A Business Focused View of NCSoft's Actions

Foxed: Investing time into a show that will be cancelled even though it has more viewers than another show.

NC'd: Trashing a game without a public comment and leaving it's fans without a suitable replacement.

Two new words I'll be using.

NCSoft has never sold one of their IPs before, but they've also never been $6 million in the red before, either. Circumstances are different, so we can keep our fingers crossed.

Their stock is still dropping. It spiked right after GW2 release, but even 2 million sales can't stop the bleeding. Not sure if the decline is related to the bad press they've been getting from Paragon Studios' closing, but if it hits July's low I can see more cuts in NCSoft's future.

I especially liked the stories that iPhone 5 sales would have a noticeable effect on the economy. You know why they only sold 5 million phones in 3 days? Because they only had 5 million phones to sell.

The original Guild Wars, according to NCSoft, sold a total of 7.1 million copies boxes over it's lifetime.

As for NCSoft's price, check out the 3 and 5 year charts, they are still up over that period. Their stock hit an all time high about a year ago and has pulled back since then. It's dropped a lot after their Q3 2011 report which showed sales down a lot. The next largest drop came with the Q1 2012 report the showed operating profits hadn't bounced back up from a dismal Q4 2011 levels.

One of several odd things about the decision to close CoH is that one quarter NCS is funding the growth of the game -- new content, new powers, new zones, etc. -- and also running a "secret project" at Paragon Studios which may have employed 40 of the 80 employees. The next quarter financial pressures force cuts. So NCS shuts it all down? Very odd.

If, as many report, CoH was profitable on approximately $10 million in gross revenue per year, and was also supporting 80 employees, then we could guess that the 80 employees cost something like (and this is rough) $8,000,000 per year, and that only left $2,000,000 for the cost of servers, engine license, overhead, etc.

If this was approximately correct, just firing the 40 people on the secret project would have restored quite a bit of profitability, with no large impact on sales or gross revenues. It would have put a stream of $4,000,000 in annual savings into the pot, pre-tax. By firing everyone, NCS must also have written off the investment in the secret project, which should have amounted to the sunk costs (likely capitalized) from the project. NCS also lost the possible $4,000,000 profit improvement. They take a hit to the balance sheet and lose revenue...why?


NCS' actions in closing the game make business sense in a couple of scenarios. One of them is the scenario in which NCS has such a severe cash crunch that the survival of the whole business is at stake -- but that seems unlikely at this point in time. Another scenario is that CoH was not profitable since the revs dropped in 2010, and NCS has been "carrying" it all this time, trying to get ready for a profitable re-launch centered around the "secret project."

If NCS just ran out money to complete the "secret project," then cutting the game makes sense, in a tough sort of way. Alternatively, if the secret project suddenly turned up some insuperable technical barrier, then again, the actions NCS took make sense from a business perspective.

So all of this makes me wonder...what was the "secret project" exactly? A new game engine? What engines do NCS' other games utilize? Or perhaps the secret project was to take an existing engine and adapt it to the current CoH game, in order to make improvements in graphics or server capacity?

Does anyone know what the secret project really was?

Brillig, you make a good point I hadn't considered.

Maybe closing Paragon Studios had little to do with CoH profitability. If CoH's ongoing income was just 'gravy' and NCSoft was really interested in the new project, then any negative beliefs for that project's future could have justified the closing to them. If in their minds they're paying for development of new shinies and not polishing old products, then they wouldn't care about I24. What they might have been invested in for longterm profits was Project X, so if they felt that project was dead, then they would have pulled the plug.

Call me a sadist but watching NCSoft's stock continue its decline these last 3 weeks gives me a warm fuzzy feeling.

http://www.reuters.com/finance/stock...mbol=036570.KS

If you overlay the last year with their releases, closures, news, Nexcom deal, etc. it makes for some interesting speculation.

So why is their stock continuing its decline after GW2's release and spike? Is there some economic crisis in S.Korea? Looking at global markets I don't see the same picture as NC Soft's drop.

You know what? Maybe this won't effect NCsoft and maybe they will become successful in the future.

Good for them, My money isn't going to contribute to that, However.

Basically between quarterly reports, all stocks trade on rumor, industry news, general economic news and phases of the moon.

Since it's a Korean exchange and GW2 isn't released there yet, it's success has as much impact to them as an American car company's stock when they are getting great reviews and sale numbers for a model that's only available in Europe.

It could also be that the belief of PC gaming as being a thing of the past and NCSoft's penetration into the mobile gaming marketplace isn't happening fast enough in the eyes of investment managers.

Or it could still be part of the sell off related to the Q2 numbers including Aion's large decline that quarter because it was Aion's success that ran the stock price up from 50000 at the start of 2009 to it's peak of 380000 roughly a year ago. Which is about the same time when NCSoft's revenues peaked and profits started to decline until it went red this last quarter.

The stock is near it's recent bottom again, I suspect it'll start going back up in anticipation of NCSoft's Q3 report now that B&S and GW2 have been released.