Crude business case look at this, and how it coulda/woulda/shoulda gone down.

I hate it when large corporations completely bungle the execution of what may have been sound business decisions.
From the August corporate financial report, NC revenues have bounced between 166B and 138B over the last 5 quarters, with most recent of 146B. However, Net Income and Operating Profit, with relatively flat revenues, have dropped dramatically each quarter, from ~42B in 2Q11 to a loss of over 7B this quarter (all figures KRW, not USD). It's a "we're going out of business" bar chart.
The NA market is about 5% of sales and CoH is about 2% of sales. Bottom line, NC is in a spot where they saw the need to do something about cost-cutting, and CoH landed in the cross-hairs.


Crude analysis:

Revenue: financial report states 2,855M KRW, converts to $2.53M per quarter, or about $10M/yr in CoH sales
Costs: 80 staff (widely quoted) @ average salary of $70k/yr (complete guess on my part, no idea what the mix of personnel or salary structure at Paragon actually is/was) plus fringe of 40% (pretty common across various industries, so I suspect it's in the ballpark) yields $8M/yr to staff the joint.
Other costs (rent, utilities, server maintenance, insurance, kitchen sinks, whatever) somewhere between $1M to $3M per year, assuming my numbers above are close. Why this range? Lower, and COH would be profitable enough to either justify keeping open, or easier to sell. Higher, and it would have been losing money and we wouldn't have seen all the effort in i24 and other stuff in development.

So for sake of argument, let's assume the math doesn't make sense to keep CoH open. NC decides to stop taking in all revenue, and cuts all personnel costs. It looks like they are giving up about $2.5M in revenue (ignoring long-term subscriptions, no idea what that is) to save $2M in personnel costs. Even if the salary is double my guess, and they are actually making out by giving up $2.5M to save $4M, that $1M isn't going to return them to profitability.

The intangible in all this is the big black eye NC is getting in the gaming market. I wish there was a way to quantify the reduced revenue they'll be seeing over the next several years as potential customers avoid them all together, or are more tight-fisted in investing in games.

Accepting the plug is destined to be pulled, they should have gone in to Paragon and said "Thanks for your dedication, hard work, etc. CoH isn't cutting it financially, so it's going bye-bye. You've got 3.5 months to:
a) find another job, and we'd like it to start after we close the doors here
b) plan and execute The End of The World as We Know it
c) code up a single-player version of the game, hell just the map without any mobs or NPCs, to sell for $5 or $10 bucks. Players could download this and transfer their toons, so a couple years from now they could pull out their favorite 50 and fly around just to reminisce."


My preference would have been for a ginormous Coronal Mass Ejection or meteor strike or some other unavoidable cataclysmic event to destroy the planet 12/21/12 and prove the Mayan calendar wackos correct. In the meantime, every hero/villain with a grudge would come invading to even the score, and Rikti or other aliens would come to harvest everything they can before Earth is Gone.
Hell, they could have even done some NPR-esque fund drive, under the guise of "we're building a giant force field shield to deflect the CME/meteor, and players can buy a generator to help the cause". Donate enough, and you get a cool new Nuke-type emote where you vent a huge cloud of sparkly gold dust from your backside.

In the end, the financial difference between my suggestion, and the way NC proceeded, wouldn't have made a drop of a difference to shareholders, but IMHO would have done a great deal for player loyalty with other NC titles, and for their reputation as a place to work within the developer community.

As I stated in other posts, it doesn't appear to be a profit issue or they believed they could get out of the red by axing this game but more of a better return on investment somewhere else to not getting the game to the studio isn't developing IP that NCSoft can leverage in their primary markets.

In 2009 the game's revenues dropped inexplicably in six months to nearly half what it was before. Revenues are on a slow downward trend but it seems we have a steady set of loyal "regulars" that would be willing to subscribe indefinitely. What we don't have is growth and it may be as simple as that.

What bothers me and most others is the sudden yet inevitable betrayal. That the hammer came down so quickly that there's been no coordinated PR effort. It took NC Interactive a week to take down all of the "click here to buy" and "on sale now" info off of the CoH homepage while the NCSoft game and corporate websites still show CoH as a proud member of their gaming lineup and we still don't have any word about compensation or refunds. You would think those details would be part of a sunset a game business plan in place before you announce the end. It seems more like Seattle showed up to work Friday morning and found a voice mail message from Korea telling them to shut down CoH and they'll work out the details later. It's almost as if some underling was assigned the task weeks ago, remembered at the last minute but still hadn't gotten around to prepare a sunset plan and is now back dating everything to CTA.

Profitability doesn't seem to be any part of the equation here. As you allude to they could have a) cut costs without ending the game, b) increased profits by reorganizing, or c) ended it with much fanfare and to do.

a) lay off half the staff for instance and keep the game going. It would slow the dev cycle, but we've been there before and many would still keep playing. If the salaries are as much as you're suggesting that would save big bucks and not lose them much revenue.

b) more revenue... they could've bumped subs a couple bucks a month. Given our current situation, I'm certain the vast majority of players would have agreed to an increase. They could have consolidated servers. Cut the server numbers in half. Less operating and maintenance costs. Or they could've just sold the IP. Make millions on the that and wash their hands of the expense to develop and operate. Afterall, CoH doesn't fit their plans anymore and is such a small market share it's no threat to their other enterprises.

c) fanfare... hey thanks CoH team and players. Unfortunately we need to move in another direction. I know this sucks, but we want you all to enjoy as much as you can before the doors close. We're planning lots of fun activities, give-aways, and events to reward your 8 yrs of loyalty. Afterward, we hope you stick with us to enjoy one of our other fantastic NCSoft games.

Instead we got d)... a big **** you and see ya later. If you stick around for our other games great. If you don't, oh well. Doesn't really matter what you did for us the last 8 years. We're moving on.

What I find most amusing about this entire affair is that suddenly everyone is an expert in finances, business, and microeconomics.

Better than just being a curmudgeon.

I wonder how changing the sub fees from $14.95 a month to $19.95 a month would affect things.

Loyal fans seem pretty much determined to keep subbing and a 5 dollar hike isn't so much that it would chase off many (I'm speaking as one of those fans). Then again, maybe it might. Keep in mind though, in the years that have passed since the game launched, going up that high would actually keep pace with inflation.

It is odd that the knee-jerk reaction was just to shutter things up. If someone has a commodity that sells but isn't making enough profit after overhead costs are accounted for, then they up the price of the product. The gaming industry seems to have the mentality that it's best to just stop selling. It's a strange beast, but I can understand the rationale behind the decision. Personally, I'd try charging a little more on sub-fees before calling it a day.

Of course, this seems to fly against things I've stated before in regards to micro transactions. I've found NCSofts prices for the paragon market to be a little too high. But I think you have to work with buyer mentality. If I want to buy the small things, I want small prices. If they feel like they cost too much, I'll just save my points and buy less often (therefore buying points less often). But if all the small things cost less, I'm actually more likely to buy them up more. And then I'm buying up more points to get more of the small things.

It's like when advertisement tells you you can save more with the more you buy. It's a lie, but people love good deals and so they spend their money anyway.

But I'm no economist, so take that as you will.

My guess is that at $2.5 million per quarter they were in the black.

In my experience running a 20-25 man software company takes somewhat over a million euros, so somewhere in the $1.5 million/year ballpark. I would expect as similar number per quarter for Paragon Studios.

This leaves them with bringing in somewhere in the $0.5-1 million dollar per quarter in profits.

That's a very respectable profit margin if that calculation is correct even if the number doesn't make a big dent in the total NCsoft portfolio.