NCSoft – Q2 2006 report

Third article in a series, this time also F13 gave a quick glance at NCSoft subs numbers and financial results.

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

To begin with, the official words about the results and their plans for the near future:

We have reduced our previous earnings guidance to 330 billion Won from 353 billion Won on the top line and to 20 billion Won from 50 billion Won in operating profit. While Lineage franchise sales remained steady, this revision in guidance reflects Auto Assault’s poor sales performance and lowered Guild Wars sales projection as compared with our previous forecast.

Guild Wars Nightfall, the third and latest campaign in the Guild Wars franchise will launch globally in the second half of 2006.

In North America and Europe, NCsoft will launch multiplayer online games such as Dungeon Runners in Q4, 2006, followed by Exteel and Soccer Fury.

Tabula Rasa will enter a limited closed beta testing stage during the second half of 2006.


– Unsurprising bad sales for Auto Assault (as SirBruce anticipated)
– Not so good as expected sales for Guild Wars recent standalone expansion
– Dungeon Runners out before the end of the year
– Tabula Rasa still not near release (as anticipated)

There are so many numbers in these reports that it’s not so easy to draw conclusions but Auto Assault is actually the main reason why they reported a net loss. F13 says that the net loss was of ~US$230,000, while there would have been a net income of ~US$12.8 million without the Auto Assault write off. Oddly enough 1 million Korean Won is about the same of 1 million dollars.

The subs numbers are something I can digest better. Extrapolated data:

1,399,909 subs worldwide
9,685 in the US

There was a huge drop of 800k in the first quarter of this year. The negative trend continues but not as bad as it was, the game loses only another 100k or so in the last three months. F13 says the subs are decreasing but still better than how they were a year ago, but from what I see this isn’t true. Exactly one year ago Lineage exceeded 1.8M of active subs. So 400k more than what it has right now. To notice that in December of the last year it had more than 2.2 millions. It basically lost 1 million in six months. In the US the game is stable around those 9k.

Lineage II
1,138,928 subs worldwide
83,221 in US + EU

The game lost 200k from December to March, now it loses another 200k from March to June. During the last year this game lost half of the players it had in Korea and now the numbers don’t look anymore all that crazy as they were. It was holding well because of the launch in China, but even there it went from 700k to 200k in the span of a year. Even in this case I don’t see how the claim on F13 is correct since the game had more than 1.8 millions during the same period of the last year, that’s 700k less, not more. It’s also interesting to notice that in Korea the highest concurrent users peak has remained relaitively constant, even if the game went from 1 million of subs to 500k.

City of Heroes
171,000 subs worldwide (that is US + EU only)

The game loses 1k. There was a rumor again coming from F13 saying that the subs fell to just something more than 100k. I didn’t bite the leaf and it looks like my guess was correct, the game is holding well for the moment. After the release of City of Villains it lost something and that’s probably even the trend for the future. The game doesn’t seem to have a very good stickiness and the players need a motivation to continue to invest on this game. I didn’t see any announcements about a future expansion or new developments, so I suspect the game will start to leak subs at an increased rate if they don’t find ways to rise the interest again (and the patch cycles are abysmally slow).

Auto Assault

Uhm.. No subs numbers for this game. NCSoft considered it a failure and I think noone is surprised. Till we don’t have any better source I’ll stick with that 10k guess.

Guild Wars
2M boxes sold worldwide.

That number is almost all about the US+EU market since the game didn’t sell much in the other countries. After seeing the last expansion constantly on top of the charts I was expecting to see the total number of boxes sold at around 2.5 millions, instead it looks like it sold only 400k or less. I still think the game is doing rather well and proportionately to its “worth”, overall. I’ll write some more about this below.

General considerations: there’s one aspect in what F13 wrote that is correct, while the subs in Korea for Lineage and Lineage 2 dropped consistently, it looks like the “sales” remained quite constant. So here I really don’t know what to say since I have no clue about how things work and how it can be possible. The game doesn’t look that popular anymore but it seems that NCSoft still gains from it. The two games together represent still 70% of NCSoft total income (of which, 55% just in Korea).

Now what I’m noticing with some very rough math is that 40% of Lineage 1&2 subs (1 million of subs) is coming from countries not listed in their region graph:

By region, Korea stood at 55% of total net sales, North America at 18%, Europe 11%, Japan 9%, and royalties accounted for 7%.

This is what NCSoft is cashing, right? If this is true it basically means that 40% of those subs only consist in 7% of the net sales, which tells a lot about how much money is actually coming back from those countries. Apply this reasoning to WoW and all those millions of subscriptions coming from China and you can see how the success of the game needs to be recalibrated (and we already knew how cheap is playing games in those countries).

I mean, the net sales for both of those games in Korea are 47 billion Won, only 0.2 billion Won are coming from other games. But 40% of what we consider subscribers for those games aren’t directly property of NCSoft but come in the form of Royalties. Well, these royalties only bring in their pockets 5.7 billion Won. So those 40% of subs only bring a “real” 12% income.

About Guild Wars. As I wrote above I think the success of the game is proportionate to its worth, even if I was expecting this last expansion to sell more. Now the point is that the expectations of both and NCSoft were consistently more optimistic. I don’t know if I read all these numbers correctly but still operates at a loss. Despite the latest sales it still loses more than one million won this year (and I really don’t know how to read the charts, are those numbers cumulative between 2Q 06 and 1Q 06 or they need to be summed?). If we look at what happened before we see that it lost 11 billion Won in 2004 and another 4 billion Won in 2005 (even here, it’s 15 billion total or the chart is progressive?). When exactly are they expecting to see profits instead of losses?

They surely have a great technology but it’s still unlikely that Guild Wars will see an increase of sales (if I read those charts correctly). Each expansion will likely sell less than the one before just because the game and technology they sell is still essentially the same, but still sold at full price. I still think that the game IS successful. It is one of the few at the top of the charts and sold more than two millions of boxes. Now the point is to consider if the business model they tried was viable or not, because, again, the game performed rather well.

At the same time the “operating profit”, that is the net sales less the operating costs is still positive everywhere. So is leaking money or not?

Payroll costs in overseas consolidated subsidiaries were 9.1 billion Won, up 7% QoQ. This is due primarily to staff increases at the company’s ArenaNet studio in NA.

Total headcount for NCsoft and its subsidiaries was down 1% QoQ.

In North America, revenue increased thanks to the successful Q206 launch of Guild Wars Factions.

A mystery.

I also wonder were are counted the costs of Tabula Rasa development.

Of those 330 billion Won they are “predicting” for the end of the year, only 110 they have collected in this half. So they expect to reach 220 (100% increase) in the next six months? How? The only two games coming out are Dungeon Runners and the new expansion for Guild Wars.

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