well into Q4.  It could be players buying the GvE goodie pack for $10 causing the surge.  Maybe there was an upswing in sales due to X-men 3 and Superman Returns over the summer.  Don't know.

A threw together a second chart.  It's the trailing twelve months of sales, previous 4 quarters, to look at the "annual" sales trends.  The first 12 months is used to scale the rest, again from 100.



In both cases what is obvious is for about four years after the game first came out, the dollar weakened/KrW strengthened which depressed the sales earnings from the PoV of Korea.  Now in 2008 the value of the KrW collapsed going from around 920 to a dollar to 1410 to a dollar a year or so later.  That's a 50% difference.  That's why the game's sales revenues in KrW surged in 2008.  What followed was Korea's central bank stepping in to stabilize it by the end of 2009 to around the same level as it is today and back when the game first came out (1150 +/- 70).

Now this made it look like the game's sales also collapsed significantly in 2009 from 70% of first year sales to 40%, where in reality, from a dollar perspective, have been on a steady decline for nearly 3 years.  The plateau is caused by the surge of GR sales and when that ran it's course in the TTM number it plateaued again at around 30% of the games first 12 months of sales.

Over the last two 1/2 years the exchange rate didn't hide the state of sales of the game from it's masters.  In the first four years the exchange rate depressed the state of sales followed by a year of so of false growth and rapid decline.  Now if any of that was factored into their decision making, who knows.

[Copper Cockroach]

Interesting how, in the last year, everything sort of stabilizes; there's even a slight bump up in Q4 2011.

I guess we can only speculate on where those lines would've gone with the release of I24 & I25.

[JaguarX]

Interesting.

Looks like it was going downhill, especially with the exchange rate. Last time it seen over 4.00 was 2010 and prior to that it was mostly 5.00 and above with peak of over 15, and first report in 2004 of 9.589 and in 2012 Q2 of 2.485, which is less than half of Q2 2009.

Yeah I can see how that can cause a finance guy to freak out a bit.

[TimtheEnchanter]

What sources of income does this cover? Purchases of the client? Premium subs?

Are the numbers from NCstore purchases still hidden or was nobody really sure about that? Last I heard any mention of it, purchases from the store wasn't being factored in.

[Axonius]

I was thinking about exchange rate factoring in as well. But if it did, seems like they would have said so. Also, the exchange rate would have worked in their favor somewhat as it relates to the cost of paying Paragon in US dollars. So they would have been saving a few bucks on the cost end... obviously, wouldn't have made up the difference though.

I'm not convinced that their decision was financial based as they haven't pointed to that being the reason anywhere. I simply think they didn't want to keep a small game alive.

[FatherXmas]

What sources of income does this cover? Purchases of the client? Premium subs?

These are just the sales numbers as reported in the various quarterly reports.  Now previously NCSoft indicated a significant bump in Lineage sales were due to item stop sales so I suspect these numbers do include sales from boosters (older) and the item store (recent).

Also if you factor out the bump from GR, we've been pretty steady for the last two 1/2 years (maybe a very slight decline).

[TimtheEnchanter]

Also if you factor out the bump from GR, we've been pretty steady for the last two 1/2 years (maybe a very slight decline).

Yeah, I noticed that too. But factoring in things like inflation (possible rising maintenance costs, pay raises, etc) then 'stable' still counts as a gradual loss.

[Victoria Victrix]

In case you guys haven't read it yet, this is Ammon Johns' reply in the MMORPG.com comments.  Just in case you all start getting depressed and wondering if maybe NCSoft wasn't acting like a bunch of morons.

Firstly, retention rate.  Yes the figure is month on month.  Further, anything over 90% is HUGE in the industry, like, industry leading level.  City of Heroes had that.  The one and only thing it didn't have was *any* commitment to marketing at all from NCsoft.
 
Every business in the world has what is called an attrition rate.  No matter how loyal your customers, people's situations change.  They move, they marry, they even die.  Basic business 101 says it this simply: "Any business that is not actively growing its customer base is losing it".  Any and every business in the world must do enough marketing to attract new custom to counter attrition rates or it will die.  NCsoft did no noticeable marketing of CoH at all except in some minimal cross-selling from its other titles that it did advertise and promote.
 
It is an unquestioned and unarguable fact that NCsoft completely failed to even try to grow the game's market, and allowed natural customer-base attrition to reduce market share unchallenged.  Check those facts any way you like, you won't change them.  NCsoft completely fail business 101 in this regard, and one surely has to suspect this was deliberate.  You don't overlook something that basic to all business.
 
This is why people say that NCsoft did their deliberate damndest to kill CoH.  It is that obvious, and the ONLY question about it is "Why?" not "Did they?".
 
Costs: Paragon Studios only significant costs were the business premises at US costs, and staff at US costs.  These would probably seem high to a company mainly based in Korea.  But they'd seem very low to a company based in Tokyo or Hong Kong, so you would expect most Asian companies to be quite happy with them.
 
80 staff was a ridiculously large number for CoH, and in fact many of those staff were primarily working on new projects such as the new game mentioned, never really contributing to the money-maker of CoX at all.  So while costs for staff were indeed far higher than needed or expected for this game, a large amount of that was in pure R&D for the next generation product (new games).  20 staff would have been more than enough to maintain the game, and even halving the staff to 40 would have meant easy full continuation, plus plenty of new products in the cash-shop every week, as was happening.
 
Again, a fact which is unquestioned and unarguable is that NO attempt was made to reduce staff to reduce costs.  In fact, our information is that a large number of those 80 were only taken on as GROWTH in the 12 months prior to the unexpected closure.  These additional staff were taken on to develop the next generation products, and to help add goods to the cash-shop faster.
 
If a game is at all questionable in income, why would you hire more and more unneeded staff?  The fact that they did so is easily confirmed.  Not only did NCsoft NOT try at any time to reduce unnecessary extra costs, they actively allowed Paragon to grow its costs in ways that did not contribute to the existing profit, and were only working on R&D of future products.
 
Profits:  City of Heroes made around 170million dollars US in its 9 years.  Not bad for something bought for under 8 million, eh?  Even in its final months it was certainly generating revenue of over $10million USD per annum, and this was growing with the further refinement and adoption of the new cash-shop (which doubled revenue after its adoption).  It would have been more profitable if NCsoft were not having Paragon hire more staff to work on R&D that did not directly produce any revenue.
 
As a professional in online business, with over 18years experience, I can see no possible way that City of Heroes and Paragon Studios were not profitable to at least 3-4 million per year, (unless someone at NCsoft were charging 4 million a year in wages to audit or oversee Paragon).

Since annonymity bothers some, then let's put it aside.  My name is Ammon Johns, and I work as an Internet Marketing Consultant.  I speak at International conferences, and my clients are predominently large national and multinationals, including banks, insurance companies, online stores, charities, and portals.  I also work for small local and specialist businesses online.  I've worked for many of the sites you probably know and use yourself.  I don't specialise in the game development industry at all, but I work with every level of internet market.  I am considered a world expert in marketing online.
 
The above are my own findings from digging through many sources, and from using my contacts and network.  That's not to do the big "I am", that's simply to head off anyone asking if I know what I'm talking about.  I will welcome discussion to challenge any of my own findings, just cite your sources and experience when you do so.  Oh, and no anonymity, right?

[Mistress Urd]

Thanks for doing the work Father Xmas.

[houtex]

"80 staff was a ridiculously large number for CoH, and in fact many of those staff were primarily working on new projects such as the new game mentioned, never really contributing to the money-maker of CoX at all.  So while costs for staff were indeed far higher than needed or expected for this game, a large amount of that was in pure R&D for the next generation product (new games).  20 staff would have been more than enough to maintain the game, and even halving the staff to 40 would have meant easy full continuation, plus plenty of new products in the cash-shop every week, as was happening."

I don't know why, but... something in the back of this ol' noggin o' mine is saying Paragon was down to something like 11 staff members at some point?  And still churning out 'stuff', just slower/not as grand in scale?

If so... well, there's the history of that paragraph bein' truth right there.

[Quinch]

I'm not sure if it ever came down to only eleven - someone better versed in history would probably know, but there was the Freem Thirteen once upon a time.

[Starsman]

Profits:  City of Heroes made around 170million dollars US in its 9 years.  Not bad for something bought for under 8 million, eh?  Even in its final months it was certainly generating revenue of over $10million USD per annum, and this was growing with the further refinement and adoption of the new cash-shop (which doubled revenue after its adoption).  It would have been more profitable if NCsoft were not having Paragon hire more staff to work on R&D that did not directly produce any revenue.

This is my biggest thing right now... why is that "double revenue" not shown in the Quarterly reports???

[Starsman]

I'm not sure if it ever came down to only eleven - someone better versed in history would probably know, but there was the Freem Thirteen once upon a time.

I think they were in the very low teens when they were still part of Cryptic and the studio was fully focused on Marvel Universe Online.

[Ad_Astra]

That would be the Freem 15 - the staff they had right before NCSoft bought out Cryptic.

[Osborn]

Yeah, I noticed that too. But factoring in things like inflation (possible rising maintenance costs, pay raises, etc) then 'stable' still counts as a gradual loss.

Yeah, but it's easy to tell somebody they've failed to make a successful product when they're basically given no marketing budget.

The game had a massive retention rate, which is a sign of a good product but it's no wonder it would slowly decline as older players would eventually die off and have kids and stuff, if absolutely nobody knew the game existed.

[JaguarX]

Yeah, but it's easy to tell somebody they've failed to make a successful product when they're basically given no marketing budget.

The game had a massive retention rate, which is a sign of a good product but it's no wonder it would slowly decline as older players would eventually die off and have kids and stuff, if absolutely nobody knew the game existed.

Exactly.

[Lucretia MacEvil]

It is an unquestioned and unarguable fact that NCsoft completely failed to even try to grow the game's market, and allowed natural customer-base attrition to reduce market share unchallenged.  Check those facts any way you like, you won't change them.  NCsoft completely fail business 101 in this regard, and one surely has to suspect this was deliberate.  You don't overlook something that basic to all business.
 
This is why people say that NCsoft did their deliberate damndest to kill CoH.  It is that obvious, and the ONLY question about it is "Why?" not "Did they?".

The entire absence of marketing is my worst beef with NCsoft, especially since super heroes were experiencing a popularity boost.  I mean HELLO?  A little publicity would've gone a longer way than usual because of that, but NCsoft squandered that golden opportunity.  They not only got an "F" in Business 101, they got a "0".

[JaguarX]

The entire absence of marketing is my worst beef with NCsoft, especially since super heroes were experiencing a popularity boost.  I mean HELLO?  A little publicity would've gone a longer way than usual because of that, but NCsoft squandered that golden opportunity.  They not only got an "F" in Business 101, they got a "0".

yeah.

[houtex]

YEAH, the Freem 15.  I knew it was down there...  Man. 

To have that 'low' before, and come back strong...

Seems such a waste it's not just running at least.

[Victoria Victrix]

This is my biggest thing right now... why is that "double revenue" not shown in the Quarterly reports???

Possibly because of the way that the cash shop worked.

Account buys Paragon Points.  Points are linked to CoH, and Paragon Studios can see the number of Points bought.
Paragon points are linked to Account.  NCSoft and Cash Shop both credit RealMoney to Account but not to the game the money came from
Paragon Points are spent by Account.  NOW the RealMoney is credited to the game the money came from.

If you hoarded your Paragon Points and didn't spend them, NCSoft can say "well that money didn't come from CoH" even while the Folks at Paragon Studios are saying "Wow, look at all the points bought!  We're doing GREAT!"

[Terwyn]

Possibly because of the way that the cash shop worked.

Account buys Paragon Points.  Points are linked to CoH, and Paragon Studios can see the number of Points bought.
Paragon points are linked to Account.  NCSoft and Cash Shop both credit RealMoney to Account but not to the game the money came from
Paragon Points are spent by Account.  NOW the RealMoney is credited to the game the money came from.

If you hoarded your Paragon Points and didn't spend them, NCSoft can say "well that money didn't come from CoH" even while the Folks at Paragon Studios are saying "Wow, look at all the points bought!  We're doing GREAT!"

That is double plus ungood.

[MakoMako]

Possibly because of the way that the cash shop worked.

Account buys Paragon Points.  Points are linked to CoH, and Paragon Studios can see the number of Points bought.
Paragon points are linked to Account.  NCSoft and Cash Shop both credit RealMoney to Account but not to the game the money came from
Paragon Points are spent by Account.  NOW the RealMoney is credited to the game the money came from.

If you hoarded your Paragon Points and didn't spend them, NCSoft can say "well that money didn't come from CoH" even while the Folks at Paragon Studios are saying "Wow, look at all the points bought!  We're doing GREAT!"

Maybe I missed it somewhere...

But can you point to your source where it's fully acknowledged that's how the system worked? I'm no accountant but there's gotta be a ledger that indicates where that "RealMoney" is coming from. Otherwise, where -did- it come from?

If anything, that sounds like an incredibly serious flaw in the system, where money comes in but it isn't reported from where. If income was actually doubled, that's a -lot- of money with no real noted 'source'. The IRS would be screaming murder.

[Victoria Victrix]

Maybe I missed it somewhere...

But can you point to your source where it's fully acknowledged that's how the system worked? I'm no accountant but there's gotta be a ledger that indicates where that "RealMoney" is coming from. Otherwise, where -did- it come from?

If anything, that sounds like an incredibly serious flaw in the system, where money comes in but it isn't reported from where. If income was actually doubled, that's a -lot- of money with no real noted 'source'. The IRS would be screaming murder.

My source is one of the people at Paragon Studios.  I confirmed this with my source, making sure I understood it correctly.  I cannot reveal the identity of my source.  My sources still face the probability of serious problems with NCSoft if they are found out.

I really wish the IRS would scream murder. 

[Twisted Toon]

The entire absence of marketing is my worst beef with NCsoft, especially since super heroes were experiencing a popularity boost.  I mean HELLO?  A little publicity would've gone a longer way than usual because of that, but NCsoft squandered that golden opportunity.  They not only got an "F" in Business 101, they got a "0".

I give them a D...minus. The only reason it's not an F is because I would to have to see them in summer school.

Oh wait. I wouldn't have to see them in summer school anyway...make that an F minus minus. 

[MakoMako]

My source is one of the people at Paragon Studios.  I confirmed this with my source, making sure I understood it correctly.  I cannot reveal the identity of my source.  My sources still face the probability of serious problems with NCSoft if they are found out.

I really wish the IRS would scream murder.

That's exactly why I made that statement. That method isn't inherently illegal, but it's a -very- strange way to go about it. It's unreported income. And the fact -you- know about it, and have made it public here, means that it's very weird someone in a position, even in NCSoft accounting, hasn't stepped forward to say "So... Where exactly did this money come from?" I think someone in charge of taxes might even find it weird that they had such income but no reported source. Just kinda -there-.

I don't mean to say your contact is wrong. But that's... Kind of a big deal. In a business you don't just have such a large amount of unreported income.

Does your contact actually say what that money is being reported as, at least?

[FatherXmas]

Money is still reported, if what the unnamed source said was true, it just means that it wouldn't be included as part of the game's sales income until the proxy currency is spent.  This would under report the actual sales income when a P/L analysis is done by game.

[MakoMako]

If that's true, then I suddenly regret having 80 thousand unspent points as the servers went black.

[dwturducken]

Reporting isn't so much the issue. Well, maybe a little. If it's not counting toward a game until the points are spent, it's another (possibly deliberate) way the parent company can tell the subsidiary and the players that their game is under-performing. It's shifty, and it's BS, but I'm not even sure it's unethical in today's business world.