Why? The Answer is in NCsoft's August 8th Earnings Report

QFT. Won't happen, though, but it would at least help rather than let rumors, anger and such like that fester.

Mike

The August 8th earning report would disagree with you since it says right at the top of PDF Page 5:

So despite Aion's sales outperforming CoH's by 26%, it's still considered "weak" ... That's not reason to be joyful in anyone's book. Granted there's a lot of ways to interpret why NCsoft felt this was a poor showing but its pretty clear that the word "weak" means NCsoft is viewing their glass as half empty and not half full.

700 Million profit? Or 700 million in total sales? That number seems high if it is profit after all the CapEx and the OpEx are figured in.

You're on solid ground up til this point.

Here is where you go off the rails. First of all, you have no idea what the underlying reasons were, so you have no basis to determine whether the decision was right or wrong. Suppose PWE had said that they wanted 50% of gross sales to continue using the engine? In that case, the decision would have been right.

And as for feeling hard-pressed to act quickly - the executives at NCSoft know about these numbers well in advance of their publication. They had over a month to figure out the correct course of action. No one there was shooting from the hip.

Of course executives make mistakes (that's why they're executives! heh). But the fact that they have in the past doesn't automatically lead to the conclusion that they are wrong now.

Also, if there's a shake-up at the top, no, we won't know what happened behind the scenes. We'll just be able to speculate more.

Here's the problem with that line of thinking: City of Heroes was still profitable, and its not hard to find that out. No, it wasn't a massive profit, but they weren't losing money on it. How do you spin that to investors? "Reallocating resources"? Because they canned all of Paragon.

It was a stupid move. Period. It was a knee jerk reaction to a bad quarterly to make it look like something was being done to 'cut costs' that is going to COST them. It's absolutely, bottom of the barrel retarded. There is no excuse for that level of stupidity. I'm pissed off that some monkey in a suit can go "QUICK! I NEED TO LOOK BETTER! FIRE EVERYONE IN THAT STUDIO AND SHUT THEM DOWN, SO THAT WE LOSE MONEY BUT HEY AT LEAST IT LOOKS LIKE I DID SOMETHING!"

Now *that's* an interesting admission... There's only one way you could know the specific timeline for sure.

Ok. Just stop reading the earnings report. You don't understand it at all.

Aion's sales outperformed CoH's by 1173%. Not 26%.

The reason why Aion sales were called out as weak is because they declined 31% quarter over quarter and 33% year over year.

You don't understand the financials being reported. Please stop drawing conclusions from your misapprehensions.

Indeed. You've outed me. I confess - I can look at a calendar.

These are Q2 results. Q2 ended June 30th. The reports were released on August 8th. In the old days, it took weeks to compile all these results and put them in a presentation. But with modern technology, these numbers are available practically real-time in any company.

The remainder is left as an exercise for the student.

Not really. Public companies don't have the accountants close the books and instantly publish them, there's a lot of time for review, cross-checking, looking for ways to present in a better light. (And time to whisper in the ears of friendly stock analysts, hey, don't be so optimistic with your projections of our numbers.) Remember, companies report their earnings based on calendar quarters, so the August 8th report would have been for April through June.

More importantly, while companies only publish their results on a quarterly basis, the top executives are getting updates all the time. I'm sure that well before the quarter ended, they knew it would be a bad number. Maybe not that bad of a number, but a bad number.

So I'm sticking with my speculation. The executives said, OK, it's a bad number, but we can point to a lot of specifics for that quarter and how they'll be all better later. We can keep doing what we're doing, weather it out, and when please God there's a good Q3 number it'll all be water under the bridge. Someone, like Nexxon who just bought 15% of the company (and may have done so relying on certain statements about how the company was doing that don't mesh with a big loss), said "Take action now, or else we'll put in management that will" and needed something decisive.

Or... OK, new speculation. What if they know that Q3 numbers are going to be as bad, if not worse? There will be significant costs involved in shutting down Paragon Studios, they can hide some of their losses by inflating those costs a bit and both be decisively taking action and hiding other problems?

If you search the TESS registered trademark database, shows NCSoft registered "City of Heroes 2" as a trademark in 2010, so it's clear there were plans for it at some point.

I think I am missing something. CoH/CoV is shown as 2% of the total.

Aion's as 28% of the total.

So, CoH/CoV must be at least equal to a fourteenth of Aion's sales right? At least for the 2nd quarter. So I am confused on where the 1173% number you have is coming from exactly.

836037 million Won (roughly $737million) *total* money coming in from Aion since its launch. No costs factored into it.

If it did, then it would dwarf even SWTOR in terms of costs (or the Tabula Rasa debacle of multiple remakes etc etc)

Low sales =/= low profit. At today's exchange rate those reports show that CoH had a bit over 5 million dollars in sales for the first half of the year. Keeping in mind that Paragon studios has had a VERY small staff, do you REALLY think it costs NCSoft over 10 million dollars a year to maintain this game?

because it is the wonderful world of percentages...

To be fair, it depends on which point of view you want to take.

Q2 2012

City of Heros Earning: 2855million Won
Aion Earning: 36367million Won

City of Heroes earnt ((2855/36367)*100) = 7.85% of what Aion did
Aion earnt ((36367/2855)*100) = 1273% of what City of Heroes did

His figure probably comes out from the quick back of the napkin calculations with rounding up and down accordingly for the initial figures.

You're right. I apologize. My bad for the hasty miscalculation. The 26% mention is erroneous.

That said, both Aion and CoH saw a decrease in 2Q 12 sales from 1Q 12 sales (Aion moreso than CoH) but Aion was still the better performer in total sales -- and it outperformed CoH by a wide margin - and yet it is still considered "weak." Based on that comment in the comment, one could assume that CoH's performance must have been considered "terrible" in comparison.

Then again considering that City of Heroes was among the lowest IPs for NCsoft in recent years, one has to ask why did it take so long for NCsoft to shut it down? If the answer isn't "It's because they went in the red this quarter" then what really prompted NCsoft's decision to shut down? There's been no real change in its overall performance from quarter to quarter in the year (it even improved peformance slightly between Q1 2012 and Q2 2012), so they must've known they were carrying deadweight... Were they letting other title's game sales carry the heavy load because NCsoft was always operating in the black?

As an investor, I personally would want to know why didn't NCsoft trim the fat on City of Heroes much sooner and avoid having to dump the IP at all? They definitely had plenty of time to do so as you say. Why wait until the company went in the red to instead dump the IP completely?

If you've got a better explanation than mine to explain this anomaly, I'd love to hear it.

You forget that there's the 3rd party vendor charged to operate the Paragon Market at a separate cost to the dev team's expenses. If the vendor's recurring costs outweighed the incoming sales, then I'd be even more surprised some changes weren't made sooner to now when the metrics went in the red.

Maybe they couldn't...

Remember, just a month or so ago it was announced that Activision couldn't find anyone to take Blizzard... So if not even WoW's reputation could interest a ptoential buyer, do you really think anyone was in the market to buy a smaller, lower-performing IP like City of Heroes in comparison?

Speaking of WoW, I'd be very afraid for the Dev team working on Mists of Pandaria right now. Cause when that add-on hits the shelves, I suspect there'll be a number of layoffs over there as well... (all par for the course in the gaming industry).

Activision's asking price for WoW might be a little higher than anything that NCSoft might ask for CoH.

Good point. The way you worded your original statement, I took it to mean that you worked for NCsoft and were sharing first-hand insight from behind the scenes. If that's truly not the case and you are not (nor ever were) an employee of NCsoft, then I apologize.

Another very good point.

More or less, that's the concern I have after reading the earnings report, factoring in comments made about the future of the MMO industry in Funcom's latest quarterly report, personal experience with managing acquisitions and layoffs, and having read several media reports on why the gaming industry is failing as a whole (and though I may have made the wrong assumption here and there, I'm glad I took the initiative to look up NCsoft's earnings report to discover the company was in the red rather than rely on the well-minded but still fanciful internet rumor mill to guide my thinking). I may not be the brightest bulb in the house but at least I've still got a light on.

No, in my mind, there was plenty of time (and warning signs in the past year alone) for NCsoft to take action and avoid going into the red (which may or may not have curtailed any discussion of dumping City of Heroes)... so why didn't they?

I didn't forget about it. But there is literally ZERO information in any of those statements as to the costs associated with individual games.

All signs indicate that the announcement was as unexpected by Paragon as it was by us. If it were simply a bottom-line issue then the management team at Paragon would have had a pretty good idea it was coming. The abruptness of the announcement and the vagueness of the reason given ("realignment of company focus") have the undeniable stench of corporate politics.

They were not. NCSoft wasted 96.7 million this past quarter to aquire Ntreev Soft, a casual online game company.

They hit the red, but only because they didnt expect some games, especially Aion, to dip in the micro-transaction side as harshly as it did during the quarter.

This does not mean that Aion lost money, it still made much more than CoH, but now they found themselves in the red. It would had been a one-quarter thing, but the laws of bad business dictate you cant let that go without cutting costs somewhere.

In the end Paragon Studio paid the price of aquiring an online mini-golf video game maker.

There are losses for a lot of reasons. If you're spending a lot on R&D and marketing on an upcoming product, that brings down the bottom line even though you expect it to bring in a lot of money in the future. Those at NCSoft may have believed that this was a necessary situation for future success. They may even have been right, but the quarterly reports and use of the stock market as speculation as opposed to investment means that the quarterly results are what matter.

(I could go on for several paragraphs about the stupidity of the focus on the quarterly results and the damage it does to companies, but eh, what's the use. Saving CoH is child's play compared to turning that perception around.)