Was Zenimax stupid like a fox?

michaelb14a_ESO2

I wanted to spark some intelligent discussion the events of today. BTP, P2W, FTP, PTW, premium, freemium, "cosmetic" vs. "non-cosmetic", all that I'll leave to the other threads (of which there are numerous), as are the opinions.

Instead I want to focus on the industry and facts that I know we can all agree on. Today, Isaac Knowles blogged the following, and I think it deserves attention and discussion.

"There exists a pattern of MMO publishers initially offering access to their games on a subscription basis, and later switching to a free-to-play or 'tiered' membership plans. Analysts, including myself, have attributed this behavior to repeated, apparently naïve attempts to release pure, subscription-based games, in hopes of enjoying some of the success of the paid MMO king, World of Warcraft. Those publishers soon get a cold splash of reality, the story goes: Recognizing they were doomed from the start, they switch to F2P in search of profits, or at least enough money to break even.

But now I’m starting to think differently. I’m beginning to think that repeated initial use of subscription with later conversion to an F2P option is not a failure of publishers to come to grips with reality. I’m beginning to think it’s a conscious decision, from the start, to engage in a practice known as intertemporal price discrimination.

The basic idea of price discrimination is that you charge different people different amounts for the same – or nearly the same – product [1]. In the games industry, the most obvious example is the sale of standard and premium editions of the same game. Usually the latter includes an extra inducement – a book of game art, a statue of the game’s main hero or villain, etc – that costs far less to produce than the extra amount players pay for it. The publisher thus extracts some of the additional value that premium version buyers place on the game and its associated IP.

Intertemporal price discrimination (IPD) is when you sell the same – or nearly the same – product to different people in different time periods. The goal here is to take advantage of the importance people place on consuming a product now rather than later. People who want to consume it right now are willing to pay more than those who are willing to wait a few weeks or months, or even years. A well-known example comes from the movie industry, which has become expert at releasing its products in different formats at different times: first theater, then second-run theater, then pay-per-view, then HBO/Showtime, then BluRay, then Netflix, then cable, and so on. On a per-consumer basis, each of these viewing options is slightly less valuable to movie studios than the one following it. Video games publishers engage in IPD, too, by gradually lowering the price of their games over time.

Along these lines, I’m beginning to suspect that switching from pure subscription to a system with a free-to-play option is more – possibly much more – than a “Whoops!” moment for MMO publishers. I’m beginning to think it’s an example of IPD. In the case of the MMO, the publisher gets both money from the sale of the software, as well as recurring payments from players who want to maintain access to the game. Anyone who strongly values the game, and who simply can’t wait for the inevitable switch to F2P, will pay for the subscription. The game publisher gets what it can from these high value players. Eventually, the supply of such customers is exhausted. Their value starts to fall into equilibrium with the potential value of consumers who are still waiting to get in for free. When that happens, the company begins to offer a free-to-play option.

Why not offer F2P from the start? The typical charge of $15/mo/user far exceeds the ARPU of any free-to-play game. That’s a lot of money to forego from consumers who would be willing to pay it, but who would switch to an F2P option, given the choice. MMOs with high production value based on venerable IP have long lifetimes; there’s no need to rush into the market for the least valuable consumers when there are so many high-value consumers who are willing to pay more.

The trick, of course, is the timing. If you don’t spend enough time with the subscription model, you won’t extract the full value from users who just can’t wait for free-to-play. If you spend too long, those other users will lose interest, move on to competitors’ games, and will generally become less valuable.

Given the above, Zenimax Online’s announcement of the F2P option for Elder Scrolls Online strikes me less and less as an admission of defeat, and more and more as a good business decision made well in advance. The game no longer requires the subscription, but you will need to buy the software (still a cool $60). If you’re time constrained, or you really care about advancement, you can pay for the Plus membership to get additional benefits. Eventually, the price of the software will start to fall as well, and more and more consumers will be able to justify the expense. Each additional consumer will be worth less to Zenimax on average, but they will still be worth a positive amount of money.

I offer up this highly stylized analysis in anticipation of the inevitable “I told you so” stories (and comments) that are already starting to appear regarding Zenimax Online’s move. For example, Forbes offer this tidbit: “Sure enough, the subscription model doesn’t seem to have delivered quite the results that Bethesda was hoping for, and they’re transitioning it to a one-time purchase model…”

But if what I've said above about IPD and subscriptions is true, this diagnosis is off-base. In fact, it may be that the subscription has delivered to Zenimax precisely what it wanted, and the move away is a logical step planned well in advance.

The fact is that game publishers have become incredibly savvy at finding, retaining, and extracting value from customers. We should expect future, “failed” forays into subscription-based models. Not because publishers are stupid, or ignoring history, but because they are trying to make the most money they can over the lifetime of the product that they sell."

Originally Posted on Gameasutra.com by Issac Knowles

Rosveen

Nice, I'll have to read other articles by that guy.

If it wasn't planned from the start, it was at least considered as a real possibility. Zenimax surely looked at their competitors, noticed the trends and carefully calculated which model is the best for them. They didn't arrive at this decision overnight (I have to wonder how much the console release factored into it, though). As a fledgling accountant myself, I can't really blame them... But as a player, I'm gritting my teeth.

ashlee17

Sad... But quite possilby true. Just looking at overpriced movies and DVDs in Australia and thinking "gaming industry meet your future/doom"

Plantagenet

If by stupid you mean intentionally misleading your customers, lying to them and manipulating them for financial gain in a dishonest way... then yes.

Iago

Plantagenet wrote: »

If by stupid you mean intentionally misleading your customers, lying to them and manipulating them for financial gain in a dishonest way... then yes.

+100

wiz12268b14_ESO

Go read what I was writing on these forums last November(2013). I and other called it. We knew the plan was to go B2P at least if not outright Free to play. The only hiccup was the consoles, which made us lean to the buy to play scenario. because console box sales are huge. I just think ZoS also wanted to double dip the console Subs as well and their intention was to release the console on schedule but their inability to have both major console companies drop their personal sub fees was the fly in the ointment. So they just delayed the console release, focused on getting the game worthy of playing and then make the transition. Had they had their druthers I suspect they would have had consoles release this past summer, milk some sub money out of it, get a few more DLC packs in the can and then go Buy to Play this coming Sept, they just lost their console subs and had to push the buy to play option out a quarter early. Simple economics on their part.

Short term it probably cost them money but I think it servers them better long term.

Djem

michaelb14a_ESO2 wrote: »

Given the above, Zenimax Online’s announcement of the F2P option for Elder Scrolls Online strikes me less and less as an admission of defeat, and more and more as a good business decision made well in advance.

Well, I hope that is the case. It's going B2P either way. It's just a question of how incompetent they are.

Bouvin

Great article.

The only point I disagree with is saying "it's a well-thought out and good business decision".

That's akin at saying a Con Man is just good at his job when he's fleecing a mark.

In time, these tactics will destroy trust for the game companies and their reputations will be tarnished.

I mean.. who here would be excited about the next release from Funsoft?

MSG1000

ashlee17 wrote: »

Sad... But quite possilby true. Just looking at overpriced movies and DVDs in Australia and thinking "gaming industry meet your future/doom"

Things are overpriced in AU because of taxes, just like Europe.

Ourorboros

Great article. I think it is spot on, and for me, eye opening. So the game industry has adopted the movie industry model. From a business perspective, smart move. SInce this is my first MMO, it leaves a bad taste in my mouth for the genre. I'm not likely to venture into any other MMOs. As a comparison, I used to watch every sporting event possible. Then there was the MLB World Series strike. Even though the players had valid reasons, it opened my eyes that sports are not about fans, players, sportsmanship, loyalty. They are just an entertainment commodity, whose primary aim is to make money. Since the strike, I rarely spend my time or money on that form of entertainment. Now that I'm aware of the IPD business model game publishers are adopting, I'll likely take the same approach to games that I take to my other major leisure activity, movies, which is to see a very select few in theaters (averaging about 2-3/yr now), and the rest see on Netflix/Amazon/torrents. Steam looks better every day now.

Roechacca

They got everyone to pay for a huge beta that ended up needing a entire system revamp . Crazy like a fox or Crazy like a Con Artist ?

gm_ESO

Really good article -- thanks for sharing. Having seen this happen a few times now in the last few years -- SWTOR was one of the biggies I was playing when the announcements started, but I also saw this happen with Star Trek Online -- I no longer believe the usual explanations. "Oh, we really thought it could work, but the number just didn't support it" -- or whatever the justifications are. I love the one where they try to make it like it was the players who demanded the change.

The key is the gaming company has to deny they have any such plans in mind right up until they're nearly ready to roll it out.

michaelb14a_ESO2

Early adopters have always helped defray development costs for a thing before that thing was repriced more reasonably for mass adoption.

Definitely, Intertemporal price discrimination is a well documented economic topic and business strategy. What IS new and quite fascinating to me, is how the MMO and the gaming industry is seemingly adopting this strategy in such a way that it come directly at the expense of thei core consumer. Under a sub model, the cost benefit "pitch" to the consumer is the is that the "product" or "service" is in continual expansion or improvement (development). This is why you pay for the games base price, AND, also a monthly subscription fee.

Worth noting is that the practice isn't used by the gaming industry to, as you rightly noted is the goal of an IDP to "defray development costs for a thing before that thing was priced more reasonably for mass adoption". It's used to make a profit and exploit consumers to "early adopt" who otherwise fully informed, wouldn't. Basically it's a bait and switch. They misrepresent the core product, its goals, scope, features, and most importantly its final "vision". Early adopting requires customer trust, informed consent if you will, of what the product ACTUALLY IS. The presence of too much asymmetric informationton, combined with outright misdirection and lies about of what it is a customer THINKS they are adopting and your no longer in IDP territory. In essence, it turns your most brand loyal and influential customers from being early adopter, into being stooges.

Yes. I'd say that in the gaming industry we are starting to see a trend of consumer manipulation and a concerted effort to outright profit by lying to the community.

For example: Microsoft, specifically responding to concerns by customers on pricing and the "no kinect" purchasing option. They explicitly stated that the xbox one physically and technologically could not be separated, they were not two devices, the xbox one would not function without the kinect.

Right, wrong, fair, or unfair isn't for me to decide. What is acceptable business practice and what is not is more often decided not by laws or empirical truths, but by the tolerances of any one product segments consumer base. It seems that gaming execs have taken note that gamers in particular, have tolerances not yet tested and profitable to boot.

Pendrillion

What this comesdown to, they didn't risk anything by spreading falsehood. On the contrary, in the short run they created enough controversy to mud the pool, until they were able to maximize their profits. Also they seem to be in a cozy position where the loss of some subscribers won't make a difference in their income.

frosth.darkomenb16_ESO

I challenge the fact that it is a good business decision. At the very least, it was NOT the best move.

It does give them the most money short term but at the cost of potential long term stable revenue. The subscription model is the most valuable one on the long run as if it is well managed can be a source of constant revenue that increases quarterly over decades.

Eve Online and WoW are basically cash cows and enabled both companies to foray in other projects without a care in the world. If you look at cccp's Darkness world mmo that has been droped and its Dust shooter, both game are failures, yet the company is still healthy despite the sunk investment.

The ESO+ membership is not worth the price and b2p is a glorified f2p model which will still have an average of 2.2% paying players like every other f2p games out there. They are forfeiting a stable revenue for a one time cash grab.

fromtesonlineb16_ESO

michaelb14a_ESO2 wrote: »

I wanted to spark some intelligent discussion the events of today

[Moderator Note: Edited per our rules on Trolling & Baiting]

clocksstoppe

Although most of you are saying you were manipulated, it is not true. The transaction itself does not include future promises or anything similar. In these times actually believing developers when they say "wait m8 we will fix everything i swer on me mum" is just asking to be disappointed, because it WILL happen.

Tough lesson for the 1year subs, but it turns out you have to consider only what is available when you sub and not promises.

Derra

I think its quite true. Have to admit, i don´t care. I would have played/paid/whatever if they´d have told me upfront (hell i even suspected it from the start).
Take my money i had loads of fun. A visit in the cinema is more expensive than a month of eso subscription was. I couldn´t care less.

Mangybeard

If this is a revelation for you maybe be more wise with your purchases in the future. This is how business works in America, congrats on figuring that out.

You should never purchase something if you feel like you're paying more than it's worth. If you choose to do that anyway don't go crying to the person/company that sold it to you.

In your shoes I would not support this company anymore, but I know what I'm getting for my money and will stay subbed until I burn out.

wiz12268b14_ESO

If the "Special" 12 month sub they are going to offer is $99.99 and as many people or as close to as many people buy that as bought the game at initial release what are people going to say then?

If they release 6 DLCs in that first 12 months and people are playing them without having to buy them then what?

If they got enough crowns to purchase a ton of in game perks AND pay for 3 of those first 6 DLCs then what?

What if the 'regular' 12 month sub package is $119.99, then what? Or even $129.99?

Most of us knew the plan from the beginning, we just didnt know the exact time table due to console version. Thats why most of us didnt buy the game at release. I bought it a month ago for 19.89. So if ZoS is a fox what does that make me and others who got in at the cheapest possible price? (unless it eventualy goes F2P which isnt likely)

Either way there was ample warning about the game months ago long before it released. If you subbed and stayed sub you got the game you saw and it did get better. It is MUCH better than it was at the final beta version. So it is now a nearly subworthy game thats why it has gone Buy to Play. Thats the new nature of games now. The last half dozen or more MMOs have all been released in beta version, and many people would argue that every single game ever released was released in a beta version, and they might be right. Firstly because MMOs are constantly changing and (hopefully) trying to improve. But mostly because developers know people will spend money on just about any big name title or over hyped game no matter how bad it is.

EQOAnostalgia

I read most of what he said, but it seems like he thinks it's something evil lol. I didn't read it all though so idk, i don't have the time right now but it is interesting. I just chalk it up to good old American business practice. It doesn't really bother me because getting something sooner rather than later is worth the extra price of admission. I don't HAVE to do that but i choose to do it if it's something i'm quite interested in. And devalue happens over time anyways usually, unless it become antique or a rare thing. I knew the game was going F2P as soon as the 6 month sub cards were phased out.

Morthur

.

michaelb14a_ESO2

fromtesonlineb16_ESO wrote: »

michaelb14a_ESO2 wrote: »

I wanted to spark some intelligent discussion the events of today

Since you refer to one of the most intelligent of creatures as 'stupid' in your threat title I'm not sure you'd recognise such a discussion even if it ensued.

Lol, try reading the post.

Mangybeard

Let's not forget the 300 Million dollars they got from investors. They do have to appease these people.

michaelb14a_ESO2

Mangybeard wrote: »

You should never purchase something if you feel like you're paying more than it's worth.

I see where you are going with this but it's a false equivalency. In order to avoid paying more than you feel something is worth, you have to be able to accurately evaluate its value based on the information you have. When the information is being fabricated a consumer can't do as you recommend.

Mangybeard wrote: »

If you choose to do that anyway don't go crying to the person/company that sold it to you.

Consumerism is a learned behavior. What we are seeing is gamers (customers) dwindling trust in game developers to provide accurate information on what is being purchased, due to a high presence of asymmetrical information. (Which by the way can actually cause market failures)

The result? Prices go down as does quality. Gamers put off buying games until prices are low enough to justify the risk and the game is more developed (described now as the "smart" thing to do). As more and more customers do this, the "sucker" pool that was once stupidly profitable shrinks and shrinks being less and less profitable. Eventually disappearing. Now what? Prices have now been driven down so much even good game studios that want to do things right can't ... Because while the market SIZE never changed, the value was driven down as consumers learned that the only way to have confidence of quality and in turn find value in their purchase was to pay less.

It's called "A Market for Lemons"
http://en.m.wikipedia.org/wiki/The_Market_for_Lemons

Note: forgive my grammar, I'm on my phone at the airport.

Alcast

You can get the game for like 20 Dollars (not 60)
A fox is not stupid

Though nice points up there, could be true, could be not, who knows
As long as the product satisfies me i will keep playing it. It is a good game, and that fact does not change only because they change the *** sub model.

michaelb14a_ESO2

Alcast wrote: »

It is a good game, and that fact does not change only because they change the *** sub model.

Not according to Matt Fior:

"We’re building a game with the freedom to play – alone or with your friends – as much as you want. A game with meaningful and consistent content – one packed with hundreds of hours of gameplay that can be experienced right away and one that will be supported with premium customer support. Charging a flat monthly (or subscription) fee means that we will offer players the game we set out to make, and the one that fans want to play. Going with any other model meant that we would have to make sacrifices and changes we weren’t willing to make."

...and for the love of god Stupid like a fox is an idiom
Explanation: 1. To be smart or cunning while appearing not to know what you are doing.

michaelb14a_ESO2

fromtesonlineb16_ESO wrote: »

michaelb14a_ESO2 wrote: »

I wanted to spark some intelligent discussion the events of today

Since you refer to one of the most intelligent of creatures as 'stupid' in your threat title I'm not sure you'd recognise such a discussion even if it ensued.

See above mate...

Bouvin

fromtesonlineb16_ESO wrote: »

michaelb14a_ESO2 wrote: »

I wanted to spark some intelligent discussion the events of today

Since you refer to one of the most intelligent of creatures as 'stupid' in your threat title I'm not sure you'd recognise such a discussion even if it ensued.

LOL. You obviously missed what he was saying by "stupid like a fox".

He's actually saying the fox is smart.

Bouvin

michaelb14a_ESO2 wrote: »

Alcast wrote: »

It is a good game, and that fact does not change only because they change the *** sub model.

Not according to Matt Fior:

"We’re building a game with the freedom to play – alone or with your friends – as much as you want. A game with meaningful and consistent content – one packed with hundreds of hours of gameplay that can be experienced right away and one that will be supported with premium customer support. Charging a flat monthly (or subscription) fee means that we will offer players the game we set out to make, and the one that fans want to play. Going with any other model meant that we would have to make sacrifices and changes we weren’t willing to make."

...and for the love of god Stupid like a fox is an idiom
Explanation: 1. To be smart or cunning while appearing not to know what you are doing.

We aren't all foxes.

Or maybe we are.....

Mercurio

it's a con job that only works for a bit before consumers wise up, and then things crash. Newly-launched MMOs are going to be in a rough financial spot from now on, if not DOA or intentionally low-reaching.