From this post on NCsoft’s Dev Corner, Richard Garriot discusses NCsoft’s plan to build free to play console games.

PS3 NCsoft games would incorporate “traditional subscription models, micropayment systems and free-to-play games with membership options,” according to the CEO.

Elsewhere in the post, Garriot indicates we might see the first NCsoft PlayStation 3 game by Christmas of next year (2008) – a product that sounds likely to be a re-use of one of their existing IPs, i.e. City of Heroes, Guild Wars or Dungeon Runners. He notes that original IP console games will take 2-3 years (i.e. 2009/2010).

Garriot also suggests that NCsoft intends to start a new studio to handle console development, but more likely is that the work will be farmed out to existing studios, not a new one.

“…We are also looking at specific projects that we may house in other studios. This includes our Austin offices or our other currently existing studios. Console game development won’t just be at one single location,” he added.

Garriot hints that Xbox 360/XBLA is not NCsoft’s first choice for their F2P products due to the restrictive nature of Microsoft’s Live infrastructure. Aspects of my earlier post, The Economics of a Free To Play Console Game, may be relevant here as I examined the feasibility of doing a F2P XBLA game.

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From a Gamasutra interview with Nicholas Beliaeff, Sony Online San Diego studio head… here are a few quotes:

On reducing barriers to entry:

We’ve got a lot of streaming going on, and we’ve reduced the barrier to entry for players. There’s no big download, and no credit card required. We’re really excited about that.

On multi-platform development:

For us as a company moving forward, all of our MMOs in development have a console component.

On min specs:

Whenever you’re making a game and are proud of it, you want as many people as possible to play that game. In the PC world, the lower the machine spec you can get, the bigger potential audience you have, and the more chance you have for people to look at your work.

On Free to Play:

If you look at some of the free to play games like Club Penguin and RuneScape, it’s a huge market. If you look at the actual numbers of people playing RuneScape, there may actually be more people playing RuneScape than there are playing World of Warcraft.

Interestingly, Nicholas and I met in 2001 when I was pitching a product of mine to him and Trip Hawkins at 3DO.

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Check this out: Online gaming to beat $13 billion by 2012 >

What’s interesting about this is not the total, it’s that a mere $1B of that $13B is expected to come from virtual item sales on consoles. This is not surprising, given the relatively low install base of download-capable consoles, compared to the complete ubiquity of similarly equipped PCs. Consoles are always going to be a subset of the addressable market of PCs and for now should be considered a secondary or tertiary platform for all but the cheapest-to-produce or most daring F2P endeavors.

Why? Do the math using a fictional Xbox 360 Live Arcade Free-To-Play game:

  • ~12M WW Xbox 360 install base
  • 60% of users online via Xbox Live
  • 65% of Xbox Live users ever use Xbox Live Arcade

That leaves about 4.68M users as the addressable market for our fictional F2P product. Now let’s assume a very high tie ratio, just to be optimistic, as we are giving away this product for free after all:

  • 4.68M users
  • 2:1 tie ratio
  • 2.34M users download our F2P XBL game

Great stuff! Now let’s see how this group monetizes using some numbers from the wild. 5-10% of users ever pay for your product. Sometimes it can go as high as 15% or as low as 0% (of course), but we’ll be optimistic and assume 10% for this calculation.

  • 2.34M users
  • 10% ever pay
  • 234,000 paying users!

Hold up though. We need to measure the active player base, not the amount of people who ever downloaded the product. This is hard to do, since your monthly uniques might be high at first, but decay over time as voyeurs lose interest. But let’s assume your uniques/month stabilizes at around 10% of your registered user base (aka the 2.34M users who initially downloaded the product).

Conversion rates are more accurately based off your uniques/month than they are your total user base. Puzzle Pirates has about 30,000 active paying users on 200K uniques/month (and a total “registered user” base of nearly 3M). So Puzzle Pirates is monetizing 15% of its monthly uniques. So our monetization might look like this:

  • 2.34M users
  • 234K uniques/month (10% of users who downloaded the game)
  • 35K paying users

That doesn’t sound bad though, does it? Now let’s look at the lifetime ARPU from each of these players. We’ll continue to use the casual MMO Puzzle Pirates for a data point here, with their $100 lifetime ARPU per paying user.

  • 35K paying users
  • $100 ARPU per paying user, lifetime
  • Average user lifetime in Puzzle Pirates, 2-4 years
  • $3.5M in revenue over 2-4 years

Ugh. That’s 2-4 years to hit $3.5M in revenue on a product that, if you’re not a small, furry animal like Three Rings, might cost you low 7 figures to develop. That level of profit might be a respectable contribution margin on a typical packaged product, but not exactly a game changer on the scale of F2P games like Kart Rider or Maple Story.

Also keep in mind that my tie ratio (2:1) and monetization rate (10%) are definitely on the optimistic side, so the real gross revenue figure is likely lower than $3.5M. However, I don’t account for inevitable growth in the 360’s install base, which will of course nudge these numbers upward.

In any case, this is why the really big opportunities in F2P and VIS (Virtual Item Sales) still exist exclusively on PC. With hundreds of millions of net connected PCs, the addressable market far outstrips that of the consoles.

UPDATE: I’m going to blame this omission on how late it was when I wrote this post. I totally forgot to factor in Microsoft’s 30% cut of downloadable content sales (which we’ll assume would still apply to virtual item sales on their console). So not only are your content creation costs higher for a F2P XBLA game (dev kits alone are costly), but your margins on virtual item sales are worse.

So after removing Microsoft’s 30% cut, our fictional product’s 2-4 year revenue forecast drops from $3.5M to $2.5M.


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