Goodbye Subscribers, Hello Profit! Why World of Warcraft Isn’t In Danger

If you read my last opinion article relating to World of Warcraft, you’d know I’m not a fan of the recently announced Mists of Pandaria expansion. Despite that, I’ve never doubted that Blizzard’s behemoth of an MMO is in any danger of losing its number one position in the MMO hierarchy.

While MoP may not be for me, it certainly will and does appeal to a great many others, and I stated my belief that it would be a superior expansion to Cataclysm in terms of design, content and player retention.

WoW’s subscriber numbers made the news recently, with an Activision Blizzard investor call revealing subscriptions have dropped from 11.4 million in May to current total of 10.3 million. If you factor in the total loss since Cataclysm’s launch, you have a loss of roughly 1.7 million subscribers. That’s a lot of lost subs. However, Blizzard CEO Mike Morhaime reported that the majority of those losses come from the eastern market (China, in other words).

While WoW struggles with retention issues, Activision Blizzard amassed $627 million worth of sales, with $148 million in profit. The majority of that revenue (62%) was generated via digital sales.

So on one hand you have an ageing MMO bleeding subscribers, but on the other you have a company (and IP) that has tripled its profit for the quarter over this period last year. What does this mean?

A Guardian Cub spends a few precious moments with its mother before a digital salesman pounces.

World of Warcraft has without doubt peaked and has now begun its slow decline. While subscriber numbers will fluctuate following expansion releases, they will continue to drop. In my opinion, Blizzard will continue to do their best to entice former players to renew their lapsed accounts while shifting an eye towards new, younger players to combat turnover.

So long as WoW retains enough of a player base to deliver lucrative sales of digital fluff items such as mounts and pets, a decline in actual subscribers doesn’t really hurt the game or the company much at all. The ubiquitous Sparkle Pony (Celestial Steed) and more recent Guardian Cub pet have proven to be great hits within the WoW community, and so long as players continue to purchase similar digital items, WoW’s subscriber loss is buffered by the increase in revenue earned from these digital sales.

Of course, if your subscriber numbers dip significantly, your digital sales will also take a hit. Furthermore, you have to consider that younger players won’t have the income or ability to purchase digital items, and will be relying on their parents (who are likely already paying subscription costs). It’s a delicate balancing act.

It's a bird! It's a plane! No, my mistake, it's just another sparkle pony.

If you take into account a good portion of the 1.7 million lost subscribers were from China, you also have to consider the manner in which subscriptions are purchased in that region. Instead of a flat monthly fee, Chinese players purchase game cards which allow them access to the game for a number of hours. Thus, revenue generated from subscriptions is going to be wildly different to regions where a standard US$15 is charged. Subscriptions themselves are subjective when they’re neither fixed nor recurring.

Even if World of Warcraft’s subscriber numbers dropped to 8 or 7 million by the time Mists of Pandaria is released, it would still be the most successful MMO on the market, it would still be raking in revenue from digital sales and it would still have the ability to bounce back, with the expansion providing an instant if temporary subscriber boost. If MoP is a stronger expansion than Cataclysm, it will retain more of those new and returned players in the long run.

To conclude, World of Warcraft will continue to dominate the market for the next few years at least, regardless of subscriber decline. Blizzard itself is likely to have a landmark 2012 when you factor in the release of Mists of Pandaria, Diablo III and most probably Starcraft II: Heart of the Swarm. So say I, with all the clout of my non-existent financial analysis expertise. WoW isn’t going anywhere, and it isn’t going to relinquish its mantle as the king of MMO’s any time soon. If that disappoints you, here’s a picture that is sure to cheer you up.

Pandamon, I choose you!