At the end of part 1 of this article, Cryptic Studios - A Pre Post-Mortem, I promised to look at the reception of Champions Online and Star Trek Online, and how they have affected or will affect Cryptic’s long term fiscal health.
Let’s start with Champions, as it’s been out for nearly five months now compared to Star Trek’s five days, and as such will have a far greater bearing in the here and now.
Champions Online was a complete, unmitigated, financial disaster for Atari/Cryptic; or in the internet vernacular, Epic Fail. I expect this will be one of the precious few times I will be justified in stating something so sensationalistic throughout my journalistic career - so forgive me if I take a moment to relish it…
All right, moment’s over.
Here are the facts:
• These positive effects were partially offset by €14.2 million of research and development write-offs recorded on numerous properties, including Champions Online and TDU2.
That snippet is taken directly from Atari Corporate’s latest H1 (Half) FY2009 earnings which may be perused in full here. Keep in mind, a Fiscal Year (FY) is not the same as a Calendar Year. Atari’s 2009 Fiscal Year started on April 1st 2009 and will end on March 31st 2010. If you read the report and neglect that fact you will be thoroughly confused.
For those of you that aren’t going to bother with the report, don’t worry, there are only three lines that relate to this article, and I’ve already bulleted one above. Speaking of the bullet point above, it’s stating that CO has cost the company close to 20M USD in R&D losses. It mentions TDU2 as well though why I can’t fathom. TDU2 is Test Drive Unlimited 2 (racing game), a sequel to 2007’s TDU1, and as such very little R&D funding would have gone into a turn-around sequel like that. Considering TDU2 already had the engine, assets, and infrastructure from the original, I believe its influence is something of a non-factor.
In contrast, Champions was a from-scratch creation and an MMO to boot. It also spent some serious time in development purgatory-hell as Champions originally started life as Marvel Universe Online (yes that Marvel) before the license was stripped from Cryptic, forcing them to scramble to salvage what they could of the original game. In short, Champions and not TDU2 (or other “numerous properties” that apparently weren’t important enough to mention by name) makes up the vast bulk of that 20M USD loss.
That’s pretty much the definition of failure by anyone’s standards. It also fully explains Cryptic’s stance on the upcoming (and essentially first) content patch for CO, Vibora Bay. The patch itself is relatively sparse in actual content, but that’s not the real contention. It’s not free. It will be sold in Cryptic’s cash shop for an as yet unspecified amount. Obviously, as soon as the Champions community got wind of this there was an uproar. CO players have yet to see any return on their $15 a month subscription payments, an investment that should cover the cost of Vibora Bay*. I don’t want to dedicate too much time to this since we still haven’t seen how this is all going to play out, so let’s refocus back on the earnings report, as it has one final nugget of semi-interesting information to share with us:
• Due to revenue recognition on MMO games and other factors, the company now expects current operating income to be neutral or slightly negative in the second half of 2009/2010, excluding non-recurring items.
• The company has elected to recognize over the estimated subscription period a material portion of the Massively Multiplayer Online (MMO) product revenue, rather than at the time of sale. This revenue recognition decision and other factors have led the company to now expect current operating income to be neutral or slightly negative in the second half of this fiscal year, rather than previously expected at or above breakeven, excluding non-recurring items in both cases.
All right, I’ll admit this part had me stumped for quite a while. It’s easy to figure out what it means (Atari is breaking up the revenue from 6 month, 12 month, and Lifetime subscriptions of their MMOs and viewing them as regular subscriptions) but I’ll be honest, I’m really not too sure why they’re choosing to report their subscription revenue in such a fashion.
The only reason I can think of is that Atari expects the later portion of 2010 to be a lean year. That does jive, as they don’t seem to have any releases that are as high profile as Ghostbusters (sold over a million units in the US alone) or Champions and Star Trek Online.
It’s likely they’re padding their FY2010 numbers since they expect operating losses to increase, basically minimizing the damage until 2011 when Cryptic’s next MMO, Neverwinter Nights Online is rumored to launch (we’ll get back to this in a bit), along with other high profile releases I would assume/hope. Corporate politics. What a god damned convoluted mess.
Still, as confusing as those two excerpts are, they definitely give away a very interesting fact. Atari expects to break even (at best) for H2 FY2009. If in a few months we see that Atari posted a significant operating loss for H2 FY2009 (the second portion of this report should be released sometime in May), we’ll know with absolute certainly that STO underperformed. We’ll know this because from Q3-Q4 (H2) STO is the only high profile release for Atari, with the exception of the Ghostbusters launch in Europe.
Ghostbusters however is a non-factor because Sony will be publishing the game exclusively in Europe for Playstation and thus will receive the lion’s share of the profits. In addition, the monies Sony payed to Atari for this exclusive license are already reflected in H1:
• Finally, US operations revenue benefited from licensing operations, for instance the deal signed with Sony Europe to launch Ghostbusters: The Video Game exclusively on PlayStation in Europe.
Unfortunately, even with this much information, when dealing with a company as large as Atari there’s simply too many variables to use it as a directional indicator towards STO’s perceived sales potential in the present. Shame really, if I knew Atari’s estimated operating expenses for October 1st 2009 to March 30th 2010 I could have made what I believe to be a very good guess on Atari’s tracking numbers for STO pre-orders.
Now then, I mentioned Neverwinter Nights Online as Cryptic’s next MMO project a few paragraphs ago. Technically, that’s a guess, as the actual project is still unannounced. However, I think it’s a damned good guess. Multiple sites broke the rumour back in June of 2009, and from Atari’s buyout report we know Cryptic is working on yet another MMO and has been since late 2008. Still, that’s not really confirmation, nor is it all that convincing.
Personally, I wasn’t convinced until I took a little stroll through this, a summons in the state of New York on behalf of Turbine (developer of Dungeons and Dragons Online and Lord of the Rings Online ) against Atari Interactive. This is a relatively long report with multiple relevant parts, however I’m going to limit myself to one, words in parenthesis are my own additions:
¬ï …and (Atari) took hundreds of thousands of dollars in payments from Turbine, that it planned to immediately threaten to terminate the Agreement in an effort to extort more money from Turbine or, alternately, to free itself from its obligations under the contracts in order to clear the way for the launch of its own competing MMO (Neverwinter Nights Online) service based on the D&D and Advanced D&D intellectual properties.
Long story short, Atari went out of its way to see DDO fail, paving the way for their own competing product. In retaliation, Turbine is suing them for over 30 million in damages.
You folks want to know the real kicker though? Apparently, when Atari dissolved its European arm (which was then absorbed by Namco-Bandai), it sub-licensed the Dungeons and Dragons rights to Namco-Bandai (NB). However, this was a serious mistake. NB is a direct competitor to Hasbro, owner of Wizards of the Coast, owner of the Dungeons and Dragons intellectual property. Understandably, Hasbro was distraught to learn one of their core IPs was now in the hands of a competitor. Imagine George Lucas getting his hands on the Star Trek license.
A few months pass, Hasbro tries to reach a settlement with Atari out of court, fails, and less than three months after Turbine sues Atari, Hasbro initiates its legal recourse in the state of Rhode Island to reclaim the IP from Atari, intending to completely strip Atari of its most important franchise. Just writing this down has given me the urge to go make some popcorn.
Needless to say, Neverwinter Nights Online is in some serious trouble. If Atari is stripped of the license by Hasbro, NWNO will be stillborn. If Turbine’s lawsuit is successful Atari will slip heavily into debt paying off the damages.
Well now, we’ve taken a serious look at both Cryptic’s performance in the past with Champions and the grave issues they’ll have to face with their future project. In the next and final part of this ongoing article, we’ll turn our attention to the present and Star Trek Online, scrutinizing it’s launch and future prospects, and for fun we’ll get to completely debunk a recent press release by Cryptic regarding STO’s “success”, a press release that has more spin to it than your washer-dryer cycle.
Until next time…
*As I was in the process of submitting this article it came to my attention that Cryptic reversed its stance on Vibora Bay. It will now be a free patch. I think they realized the money they would make off the patch wouldn’t offset the money lost by angering so many CO players, and alarming some STO players as well.
