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Thursday, December 27, 2007

World of Warcraft makes $520m a year operating profit - WOW



It has been a record year for computer games sales this Christmas, we're told - with 78 million set to fly off the shelves by the end of the year.

Much of that brisk trade will be done in the shops, for games which are bought once, played for a month or two (if you're lucky) and then forgotten.

But one of the most extraordinary stories in the computer game business has found a different way to make a killing in video games. It's users pay £8.99 a month to keep playing, and they stay online for years, raking up many hundreds of days online.

The game is World of Warcraft - so familiar among computer gamers that it can scarcely be described as news, but still relatively unknown elsewhere.

On the surface, it's a fairly standard Tolkienesque swords-and-sorcery adventure game, where characters run around a virtual world gathering loot and slaying anything that moves. It's a grim, brutal, bloody affair.

But the key thing about it is that it's online. You inhabit the world with other players from all over Europe. To explore the big dungeons and get the best booty, you need to form a team. There's a massive social component to it.

"It's a new way of playing, and it's a much more social way of playing than it is a solitary way of playing. Historically, video gaming has been a very solitary experience. This represents the best of a social network with an entertainment component," says Bobby Kotick, chief executive of the company which makes Warcraft.

This has been done before, of course - the Everquest games are perhaps one of the best examples, and the virtual world of Second Life is become extremely well known (though many say it's not strictly a game).

Warcraft stands out from these as the best designed and by a very large margin the most enduringly popular - latest figures show it has 9.3 million users. Their cash underpins the financial success of Blizzard, the game's designer.

Earlier this month, Blizzard merged with another computer games publisher, Activision, in a deal which valued Blizzard at $9bn - not bad for a company that makes just over $1bn a year in revenues.

But the unique thing about Blizzard is the profits. It makes an astonishing $520m a year operating profit. And Activision will get its hands on the technology and people behind a success story that no-one else has been able to reproduce, and spread that around some of the other titles in its empire, like the successful 'Guitar Hero' games.

"It was something that we found very difficult to duplicate," he says - and the price tag he paid confirms that.

So is there a downside? Well, possibly just the amount of time people spend playing it. Your correspondent purchased a copy of Warcraft last year, (solely in the interests of research, of course).

Self-employed and working largely from home, there was no limit to the time available to play, and social activity and professional achievement rapidly began to plummet. Before too long, the files had to be erased from the computer and the discs destroyed - it certainly has a very strong addictive potential.

Clearly it's not quite the same scale or nature as an addiction to drugs or alcohol, but the internet is littered with accounts from people whose careers and relationships have been harmed by playing too much World of Warcraft - take a look at the 'Girlfriends against WoW' group or 'WoW stole my husband' on Facebook. And this anonymous account of one man's struggle with self-described addiction has become a classic:

Having only agreed the takeover of Blizzard this month, Mr Kotick couldn't tell us exactly what measures the company was taking to deal with the problem. But he pointed out that in any community of millions, you were bound to have some problematic members. You could doubtless point to many problem users of chocolate or television, too - a moral panic isn't necessarily the answer.

These concerns aside, World of Warcraft gives an intriguing hint of where the future of computer games might be going. The big successes of the past year have been aimed outside the demographic of traditional users - the Nintendo DS, for example, whose 'Brain Training' game is popular with older people, or the Wii, aimed at casual gamers. Hardcore games consoles like the PS3 have not done so well.

But games are also becoming a social phenomenon, with people expecting to play together regardless of space and time. Everyone has attempted this, which has gone some way to proving how difficult it is to achieve. No-one has done it better than Blizzard.

Source: Channel Four