A Business Focused View of NCSoft's Actions

This is worth reading:

http://mecha-eng.com/308/

Interesting stuff.

Thanks, GG. Posting it to my Facebook boycott group and getting it posted to GW2 and NCSoft West pages.

I got a Facebook posting ban for 'spamming' their pages by posting something nasty every day. And I'm PROUD of it.

interesting perspective from an engineer.

But it does kind of reinforce a point that I've been chomping around in the old grey matter: NCSoft are effectively telling its shareholders "You're taking a 2% pay cut because we can't be arsed"

"You got to dig it to dig it, you dig?"
Thelonious Monk

I wonder if posting this directly into an email to one of the addresses that TonyV provided would get their attention?

Great article!

Just in case you wish to post the text directly into an email, here's a version re-formatted for basic e-mail purposes. (URLs have been removed from text links and posted on their own within the body of the article. Bullet points have been changed to dash marks for ease of comprehension and universal formatting.).



INDEPENDENT MARKET REVIEW: NCSoft and Paragon Studios Shutdown

Posted by Mecha at September 16th, 2012

INDEPENDENT MARKET REVIEW

NCSoft and Paragon Studios Shutdown


September 15, 2012

www.mecha-eng.com


Disclaimer

The following is a cursory, independent, white paper review, based on publicly available information, on the potential ramifications of the NCSoft execution of the closure of Paragon Studios. The review is intended for public distribution to all interested parties. The report is highly speculative, and cannot attribute all factors. As such, it should not be used to make significant decisions on its own.



Summary

NCSoft continues to be a major player in the gaming market, especially in the Eastern Markets, showing the equivalent of $146,000,000 in Q2 sales alone.

The Western market is a minor one for NCSoft (less than 6%). Its handling of the shutdown of the City of Heroes (COH) franchise, operated by Paragon Studios, has given the impression of poor judgment in dealing with that market. Its actions have resulted in a series of events creating negative press that has had a disproportionately large effect on NCSoft interests, which could have been mitigated or avoided.

These actions have likely weakened NCSoft’s standing in the Western market, for the short term, and will likely hamper its ability to introduce and maintain titles in this secondary market in the short to mid term. Further, NCSoft has taken no public action to mitigate the situation, while consumer reaction has taken a strong foothold in industry related and general news media, effectively unchecked.

All of these factors combine to give the impression of either a lack of direction in the Western market, or a lack of commitment to the same, indicating proactive measures by competing firms could be especially well timed.



COH Overview

City of Heroes launched in 2004 and has remained a dominant product in the Superhero themed MMORG realm throughout its life cycle. Most notably, it has maintained a substantial foothold in the US market, while major competitors, such as World of Warcraft, were introduced. Recent, Superhero competitors have not been well received in comparison.

The City of Heroes franchise was purchased in November 2007 by NCSoft from Cryptic Studios. In June 2011, the game was switched to a hybrid free to play model.

Without significant investment in advertisement outside of the immediate player population, City of Heroes maintained stable revenue of approximately $2,500,000 quarterly for the last 8 quarters, appearing to have reached a stable level.

http://mecha-eng.com/wp-content/uploads/2012/09/coh.png




Extensive community outreach

Staff at Paragon studios have engaged in a strong outreach program to the consumer playerbase, and have been highly successful in building subscriber loyalty. Further, the control of the individual player over their own COH experience, evidenced in character customization tools, player run base designs and player created content, has created a sentiment of ‘partnership’ between the playerbase and development studio.

Playerbase outreach efforts have also grown from inside the game, involving several charity related programs, started by players who began communicating inside the COH game.



Consumer Reaction

The reaction to the closure announcement has been overwhelmingly negative in the Western Market. Within two weeks, petitions against the closure had reached over 18,000 signatures (http://www.change.org/petitions/ncso...ity-of-heroes#). Articles and commentary widely expressed sympathy to COH players and Paragon Studio staff are found in number across much of the gaming industry websites and blogs. The event has garnered mainstream media attention at CNN (http://ireport.cnn.com/docs/DOC-840174). While the playerbase continues to raise awareness and to date, no official response from NCSoft has been made to acknowledge or address the consumer reaction.

In particular, three major factors seem to be fueling public reaction to the closure:

-- The immediate closure of Paragon Studios and resultant immediate lay off of all staff has struck a resonance with the predominantly American market. Aside from feeling a sense of partnership with Paragon staff, the playerbase also empathizes with the struggling economic times in general.

-- The continuing work on new expansions (i24) and release of new powersets and in game content led to confidence in the health of the game. Many players came back or subscribed to VIP status as a result of these efforts, and felt particularly mislead by the abrupt and unpredicted closure announcement

-- City of Heroes has developed a very strong social network, and people seem to react to the loss of that community as much if not more than the game itself. COH is a game which is accessible to a wide range of ages, disabilities and ethnicities, due to its ease of operation, low violence content, and gradual learning curve. COH almost certainly benefited from a nostalgic factor, which is also being seen in other games.



Mischaracterization of Western Market

Numerous factors seem to indicate that NCSoft is out of sync with the player demographic in the US in general, as well as the local population of City of Heroes.

Despite a steady influx of younger gamers which remain as foundation population set to the gaming industry, many adults have continued to play, creating a large population themselves. These tend to be more loyal subscribers, with larger disposable incomes and posses a range of professional skills they bring to bear in internal game organization (guilds, events, etc).

City of Heroes in particular, capitalizes on the West’s love of the Comic Book Superhero, which is a major industry unto itself, considering the Marvel (Disney) and DC franchises. This is a genre that many can trace back to early childhood, and the hero concept is deeply embedded in the American consciousness.

Finally, there is an expectation for a Return on Investment when it comes to loyalty from many gamers in the United States. Players, who have established long term commitments with the game, expect a certain reciprocation of loyalty from the parent company. Once example is SOE’s Everquest, which still offer servers with content updates for dedicated players despite its 13+ year age.



Consumer Confidence

Confidence in NCSoft has almost certainly slipped in the Western market as a result of the City of Heroes closure. The company is considered ‘out of touch’ with its market. A percentage of players are reluctant to commit or try new NCSoft products without the security of a reciprocation of loyalty. For example, Sales of Guild War 2 have been negatively impacted by players who do not want to ‘invest’ time into an NCSoft product in light of the City of Heroes closure, feeling the game could be removed without notice or warning. The degree of this effect remains to be studied in depth.



Leadership

Little if any showing of a proactive effort to mitigate the negative publicity being generated has been shown on NCSoft’s part publically. While it is nearly certain attention to this is being given internally, the lack of outward leadership gives the impression that NCSoft either does not care to, or does not know how to address the issue. This lack of attention to an event resulting in a falling consumer confidence, however niche of a market it comes from, is baffling from an investors perspective.

The subsequent announcement of the release of Sword and Soul also gives a very confusing message, to both players and investors. By ending a stable product catering to a target demographic and introducing a new product not aligned to that market in its place, NCSoft leadership could be interpreted as showing a marked lack of innovation and even competency. Instead of recognizing the value of an existing product, NCSoft leadership seems determined to push existing formulas, regardless of the market demographic.



Legal Liability

While NCSoft is covered largely by EULA statements, there are potential avenues for cases for fraud being brought against NCSoft in the case of long term advance subscription purchases. By allowing for Paragon Studios to continue work on expansion content, heavily advertising that content, and releasing new content, it is reasonable to assume many paying customers were doing so with the expectation of being able to play said content. If it could be shown NCSoft intended to do this in advance intentionally allowing Paragon to continue with the expectation of offering time on new releases (example: Guild Wars 2) as compensation, ‘bait and switch’ related fraud charges might be successfully applied in US and UK courts.



Conclusion

For reasons that are unclear, NCSoft seemed to undertake an approach for the ending of the City of Heroes franchise without a solid approach to sunsetting the product. Instead, it seems to have decided to simply ‘pull the plug’, without much preparation for consumer reaction. Consumer loyalty, in what most other scenarios would be considered a tremendous asset, has been turned into a liability though actions which continue to paint NCSoft in a negative light.

The overall behavior by NCSoft appears to be reactionary, potentially indicating either an internally localized lack of experience or a wider lack of direction when it comes to ongoing interaction in the Western market.

Internal efforts to address the situation may be occurring, but at this stage it appears the fire is being left to burn, in what can best be described as a clumsy ‘scorched earth’ move. At this point, NCSoft may be looking for a win-win exit strategy to this situation, or may simply be willing to write off the entire Western market place, both scenarios being potentially leverageable.

The overall situation created by the NCSoft decision is complex, involving international factors, a complex market place and multiple stakeholder factors. The situation is time sensitive, in that public reaction efforts continue to gain media traction, while any potential salvage efforts from NCSoft could be less effective as former Paragon Studios staff disperse into the workforce. Additional, expedited research on the topic is recommended prior to any outside investor actions.


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Hope this helps.

good article.

I respectively disagree with his assertion that our closure would hurt NCSoft in either the short or long term. We are a very small segment of even the NA MMO gamer population. The vow to never buy another NCSoft title is hardly a monolithic stance among us. Most MMO gamers realize that MMOs close, although true not as many that have been around for as long as CoH. While our organized efforts have been well publicized by MMO news sites, the shear amount of daily news quickly scrolls us off the front page. Same is true with the majority of celebrity re-tweets and posts on their websites.

It's not like NCSoft is powering their games with the hearts of dead orphans. There isn't some big social concern that would rally non-players of our game to our cause and join an NCSoft boycott. And when Blade & Soul and WildStar finally comes to the US, several thousand gamers, most who wouldn't be interested in those games for one reason or other, vowing not to buy it won't even register. It's the inverse of the pirating argument where publishers believe that every pirated equals a lost sale. Vowing to never buy from someone when they don't have anything you wanted anyways isn't a threat. And not buying into a wildly popular new game from them such as GW3 impacts the revenue that game is generating insignificantly enough to not be noticed.

The problem is since we've lasted as long as we have, we believed that this game would be treated like Ultima Online or Everquest as one of the grand old, historically significant games that are limping along with a loyal player base. Yes we feel betrayed. Yes we are grieving at the loss of a world we routinely escape to but in the grand scheme of things we can barely make a ripple in the ocean of available revenue that all MMOs are fighting over. We can hope some benefactor will come forward and takeover from NCSoft and reconstitute at least part of the Paragon Studio team. But if you think our sudden closure or our vow to never spend money on another NCSoft game would actually harm them in someway, is wishful thinking at best, delusional at worst.

That was an interesting article, but I think the lack of authority in support weakens its impact considerably. Really, it could have been written by a fan of the game and it appears that it was.

After reading the linked article, my first thought is "Okay, either a regular COH player has a day job as a tech industry analyst, or this analysis based a lot of its research by following links on the forums."

The closing of COH is going to hurt MMO's in general. Not just NCSOFT's titles.

As for me I have no interest in getting involved in another MMO. $15 /month comes out to $180/year. That's a lot of used xbox games. And when I buy those games they are my property. I can turn around and sell the games and buy others. Where my coh toons and the billions I have made are the property of NCSOFT.

The fraud statement in this article is interesting. I wonder if there will be a class action lawsuit in the future.

I think the main problem is that the whole thing was not logical.

The logical thing to do with a game this old and with this much history behind it (and one which was still under active development) would be to say to the devs "okay, guys. We're going to start sunsetting the game. We're giving you six months to push out the update you're working on, and then one more to wind everything down. Finish anything under active development, scrap the ones you're planning." Then actually let them go at the end of February, after they've had time to give the game a fitting "end" to its main stories, and then close the game entirely at the end of May.

Yeah, it means the whole "Coming Storm" Storyline would have to be cut very short (or even dropped altogether), and we'd still not have gotten all the Incarnate slots most likely, but it'd be a respectful way to close the game.

What they did, however, was say to the devs "You're all fired. Get out." and say to the players "we'll give you your money back for things you bought in the past week or two - you know, when you thought the game would be around for a long time to come - when you pry it out of our cold, dead hands. Thanks for the free cash, suckers!"

What's the logic there?

What hurts about this article is the reminder that the online petition still hasn't even hit 19,000 names yet. A couple hundred thousand might turn heads. We need to link that petition in a lot more places.

Well said Atlantea!