Rule of Acquisition 45 says, “Expand or die.” With all due respect to the Grand Nagus, that’s not entirely correct. It should say, “Expand or fade away.” I say this because of an EVE mail I received in response to my last post.
I just read your blog “Building Better Worlds for Whom?”. I wanted to send you a message to let you know that I agree with almost everything you said in it and I liked the blog. I hope the devs read it but I’m fairly certain that they have their minds made up.
The one thing that I do take issue with is your comments centered around companies needing growth and outside investment. I think the perpetual growth model has gotten this world in the mess that it’s in and venture capital has ruined pretty much everything it’s touched.
I remember back when CCP passed the 300K subscribers mark. At $15 per month that’s 4.5 million dollars per month. If you can’t provide a fun game to play for 4.5 million dollars per month you have a problem.
I’ve seen too many games die chasing after millions of subscribers when they could have lasted long-term with hundreds of thousands.
Let’s discuss economics 101; specifically inflation and time value of money. For those who already understand this, you may want to stop now. Here’s the tl;dr of this post if that’s the case. If CCP doesn’t increase revenue, they actually lose money over time. Their operating and development capital will continuously shrink until they can no longer give players the enhancements they want. At that point, players will lose interest and subscriptions will begin to fall, further exacerbating the loss in currency value with a loss in revenue. After that, it’s an economic death spiral.
Eve Online is just over a decade old. For most of that time, subscriptions to EVE Online increased at more than comfortable rates. Over that last few years, non-Chinese subscriptions have flattened. The vast majority of subscription growth in the last few years came from the Chinese server, which everyone knows runs separate from the rest of EVE Online. But for the purposes of this post, I’ll use the total numbers. I’ll also make one more assumption. I will assume everyone pays $15 a month for EVE Online, and $15 has always been the price of a subscription. So let’s did in.
How much revenue does CCP get for EVE Online subscriptions? That’s a fairly easy thing to calculate given the assumptions I outlined in the paragraph above. The amount CCP brings in monthly is equal to the number of subscriptions multiplied by the cost of the subscription. If there are 500,000 subscriptions costing $15 a month CCP’s monthly income is 500,000 * $15 = $7.5 million. That’s a lot of money.
Now, let’s imagine that 10 years ago CCP had half a million subscribers. What would they have made at $15 a subscription? You’d be correct if you said $7.5 million dollars. You’d also be wrong. There has been a decade of inflation over the last 10 years. Even during the Great Recession of 2009 there was at least 1% inflation worldwide. Otherwise they could have called it a second Great Depression. That did not happen. Now, anyone who’s had college economics knows what I’m going to ask next. How much in today’s dollars would $7.5 million be worth? Fortunately there are plenty of web sites on the Internet that will calculate the time value of money for us. I picked this one just because. Here’s the result.
$7,500,000.00 in 2003 had the same buying power as $9,519,112.77 in 2013.
Annual inflation over this period was 2.41%.
Now, I know CCP didn’t have 500k subscribers in 2003. This is a thought exercise. Let’s assume they did. If they had that many on 2003, and they sunk all of that $7.5 million into EVE Online development, they would now, today, need to spend $9,519,112.77 to match what they did back then. That’s an increase of 21.2%. If you equate that to subscriptions, there would now have to be 606,056 subscriptions to EVE Online to match the buying power of 500,000 subscriptions 10 years ago. That is certainly not the case.
Now I know a lot of you are now thinking, “but there has been positive growth in subscriptions for most of the past 10 years. CCP is making more money now, and doesn’t have a time loss of value issue.” Do you know that for a fact? Let’s find out, and since graphs are alway cool, I’ve done a couple to illustrate whether CCP has an inflation problem.
Here’s a graph of EVE Online subscriptions taken off Wikipedia.org:
I’ve snipped it out so the image includes the number of subscribers for each year. I’ll be using those numbers to replace the 500k subscription assumption above. The $15 a month charge per subscription assumption I will keep. Next is a graph of how much money those subscriptions brought in, per month, adjusted for inflation since 2003. In other words, the amounts I’ll show aren’t the actual number of dollars paid to CCP, but the value of what they got after inflation took its toll on the amount.
That’s quite a gap growing there. I kinda reminds me of the image to the right. I think anyone can see that’s not good. But, it is still growth. However, let’s look into the future. Let’s assume CCP has attracted all the gamers who enjoy gritty, in your face, hard as hell, PvP action. Let’s assume they will not have any more Chinese servers bolstering their official subscription numbers. What’s the revenue of the next ten years look like? To understand that, we need to predict future inflation, and that’s impossible (for me, though there are some really cool economic models out there… sorry, tangent.) Fortunately we can look at the last decade and make a fairly good assumption about what inflation will do. Inflation will remain about the same. The calculator I choose showed inflation to be 2.41% on average over the past decade. Let’s use that average for the next 10 years and see where CCP’s revenues are if subscriptions remain flat, shall we?
Let’s look at it a different way. What is the investment per subscription CCP made on a given expansion? For me the best expansion ever was Apocrypha, released on March 10, 2009. That was when wormholes first appeared for those who need the reference. In 2008, the year that paid for that expansion (and the year I started playing EVE Online,) CCP brought in $36 million if you take the $15 monthly subscription fee as gospel. If all that revenue went into the expansion, that was a $180 value to each subscription. If they spent that amount of money on an expansion today, because of inflation the value per subscription would only be $162, regardless of the number of subscriptions. How long before players start to feel they aren’t getting enough return value for their money?
One last thing I’d like to ask. Who pays $15 a month to play this game? I don’t.
This has been a fairly rudimentary look at why growth and expansion is necessary for any company to survive. There are many more variables one could look at, most of them negative, but the gist of the issue is over time money loses value. This is why we put retirement investments into 401k plans and not mason jars. I agree with the capsuleer who emailed me when she pointed out there’s a problem if CCP can’t provide a fun game for $4.5 million. Next year they won’t have $4.5 million if the status quo maintains. They’ll only have $4.5 million times 0.9759%. And each year thereafter it becomes less. Without growth or expansion to offset inflationary loss, investments in the game dwindle, until eventually it won’t be enough to give players what they want. Then the players will move on. You can see the light at the end of the tunnel when that starts to happen, and it flickers with the red glow of a bonfire, not the steady brightness of award night.