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As Star Wars Galaxies first went public, it attracted a lot of interested potential players who were new to the world of commercial massively multiplayer subscription games. I wrote this series of posts to explain why there are subscription fees to play these games. Since then, it's been reprinted several times, and even incorporated into the FAQs for competing products!

On "Pay To Play" Or, MMORPG Business Models 101

I keep seeing this question recur. :) Here we go, guys, more than you ever wanted to know about what costs what, and why you have to pay a subscription fee for massively multiplayer online games...

Once upon a time there were muds (massively multiplayer text-based online RPGs), and they were free. And it was good. They ran on university computers like PDP-11s and early Unix workstations. They usually ran out of student, grad student, or even professor's accounts, and sometimes they were sponsored by the university's comp sci department or some such. The people who ran them did so out of the goodness of their hearts, and often put in many many hours a week. In the geek world of those days, that was good--it even looked good to other geeks when you put it on your resume. Why isn't the world still this way? Ah, the good old days... ;)

Fast forward--muds now often run on mudhosting services, where they pay a site provider for disk space and bandwidth. Many muds are abandoning the original licenses the software originally had, because the licenses precluded making a profit in any way. Muds selling t-shirts, doing fund drives, and even charging has become common. Over in another part of the Internet, some siblings of muds have become commercial. Running on online services most of you don't remember once existed, with names like The Source and GEnie and QuantumLink, these other games charged users. By the hour. Like, over $10 an hour. Seriously. Per-minute charges, in some cases.

Then you get to the present day. What happened? Well, some execs decided to launch a major massively multiplayer game at a flat monthly fee. And now everyone does the same.

How did all of this happen? The answer is simple. The basic building blocks of the Internet, which used to be fairly freely passed around a small community of hardcore computer scientists, have become commodified. These days you'd be hard pressed to find a university that would sponsor a mud and let it run on its Unix machines with unlimited processor, hard drive, and bandwidth usage. Heck, bandwidth is scarce enough that some time ago, Australia banned muds. From the entire continent. I kid you not.

Here's what the big costs are in running an MMORPG:

Those are your initial investments. Oh--forgot, there's the standard costs involved with getting a game into your hands in the first place (packaging, the monies charged by distributors, the monies charged by stores to put your product on a shelf--did you know they charge publishers for that?)... but we can skip all that for now, since it isn't applicable to the monthly fee.

Now, if you are successful, you can make back your initial investment off of box sales and off of the first few months of monthly fees. Notice that already the monthly fee starts to matter. ;)

Now we get into the meat of the matter--ongoing costs.

Assuming you live in the US, you are likely paying someone around $20 for the privilege of tying up some wires or phone lines and using up some bandwidth. In normal usage, you're not using it all that much--odds are that even if you have a cable modem or ISDN, that you're not doing bandwidth-intensive stuff all the time. In fact, if you DO have cable, I suggest you go check right now and see that your user agreement probably prohibits you from doing bandwidth intensive things all the time. In my area, my cable provider says "you can't run a dedicated FPS server on your cable modem," for example.

That's what you get for 20 bucks.

Playing an MMO is probably one of the most bandwidth intensive things you do on a regular basis. It's like downloading a large file, the entire time that you are playing. The key here is that the bandwidth is sustained bandwidth, not "bursty" the way that most things you do on the Net are, like web browsing. ISPs don't like sustained bandwidth, because it means they can support fewer people. They rely on the burstiness to squeeze more people onto the limited capacity of the wires.

Why does this matter to us? Well, simple logic. Let's say that you at your end are using 1k of bandwidth every second while playing our game. That means that we at our end are also using 1k a second receiving what you are doing and sending back what you see. But for you, that's 20andyou′reworriedaboutoneguy.Forus,it′salotlessthan20 and you're worried about one guy. For us, it's a lot less than 20andyou′reworriedaboutoneguy.Forus,it′salotlessthan20 a head, but we have to pay for the bandwidth usage of everyone playing the game.

That right there wipes out a significant fraction of your monthly fee.

Then there are hardware issues. You have to pay someone--actually, many someones--(and these guys don't come cheap) to make sure that the network stays running. Do backups, monitor things, fix whatever goes wrong. These poor guys wear pagers and are on call 24/7. Plus, depending on your setup, these boxes may not be at your office. They may be at co-location facilities. And that means you're paying monthly fees for rack space and for guys there who sit at that facility and make sure all the blinky lights stay on.

That's only a small drop in the bucket of the people costs though. There's an expectation of customer service too. I'll be up front and say that as an industry, we're still figuring that part out. But we already know that it's really really expensive! After all, you can't just go hire a bunch of kids fresh from flipping burgers, train 'em in the game and the customer service tools, and pay them minimum wage. They'll be lousy customer service reps. real customer service people have a multitude of skills, and cost a lot more than minimum wage. You can train people to be real customer service people, of course, but then you have to pay them real money, too. :) So support eats up another huge portion of the monthly fee...

What else? Ongoing development. There's a development team that stays on the game after it finishes. They fix bugs that crop up, and they also add new content. This is an ongoing thing, and it can be quite a large amount of people--not as many as it took to make the game in the first place, but a significant fraction.

[[By the way, just to address the issue--some companies have promised to never charge for an add-on or expansion. We are not making that promise, and I'll tell you why. Making large content additions can require extra team members, which incurs extra cost, of course. But also, having a new box on the shelf means that new people join the game. It's very hard to keep a year-old game on the shelf in this industry (in fact, it only happens for fairly rare hits) but it's an absolute necessity for an online game, whose lifespan is measured in multiple years. It's hard to afford ongoing marketing out of the monthly fee, and it's almost impossible to get press (which drives awareness for drawing in new people) or media attention without a new box. So you make a new box because it comes with these things--which cost money, of course, but then the new box sales help pay for it.]]

There are other miscellaneous costs going in there. Consider the fact that if you call a support guy in-game once and keep him tied up for an hour, you just burned up all the monthly profit we make off of your subscription fee. Actually, you probably burned up quite a bit more than that. We have a direct incentive to reduce the amount of bugs and make the game as easy and trouble-free as possible, because the more you need to call, the more it costs us, and the less money we make...

When all is said and done, if there's no ongoing costs, there's no massively multiplayer game. If you decided not to have a monthly fee, you would lose money before you even launched the game, and never make it back.

Yes, there are online games that have tried other revenue streams. Some matchmaker services have used ad revenue to support the cost. Of course, being matchmakers means that they don't actually run the game--they just pair you and your opponents up, so they don't have servers, customer support people, or bandwidth cost (except for the lobby). But notice that even most of the matchmaker services are gone now...

When all is said and done, the subscription fee is a necessity for this type of game. However, it didn't have to be a flat monthly fee. It could have been hourly, the way that it was for a decade and a half of online gaming. But fortunately, that all changed a few years back. It used to be that online gamers regularly paid hundreds of dollars a month to play their favorite MMOs.

Personally, I think we're lucky to pay what we do these days. :)

I don't know when we'll announce the subscription fee for SWG (probably not for a very long time) but I'm sure it'll be reasonable. Look at it this way--last movie I went to see in the theater, with the popcorn & soft drink, cost me lots more than the typical monthly fee. And it only lasted two hours. And it sucked. :)

What about advertising?

I should have covered advertising, sorry.

In a nutshell, ads don't make money for hardly anyone anywhere on the Internet. Countless businesses have crashed and burned over the last few years discovering that. Pretty much all those matchmaking services I mentioned relied on ads, and well, they're not here anymore.

It takes a very large, very high traffic site to make serious money on ads. And the costs I described are serious money.

"What percentage of our monthly fee goes to bandwidth, to server maintenance, to customer service drastically varies depending on how many people are playing/paying. The costs you mentioned, which are admittedly high, are partially fixed...So while stating that the maintenance costs are high, whether it takes a fair chunk out of everyone's monthly fee or not is dependent on how many people are sharing the cost of the maintenance."

You're right that some costs are fixed and some scale. For example, bandwidth costs scale directly with the number of players (the more players, them more bandwidth used, period) whereas rack space costs, server hardware, etc, go up only with the acquisition of enough players to merit a new server.

Other costs, such as the dev team size, are determined in large part by factors other than playerbase size.

Other costs go up at a rate faster than playerbase growth--customer service is a good example. The more players you get, you get even more customer service calls than you would expect. This is because the larger audience you get, the more you penetrate into a market less savvy about computers--and because each new person has umpteen people to possibly offend. :)

I can tell you that merely increasing the playerbase does not, as you suggest, reduce the costs per head, by itself. Not enough, at any rate. There's always other costs that crop up.

The single biggest things that reduce costs are actually careful design, even more careful implementation, diligent maintenance, and assiduous customer service. This is because careful design and implementation can greatly reduce the bandwidth costs and the customer aservice expenses, and the latter two can also reduce the customer service expenses.

"I've played many mmporgs (eq, ac, uo) and all of them (uo being the least severe) are a bunch of money hungry b@stards. Lets say the initial sales of an MMPORG are a million copies over a span of 2 months, lets say they charge a very meager 40acopy..Thats40 a copy.. Thats 40acopy..Thats40 million.. now you tell me... how does it cost even a fraction of that to develop a game?"

Your figures are way off, but that's understandable, since few people outside the industry actually know how the numbers work. There's a great article on Gamecenter which describes how it works.

There's less than 30 games that have ever sold a million copies. You'd recognize every single name (and a substantial amount of the list is from our friends at Blizzard :) ) A game that sells a half million is a huge hit. In fact, a game that sells lifetime 250,000 is doing really, really well. The vast majority of games released do not break 50,000 units, and the vast majority of games released do not make back the money it cost to make them. To my knowledge, only two MMOs have ever sold over 300,000.

A 40boxontheshelfhassomanyhiddencostsit′snotfunny.Betweenthedistributor′scut,theshelfstockingfees,thecostofgoods,etc,thatboxlikelyonlymakesthepublisher40 box on the shelf has so many hidden costs it's not funny. Between the distributor's cut, the shelf stocking fees, the cost of goods, etc, that box likely only makes the publisher 40boxontheshelfhassomanyhiddencostsit′snotfunny.Betweenthedistributor′scut,theshelfstockingfees,thecostofgoods,etc,thatboxlikelyonlymakesthepublisher15-20. And if the publisher isn't also the developer, then the developer gets even less than that. To get on the shelves at the end of the aisles at a Best Buy or similar store costs tens of thousands of dollars each month, which comes out of the publisher's pocket.

In practice, many companies view the risks of doing an MMO, which has a much higher upfront cost, plus huge ongoing costs, to be too risky. This despite the fact that making money off of standalone games is a massive roll of the dice (one estimate had over 7,000 games published last year, with only around the first 700 actually making any profit). MMOs with subscription fees provide sustained revenue month after month, but at a much lower profit margin than what you'd get for a hit title that sold the same number of units. Companies that have proven expertise in landing titles in the top ten may very well view creating a top ten title as a lower risk (financially speaking) than making an MMO despite the "guaranteed" income an MMO provides. I once did a detailed breakdown on why that is in a newsgroup post in comp.sys.ibm.pc.games.rpg, which you can probably find with a search on Deja.com.

Now, I'm not saying that we're not in this to make money. Of course we are. But we're also in it for love of the genre--we do this because MMO is our passion. Because lemme tell ya, it's a lot easier in many ways to go do something else. :)

"Is it better business in the long run to try to squeeze out profits in the short term, or to build an extremely loyal customer base by treating them fairly... and trade them up to games as they come out?"

I'll say it flatly: these games could not be run, period, at all, if there were no fee. In fact, many in the industry believe that the current monthly fees are too low (check the editorials over at www.happypuppy.com, under Biting the Hand, for an example, or click here andhere for part two.) because they don't provide enough margin for sufficient customer service.

Battle.net is, as you say, a complete tangent. It derives its revenues from ads, as you say, but also incurs significantly less costs. There's additional information regarding the costs there and how they handled that expense that I am privy to but which I suspect they wouldn't want me sharing... suffice it to say, it's a bad, bad example for comparison on many levels.

I can't disclose the true costs for running these games because keeping those costs down is one of the key competitive advantages one company has over another. :)

You state that

...even given a proficient level of CS, any significant addition of content in EQ necessitates buying an expansion to foot the bill of development of that content(much as the original $50 cost of the "Box" pays for initial development... as an aside, I'll let you know that I footed this bill twice as you forced me to buy Kunark as well instead of providing it adequately as an expansion) obviously our month subscription pays for maintenance... not any "Live" features...

I did go into why release expansion boxes rather than just give away that content. Yes, you do get Live features with your monthly fee. But doing something as large as a Kunark does take more funding.

You cite

TV is free, radio is free, Icebox.com etc is free, newspapers lost money on the 50 cents they charge you and make it up on advertising revenue.

I don't know whether Icebox.com is making money, but I do know that the huge dot.com shakeout you're seeing now owes itself in large part to the fact that advertising-supported businesses on the Internet are dying left and right. It is not proving to be a viable business model for the vast majority of sites--much less for a game.

Lots of historical notes on this one! * Since this post was written, I believe Icebox has folded. So has Gamecenter, so I don't know if the link above will work indefinitely. * Also since then, I have learned that it's a completely false rumor that Australia banned muds. It never happened.