[Blaugust Day 6]
It has been yet another Blizzard Investor Report in which Hearthstone metrics have been bundled or otherwise obscured, but this latest report added a few more variables with which to solve for X.
One of the juicier parts was this bit (provided by TheStreet):
Note that this quarter was an important inflection point for Blizzard. In spite of World of Warcraft subscriber declines, which were more concentrated in the East and partly affected by the success of Diablo III in China, Blizzard grew its Q2 revenues 29% year over year at constant FX.
This performance was driven by the strong performances of Diablo, Hearthstone, and Heroes of the Storm, which in Q2 made up the majority of Blizzard revenues. The franchise diversification inside Blizzard is happening rapidly, and even more importantly, the aggregate Blizzard community is healthy and growing.
- Destiny, Hearthstone, & Heroes of the Storm: >70M players & >$1.25B non-GAAP* revenues, LTD
- Destiny: >20 million registered players have played about 100 hours each since launch
- Diablo III has sold-through over 30 million units to date globally
- Hearthstone: Key engagement metrics nearly doubled year over year, largely on account of the new content/platforms.
- Overall Q2 net revenue GAAP = $1.044 billion, non-GAAP = $759 million.
- WoW specific GAAP revenue for Q2 = $221 million; non-GAAP $157 million.
- Asia Pacific net revenue for entire company: GAAP $105 million, non-GAAP $131 million.
- Blizzard specific revenue for Q2: $385 million.
That last data point was not specific in whether it was GAAP or non-GAAP, but I’m assuming it is the latter as otherwise WoW couldn’t be less than half of the Blizzard total, which is what was stated in in the investor report. So here are a few of rudimentary calculations we can draw:
- Blizzard’s non-WoW revenue for Q2 = $228 million (385 – 157).
- Hearthstone + Heroes of the Storm registered players = ~50 million
- Hearthstone = 30+ million registered players as of 6/5/15.
- Ergo, Heroes of the Storm has ~20 million registered players (70 = 20 + 30 + X).
- Destiny + Hearthstone brought in $850 million in 2014.
- The Q1 2015 report (PDF) stated Destiny + Hearthstone had $1 billion non-GAAP revenue LTD.
- Destiny + Hearthstone + Heroes of the Storm = ~$250 million combined in Q2 (1.25b – 1b).
- Diablo 3 sold 20 million copies as of August 2014. Thus sold another 10 million copies in last year.
So… yeah. Still feels like we’re missing too much information to draw any major conclusions.
That said, we can deduce that Hearthstone made less than $250 million in Q2, and less than $150 million in Q1. How much less remains to be seen. Also, while a lot of noise was made about the (F2P!) success of Diablo 3 in China, it bears mentioning that all franchises in both Activision and Blizzard (including WoW) totaled $131 million in revenue in China. In other words, it isn’t as though Chinese Diablo 3 is going to claim the lion’s share of the non-WoW pie.
As always, if you see an error or otherwise have put enough skill points in Language (Economics) to make better sense of the Investor Report numbers, by all means correct me in the comments below. If I had to guess, I’d peg Hearthstone at around $75-$100 million per quarter.
[Blaugust Day 5]
Holy shit. WoW is down 1.5 million subs in three months.
As the graph from MMO-Champion indicates, the last time WoW had 5.6 million subs was back in December 2005. While there are quite a few people out there saying the expansion spike into Warlords “shouldn’t count” due to hype trains and such, it bears repeating that WoW had 10 million subscriptions six months ago. Four point four million subscriptions is a fucking genre’s worth of tourists.
Assuming you can still call the 1.5 million people who left between months 3 and 6 “tourists.”
For the record, Cataclysm dropped from 12 million at its height down to 9.1 million at the end, a 24% loss. Mists started at 10 million, and ended around 7.4 million, a 26% loss. Even if we completely disregard Warlords’ spike in subs for no reason, going from 7.4 million to 5.6 million is a – drumroll please – 24% loss. And the year is only half over. And the final raid has already been released more than a month ago.
When Blizzard said they wanted to speed up expansion cycles, I didn’t think they meant cramming in two years’ worth of losses into half a year.
I went ahead and listened to the conference call myself, but the MMO-Champ summary is pretty much spot on. The only thing I wanted to mention was how early on in the call they pointed to Hearthstone specifically as being one of the largest drivers of revenue in Q2. Which, of course it is, everyone knows that. Additionally, at some point during the call Blizzard admitted that Hearthstone, Diablo 3, and Heroes of the Storm combined made up the majority of Blizzard revenue in Q2. As in, at least 50% + 1. Who would have saw that coming 3-4 years ago?
Some questions remain. While I have no doubt WoW Tokens are included in revenue stream, whether they count as subscriptions in of themselves is a question mark. Sure, a redeemed one should count as a one-month subscription just like a game card. But what about my eight Tokens sitting on an inactive account? Am I “subscribed?” This remains to be seen.
In any case, if this upcoming expansion announcement isn’t literally the best thing in the world, I think we can expect to see some more timely exits from Blizzard staff and players alike in the coming months.
Because two posts aren’t enough!
Actually, the real reason is because during the comment back-n-forth with Syncaine, Wilhelm mentioned something I had never realized before: Blizzard actually does post revenue numbers for just World of Warcraft. You can follow along at home by navigating to the Activision Blizzard Investor page and the Q4 2014 Excel document entitled 12-Quarter Financial Model. On the Rev Mix by Platform tab, you get the following (edited) table:
The asterisk indicates that “Online” revenue solely has to do with WoW related subscriptions and services. So for 2014 WoW raked in $1.035 billion. Interestingly enough, this point of reference allows us to flip back to the NR and OI by Segment tab, which breaks down total revenue for just Blizzard (again, chart edited):
Apparently you can get a much easier summation of the above information from this PDF, which I only realized after the fact.
So, for 2014 Blizzard made $685m in non-WoW revenue. For the curious, those non-WoW figures were $319m in 2013 and $538m in 2012. As far as I know, only the Diablo 3 expansion and Hearthstone were notable releases in 2014, although obviously there is X amount of revenue coming in from incidental sales of D3, Starcraft, and such.
I was unable to find exact figures of total Reaper of Souls sales other than 2.7 million copies in the first week. Assuming $40 apiece, that lowers Hearthstone’s possible share by another $108m at a minimum. If the opening paragraphs of D3’s Wikipedia page can be believed, the original game has sold 15 million copies. Combined with news that D3 + expac sold 20 million altogether as of August 2014, that pushes the Diablo portion to $200m, minimum.
Going back to what we know, the Hearthstone revenue formulas are thus:
- [Hearthstone] = $850m – [$500m+ Destiny], or
- [Hearthstone] = $685m – [$200m+ non-WoW]
Incidentally, most of the Destiny reporting says it achieved $500m in revenue on Day 1. That’s not actually true – there was $500m in shipped product, but only $325m in actually-sold games in the first five days of release. Or about 5 million units, physical and digital. There are two near-as-we-can-tell figures that incorporate all of 2014: VGChartz’s 9.3 million units and 13 million unique players as of Christmas. Depending on how charitable you wish to be, that range is either $558m to $780m (@$60/copy), or $604.5m to $845m (@$65 average/copy). Which means Hearthstone is anywhere from $292m to… er, $5m.
I think I heard Syncaine fall off his chair from here.
All told, I still feel it’s entirely possible that Hearthstone made at least $100m in 2014, if not $200m. That’s a quite a reduction from my earlier post vis-a-vis $350m for Hearthstone, of course. And I’m fine with that in light of this new information; if I’m factually incorrect, then I will acknowledge it and move on. My only real horse in this fight is the ridiculously specious argument that A) Hearthstone is a mobile port, and B) it’s not that successful. Not only does current reality defy A, in terms of B it’s entirely possible Hearthstone (eventually?) outstrips Magic: the Gathering in yearly revenue.
Either way, not bad for a card game that came out of nowhere.
The big news in the Activision Blizzard Quarterly Report everywhere else is that WoW appears to have stabilized at 10 million subscriptions. Also, that Hearthstone has 25 million registered users, whatever that means. After reading through the transcript of the earnings call however, it turns out that we can estimate exactly how well Hearthstone is performing. Spoiler alert: it’s pretty damn good.
First, we have this quote from Bobby Kotick:
Last year, we launched 2 of the most successful new entertainment brands, Destiny and Blizzard’s Hearthstone. Combined, they attracted over 40 million registered players worldwide and generated more than $850 million in non-GAAP revenue, a testament to our team’s proven abilities to capture the imaginations of millions of people around the world time and time again.
Then from Eric Hirshberg (CEO of Activision):
So in closing, over the last 3 years, Activision Publishing has methodically expanded its portfolio, and for the first time in its history, now has 3 tent-pole properties, each of which generated over $500 million in non-GAAP revenue this year and drove the highest digital revenues in Activision Publishing’s history.
So by the power of inductive reasoning, we can say Hearthstone made around $350 million in revenue last year. Further, according to Thomas Tippl (COO), Destiny and Hearthstone are “tent-pole franchises” that were “profitable out of the gate” and are expected to “contribute to [Activision Blizzard’s] results every year in a significant way.” Combine that with Mike Morhaime confirming that the December release of the Goblins vs Gnomes expansion resulted in the highest monthly active players and highest revenue quarter-to-date, that indicates Hearthstone is still growing a year later. That’s kind of a big deal.
Now, it’s entirely possible that “more than $500 million” means Destiny has a larger slice of the $850 million combined revenue pie than I am assuming here. Maybe Hearthstone “only” achieved $300 million. Or even as little as $250 million. It’s helpful to keep some perspective though: all of paper and digital Magic: the Gathering brings in $250 million in revenue. So, on the low end, Hearthstone is already a bigger franchise than Magic: the Gathering. And apparently growing.
Not bad for a “casual app with a PC port.”
So, hey, how about that. Leave the country for just two weeks and look what happens.
Blizzard Q2 2014 Investor Call
The big news, of course, is the fact that WoW has dropped 800k subs and is down to 6.8 million from Q1. MMO-Champion has a rather interesting interactive graph on the linked page, but let’s go ahead and take a screenshot for posterity:
Honestly, it is hard to add anything to that; the graph really speaks for itself. I guess it is interesting to note that we are now well below the numbers of vanilla WoW at this point. It is also interesting to note that the number of subscribers WoW lost in the last few months is larger than the total reported subs for The Elder Scrolls Online. Or Wildstar + EVE. So anytime someone happens to discount WoW as a fluke and/or “not representative of the genre as a whole,” just remember that this is a fluke on scale with the supermassive black hole at the center of the galaxy.
There are bigger games, of course, like League of Legends. There still ain’t any bigger MMOs. And let’s face it: there isn’t likely to ever be any.
Back to that investor call, and the unintentionally hilarious corporate doublespeak:
Starting off with World of Warcraft. The franchise remains healthy with revenues up year-over-year. This is due in part to ongoing interest in Warlords of Draenor presales, which now exceed 1.5 million, and the character boost, which suggests strong support for the expansion by the community.
Yeah, sure, I can see it that way, Mike Morhaime. Someone who purchases a(n additional) character boost is likely a person preparing to use said boosted character in the next expansion. At the same time, is a boosted character not also a vote of no confidence of all the content that it was boosted past? Shit, the expansion is not out for another three months, and this is a report of player behavior from earlier in the year anyway. I’m not one of those guys who cry over planned obsolescence, but c’mon man, this is a sword with two edges. Be careful where you pick it up.
In looking over the rest of the call transcript, most of it had to do with Destiny and Call of Duty questions. Hearthstone was a surprise darling, but we sort of knew that already.
Warloads of Draenor
I pretty much agree with the prevailing blogging opinion that the Warlords trailer is excellent on a technical level and somewhat of a horrible trainwreck on grokkable level. Are we supposed to know who these orcs are? It might be a little racist, but I can barely tell any of them apart. And then you get the confused sympathy going on, which results in you thinking the final boss of the expansion is actually a good guy. I mean, we just saw him kill a demon and everything! To the average person watching this thing, they aren’t going to know that the final scene is meant to imply the “good guys” will soon be invading an alternate timeline in which they don’t exist, only to be pushed back into their own world again and beaten silly by 10 or 25 kleptomaniacs in silly costumes.
And when I put it like that, I still almost feel bad for them.
Then I remember that alternate timelines and time travel in general is literally the worst narrative gimmick in literature (and all mediums, really), possibly tied with “it was all a dream.” It is always total bullshit because nobody ever treats it seriously, least of all the authors themselves. Bioshock Infinite, anyone? Warlords is all just another Metzen Horde masturbation fantasy that plumbs the shockingly shallow depths of the Warcraft RTS plot in search of remaining nuggets (or crumbs thereof) which can be squeezed and bled before the swan song of an Emerald Dream expansion.
In my attempt at researching the possibility that the Warlords narrative could be saved by Naaru somehow, I stumbled upon this blog post which does a good job at asserting the fact that we might be battling high lieutenants of the Burning Legion by the end. Up to and including Sargeras. I like the research supporting that position, but again, it all highlights for me the reason why time travel is stupid everywhere. Because now there is an infinite number Sargerases, and Titans, and McGuffins such that the likelihood of the “original” world existing at all is vanishingly small. Maybe the Bronze Dragonflight are supposed to keep all that shit on lockdown, but all it takes is a single “he/she went insane” and suddenly they are attacking every reality.
…which is sort of how the Burning Legion are described. Hmm.
Nah. The writers over there aren’t that clever.
If you have not already heard the news, WoW has
lost gained 200k subscribers in the last quarter, edging back up to 7.8 million subs. This is quite a reversal from last May, when they hemorrhaged 1.3 million in three months.
In a fit of investigative journalism, I went ahead and looked at the investor report. Here are some choice quotes:
In particular, free-to-play games have achieved scale that should now allow us to realize great returns from the investments that we’ve been making in this area. Over the next few years, we plan to introduce at least three potential groundbreaking franchises operating on our free-to-play transaction systems designed to appeal to players across numerous platforms and in numerous geographies. These games including Hearthstone, Heroes of Warcraft, Blizzard’s Heroes of the Storm and Call of Duty online, all have enormous potential.
Personally, this is the first time I’ve heard about a Call of Duty online, but I confess that I don’t follow CoD news generally. Apparently, it is going to be released in China first, but… actually, I don’t know. Surely there will be mainstream releases of the regular CoD franchise every year (even if they go to a 3-year cycle), so perhaps this will be China-only.
When the call got to Mike Morhaime, there were a series of amusing transcription errors. Like this one:
We should use the strength in Q4 for a few factors. The excitement from BlizzCon, seasonality from the holidays and a refresh of the recruit of final program which offer special test inbound to players to bring revenue into World of Warcraft.
We think that this is a great feature that will make it easier for friends to play together in World of Warcraft. It’s also attractive for veteran players, who have already experienced the level and process multiple times and wants to quickly raise a new character to deal ending combats.
Entry into a special game mode called Arena can also be purchased with Indian gold or real currency.
So when you face your special inbound test, make sure to use real currency instead of Indian gold to deal ending combats.
The rest of the call was uneventful beyond one final item, of particular note to the skeptics of Blizzard’s “stabilization”:
Okay. And the other part of the question was on the East-West split. So, in Q4 we were slightly down in the East and slightly up in the West.
So in other words, a lot of the gain came from NA/EU rather than the people paying pocket change in China.
And that’s basically it. Morhaime mentioned that he’s expecting some weaker numbers in Q1 2014 given how they won’t have the BlizzCon boost anymore nor any new content, but is otherwise hopeful that the level 90 boost will drive some ex-player engagement. It doesn’t do anything in particular for me though, at least right now, but we’ll see.
As reported by MMO-Champion, the subscriber total was 8.3 million at the end of the quarter, a loss of 1.3 million subs since Q4 (which had its own 400k loss). For those keeping track at home, Blizzard had 9.1 million subs back on August 3rd, 2012, during an eight-month lull of zero content at the end of Cataclysm, i.e. pre-Mists of Pandaria. That is a net loss of 800k this expansion – with a 1.5 million sub rollercoaster in the middle – and the lowest subscriber count WoW has had since 2007.
By the way, RIP to MMOData.net, which has not made an update in nearly nine months now. How can we pontificate without graphs? Sigh.
I went and signed up to listen to the investor report as there was not a transcript available, wondering where MMO-Champ got the rest of those bullet points. Plus, you know, Press™:
To save yourself 38 minutes, just trust me when I confirm MMO-Champ got all the relevant information.
What did interest me though was hearing how ultra-conservative Activision Blizzard is. I mean, that sort of thing isn’t a particular trade secret, but when Bobby Kotick explained that the company wasn’t interested in the mobile sphere because the Top 10 titles change every year, I cocked an eyebrow. Call of Duty and WoW still have a lot of viable milking years ahead of them, but this is the same company that gushed about their $1 billion Skylanders franchise that didn’t even exist two years ago. If CoD: Ghost ends up pulling a Warfighter along with the further expected losses (their words) in WoW subs, you can almost imagine a scenario in which they conserve themselves right off a cliff by the end of this year.
But, alas, the money machines continue unabated.
Finally, I sort of chuckled at this part of the WoW presentation:
- There has been less engagement by casual players.
Well… yeah. What did they imagine would happen when you release
one of the most alt-unfriendly expansion in the history of the game? And then proceed to put everything behind a triple-gate of dailies and rep, all but remove leveling dungeons (only to put them back), and then essentially stop all production of 5m dungeons for the rest of the expansion? Oh, and don’t get me started on the continued embarrassment of no-pop servers languishing.
At this point, all I’m really interested in is Hearthstone (as hopefully a cheaper Magic: Online) and maybe Bungie’s new game; Titan has been too much of a cocktease for too long to even get a rise out of me anymore. Otherwise Activision-Blizzard might join the ranks of EA as a big-budget publisher who only produces one title that I am remotely interested in, with all the “risky” indie ventures soaking up the money I leave on the table.
And as Doone points out, that’s probably the best thing for everyone involved.
As MMO-Champion reports, WoW had “more than 9.6 million” subscribers as of December 31st, 2012. This is down at least 400k from what Blizzard reported at the end of Q3 2012. I’m not particularly interested in spin or theories of causes, because as we all know, these sort of losses are rarely attributable to any one thing.
I do find it useful though, to keep the following in mind: the subscriber count was 9.1 million back in August of 2012, pre-pandas. If this is what decline and a descent into irrelevance looks like, then we’re in for a pretty soft landing.
Tobold picked up the story about how Funcom stocks tanked after The Secret World failed to hit arbitrary Metacritic scores. While the post is centered on the legitimacy of review scores to begin with and/or the aggregation thereof, the more salient point was acknowledge but left unexamined.
Let us not bury the actual lede here (emphasis added):
Case in point: The Secret World. It got a “low” metacritic score of 72, causing Funcom’s shares to tank, and the company to announce layoffs. But the metacritic score was just an average of some people absolutely loving the game, and others not being impressed with the unusual setting, progression system, or pure technical performance. The relevant number for a subscription MMORPG is obviously the number of subscribers and the time it manages to hold onto them, not the review score.
So… what are The Secret World subscription numbers? My guess: not good.
Companies are always pretty eager to belt off “250k/500k/1 million subs!” press releases, and as of the time of writing, Funcom has… well, not said much of anything. The launch day press release awkwardly mentions:
“[…] as of now several of the game’s dimensions – which can hold tens of thousands of gamers playing at the same time – have started filling up due to the ever-increasing number of players coming into the game.”
I cannot help but note that “several tens of thousands” is not, say, 100,000. I am not even sure if I can fault Funcom for their hesitant confusion here, as it mentions that over 1.5 million people signed up for the TSW beta. I am no MMO economist, but I imagine a less-than 7% sale rate from people willing to sign up for a beta for your game is a mite unusual.
Then again, isn’t that near the approximate rate of people who buy stuff in F2P games?
But let us dig deeper. According to VGChartz.com, TSW has sold… 0.05m copies. Um, wow. I only recently started using VGChartz though, so maybe they are not all that reliable. How often is it actually updated, anyway?
I dunno, those look legitimate to me. “Nearly 50,000 players worldwide!” is not exactly the sort of MMO (or any game, for that matter) press release that would garner positive attention.
[Edit] As pointed out in the comments, VGChartz almost assuredly only counts physical box sales. The page for Diablo 3, for instance, indicates only 2.6 million sales whereas Blizzard has said 10 million. While good to know for future reference, it is not entirely germane to the point at hand, e.g. Funcom hasn’t belted off a 250k or even 100k subscriber press release. [/Edit]
But at this point, I am almost more interested in what Funcom themselves expected. You can read the press release everyone is quoting for the wrong reasons (e.g. “Metacritic is the devil”) here. Or, you know, let me do all the fun stuff for you (emphasis added):
Funcom has on several occasions presented two financial scenarios for the first 12 months following launch of the game; please refer to page 17 in the 1Q 2012 presentation *). Funcom does not consider it likely that either of them will be met.
To improve sales going forward, Funcom is currently enhancing distribution by launching the game on the Steam platform as well as focusing on key areas for improvement of the game and on-going activities on content updates, sales initiatives and communication. The effect of all these initiatives together with other factors impacting sales are difficult to predict, but based on the available early data, one scenario is that sales for the first 12 months following launch will be less than half of what was presented in the “Conan-like” scenario. It should be noted that the sales amount in the “Conan-like” scenario is significantly higher than for the game “Age of Conan”, due to the assumption of better retention implemented in the scenario. Also it should be noted that the company has significantly lower operational cost for The Secret World than what was the case for Age of Conan. As less initial sales than expected is considered an indicator of impairment, the company is currently evaluating the need for recognizing an impairment loss for the game in the profit and loss statement.
Oh how very meta of them! In order to solve this riddle, I have to navigate to a 3rd party website, download a PDF, and then open their 1Q 2012 presentation to page 17.
And the answer is…
01000010 01100101 01110100 01110111 01100101 01100101 01101110 00100000 00110010 00111000 00110000 01101011 00100000 01100001 01101110 01100100 00100000 00110100 00111001 00110000 01101011
In other words, Funcom anticipated The Secret World getting between 280k and 490k subscribers. That means the “one scenario” mentioned in the press release refers to 140k subscribers… after 12 months. Technically they are referring to sales, but at this point moving even 525,000 boxes seems a tad aggressive; it is “only” a ten-fold increase in sales since launch.
None of this is to suggest that The Secret World is a bad game – lord knows my blogroll is filled with positive posts from across the spectrum. Personally, I never had much interest in the game primarily because the most lauded feature, Investigative quests, represents what I consider to be bad game design elsewhere: the necessity to look up outside information. Morse Code headlights? Fuck that, I’m an American. If your quest items don’t have a giant, deep-fried corndog floating over them, I’ll Alt-Tab my way into a whole different game entirely. Adventure games like Myst have their place (uninstalled in my Steam library), but I am typically more interested in performance-based games than puzzle ones. The former tend to last longer and feature more granularity in its progression.
But, hey, 50,000 people can’t be wrong.
P.S. One of the more surprising things I stumbled across in the Q1 Report was the fact that Age of Conan is apparently still profitable and will continue to be into the foreseeable future. At least, that is what I assume “cash flow positive” translates into. The bad news is that Funcom themselves appear to be hemorrhaging money, even before taking into account TSW lead-up to release.