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DFC: Western Revenue Gains Coming At Expense Of Profits
by Eric Caoili [PC, Console/PC]
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January 28, 2009
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Analyst group DFC Intelligence says that while Western video game publishers are enjoying revenue growth at retail, they're also seeing a decline in profits, unlike Asian publishers focusing on online PC games.
The firm's latest issue of its subscription-based reports, The DFC Dossier, compares the 2008 performance of 14 game companies spread across Western, Japanese, and Asian video game publishers.
"While Western publishers showed the strongest revenue growth, it came with a decline in profits," says DFC. "Meanwhile, the Asian companies that focus on online PC games are showing very strong profits as their service-oriented products generate revenue for years, long after development costs have been amortized."
According to the report, the seven selected Western publishers showed an average 50 percent increase in revenue over equivalent periods in 2007. At the same time, the same publishers reported an aggregate net loss in the past two years, with the net loss increasing 42 percent in 2008.
The three Asian online game companies used for the report, which include Seoul-headquartered NCsoft and Chinese publisher Netease, had an aggregate revenue increase of 26 percent, as well as a net income growth of 6 percent.
"It is becoming clear that the profit margins for successful online games far exceed that of traditional retail products," says DFC. "Companies like Shanda and NCsoft are still earning money from games released years ago."
"Furthermore, consumers are showing a willingness to pay money for a service. Unlike a pure digital product, it is hard for a pirate to steal a good game service," DFC notes.
"This is very good news for the overall industry, but bad news for the large boxed publishers that have not been able to figure out the service-oriented online business."
DFC also examined Japanese game publishers who've further explored emerging online business models to compensate for the region's lagging retail game market, and he suggested "may be better positioned to weather market conditions than their Western counterparts."
The four examined Japanese game companies only saw an average 17 percent annual increase in revenue but experienced a 272 percent increase in income. "As a result, the stocks of Japanese game publishers were not as hard hit," says the firm.
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It also isn't true that North America is lacking in MMOs – in fact, evidence is rising that the existing North American market is already saturated with MMOs given the poorer than expected results of a great many recent MMO releases (PotBS, Conan, Warhammer, Tabula Rasa, etc.) The article quoted, "It is becoming clear that the profit margins for successful online games far exceed that of traditional retail products," The key word here is “successful”. Every obvious genre of MMO (that I can think of at least) already has a quality dominant product on the market, and with the continual release of content for them by the companies that own those properties, it makes it even more difficult for a competitor product to be break in. Even when backed by a great deal of capital by a major North American publisher (EA) and created by an experienced MMO developer (Mythic), success is not guaranteed.
The only way that we will see continued MMO growth is to grow the size of the market, and that is only going to come from new and innovative ideas – something that the major North American don't seem to be capable of, or willing to support.