NCSoft - Subscription numbers for Q1 2006 (and more)

(previous report)

This last report arrived much earlier than expected. We have already the results updated to the end of March 06.

The .zip file with the original pdf document can be downloaded here.

Before going in detail I underline the fact that Tabula Rasa may not be ready for this year and get delayed again. My comment: they say "conservative asssumption", I say "it's pretty sure". Along with Vanguard this is another game that seems to fear the public but sooner or later they'll have to face it. And then we'll see how quickly all the hype will melt. You can hide only for so long. Both Garriott and McQuaid are victims of their own success.

Here are the three pages mirrored with the detailed numbers for every game:
- Detailed report for Lineage
- Detailed report for Lineage II
- Detailed report for City of Heroes and Guild Wars

Extrapolated data:

Lineage
1,497,297 subs worldwide
9.759 in the US

These numbers are rather shocking and I even find hard to believe them. In four months L1 lost nearly 800k, all of them in Korea. There must be a logic explanation because the profit didn't budge (see below) and the highest concurrent user peak doesn't mirror the loss. The number of subscriptions in NA instead looks constant, with a negligible +700 subs in the last four months. Constant also the performance of the game in the other territories (+40k in China).

Lineage II
1,302,340 subs worldwide
89,337 in US + EU

L2 loses another 200k in these last four months, again the loss is all localized in Korea. And again without a significant change in the highest concurrent user peak. The game lost 50k in China (looks like they moved on L1) and is up 13k in EU+US. Notice the trend: subs down in Korea and up in the western market. Things are really odd. 90k in our market is truly surprising for a game like L2. In particular so long after release. It is also possible that this is due to a major update that drew the attention of some players. It looks like it worked better for the western market than the Korean one. Two scenarios (about Korea's reaction): the players are pissed off by the changes (or) the competition is becoming so strong that it just wasn't enough.

City of Heroes
182,858 subs worldwide (which is US + EU only)

This seems to hold rather well (-12k) considering there were zero updates in the last months. Development is slow but the retention seems decent. My idea is that the game has a very high churn but still appeals to new players and many former subscribers often return for some fun. I see it as a game with "loose ties" but where former players gladly return for some familiar fun.

Guild Wars
Roughly 1,5M boxes sold in US + EU, which is the great majority of the market.

Not much to comment here. The game seems to do fairly well and it will be interesting to see the sales of the recently released expansion. I'm relly curious about why the game wasn't accepted at all in Korea. You would expect products to be more or less popular, but the difference is just too huge to be seen as just "different taste and preference".

General considerations: recently NCSoft released a pretentious press release stating that Lineage 2 "reached more than 14-million customers". We already know that these are opened accounts and not active subscribers. Looking at the negative trends I underlined above I think it was used as damage control. I don't know the situation of the market in Korea but it looks like the competition is getting more rabid and NCSoft doesn't seem to have an easy life. The loss in both L1 and L2 could be the result of this increasing competition and Blizzard's counterattack (archived since it risked to vanish from the internet). Interesting because Blizzard is pushing to impose the monthly fee as the standard even in Korea. It's also interesting to notice that the highest concurrent user peaks for both L1 and L2 aren't so huge. Right now WoW outperforms both by a wide margin in both NA and EU. At the matter of facts it looks like the Korean market needs to be downsized from the fancy image we got of it along these years. It's still huge and more varied, but there are different trends going on that must be understood and that make it appear much better than how it actually is.

Some other facts extrapolated from their "Result Explanation":

For the quarter ending March 31, 2006, consolidated net sales declined to 78 billion Won, down 19% QoQ. Operating profit was 8.7 billion Won, down 57% QoQ and pretax profit was 10.1 billion Won, a decrease of 56% QoQ.

Now I'm not a market analyst so it's kind of hard to interpret these numbers correctly, but I'll add some more quotes that I find interesting:

Sales Mix by Geography

By region, Korea stood at 63% of total net sales, North America at 15%, Europe 5%, Japan 10%, and royalties accounted for 7%.

For Q4 2005 it was 51% Korea and 27% NA. It's interesting how the penetration in Europe is really small, despite WoW demonstrated that there's a potential market bigger than the one in NA.

Online Game Sales Mix by Games

Breaking out sales by product showed Lineage, Lineage II, City of Heroes/Villains, and Guild Wars at 42%, 40%, 9%, and 9% respectively in online game sales.

Consolidated Lineage sales were 30 billion Won, up 1% QoQ.
Lineage sales in Korea were 28.3 billion Won, up 2% QoQ.
Lineage sales in overseas consolidated subsidiaries (North America and Japan) were 1.8 billion Won, a decrease of 300 million Won.

Consolidated Lineage II sales were 29.1 billion Won, down 4% QoQ.
Lineage II sales in Korea were 20.7 billion Won, with little change QoQ.
Lineage II sales in overseas consolidated subsidiaries were 8.4 billion Won, a decrease of 1.1 billion Won.

Consolidated City of Heroes/Villains franchise sales were 6.5 billion Won, down 58% QoQ due to decreases in box sales for City of Villains in North America and Europe.
In Korea, City of Hero officially launched on March 22.

Guild Wars sales were 6.3 billion Won, down 57% QoQ.
These decreases came primarily from a decline in box sales QoQ in North America and Europe and the disappearance of additional revenue recognized in 4Q ’05 from changes in the revenue recognition method.
Guild Wars officially launched on January 27 in Japan.

Exteel officially launched on January 25 in Korea.

In Korea, operating profit was 10 billion Won, with little change QoQ.

In North America and Europe, operating profit turned to red. The primary reason for this loss was a decline in box sales for City of Villains and Guild Wars.

In Japan, operating profit was 3.3 billion Won, a result from the continued strong Lineage franchise sales and Guild Wars official launch.

And more juicy tidbits, with a (possible) interesting announce:

As we did not have any major product launch in 1Q ’06, our financial results for the quarter have weakened QoQ. However, these results are not materially different from what we originally anticipated.

However, we have reduced our previous earnings guidance to 353 billion Won from 396 billion Won on the top line and to 50 billion Won from 66 billion Won in operating profit.

This reflects the possibility that Auto Assault and City of Heroes/Villains could miss ‘06 sales targets. In addition, we take a conservative assumption that Tabula Rasa will not officially launch in 2006. We also carefully concluded that it would take more time to fully establish our casual games business in Korea.

NCsoft has been working hard to consistently deliver a portfolio of high quality, globally competitive game titles. Blockbuster projects such as Tabula Rasa, Aion and Lineage III along with unannounced titles from the company's Orange County, California studio, and the recently announced 3rd party studio, Spacetime from Austin, Texas are in full swing with quality game developers. In addition, we are diversifying our portfolio with games in newer genres, such as Soccer Fury, Dungeon Runners as well as a number of titles being developed in Korea that are yet to be announced.

NCsoft has for the past couple of years been focusing on building a network of development and publishing organizations in key markets around the world. Rather than being bound by short term results, NCsoft has been focusing on executing our strategy of creating a network of best-of-breed local development talents around the world that outputs a steady pipeline of contents onto a global publishing infrastructure.

NCsoft is well underway for completing this infrastructure by the end of 2006. As part of this effort, NCsoft plans to integrate all of its services including account management, billing, and authentication by the end of 2006 in Korea. That will be followed with the adoption of a unified integration plan for all NCsoft services across the globe. This platform will create enormous value for not only for NCsoft customers but for the developers around the world as well. Ultimately, NCsoft believes that building this unified global online platform will enhance its leadership position in the global online game space.

NCsoft believes that 2007 will be the year that all these efforts will bear fruit.

By the way, things are rather confusing here about who is doing what. See image and previous speculations.

They have huge ambitions there, with huge risks. I've already written my opinion about this portfolio strategy, but it will be interesting to see the impact it will have on copycats like SOE.

They are going to inflate the market in an unprecedented way. I don't think it's a wrong assumption to say that what will prevail will be the quality, and not the number of titles. But one thing is sure: the market is going to becoming more and more chaotic and disorienting.