City of Heroes / Villains: NCsoft Says Sale Not Going To Happen, Closure Happening on Schedule

NCsoft issued a statement about the future of City of Heroes / Villains (CoH/V). The TL;DR version is “It’s still shutting down”.

The full statement says:

City of Heroes®Players and Fans,

We wanted to let you know that your voices have been heard and your concerns have been taken into serious consideration. We appreciate the overwhelmingly constructive and positive messages in the emails, notes, and packages you’ve sent in support of the game. It has not been an easy decision for us to close Paragon Studios® and prepare to shut down City of Heroes. We’ve exhausted all options including the selling of the studio and the rights to the City of Heroes intellectual property, but in the end, efforts to do so were not successful. City of Heroes has a special place in all of our hearts, and we want to ensure its reputation and the memories we share for the game end on a high note.

Once again, we will be holding events throughout the process of preparing for the game’s end, and we encourage players and fans of the franchise to join forces and enjoy their time in a game that we’ve enjoyed supporting for more than eight years.

The NCSOFT® Team

CoH/V fan reaction hasn’t been particularly positive to the news (not that you’d expect it to be). There are a lot of comments that the statement is just a PR move and that if NCsoft really wanted to, they could have found a buyer for the studio and the IP and keep the title going.

Dollar Bill from "Watchmen".

When it comes to the Dollar Bills it is about expected earnings versus expected costs.

I don’t believe that NCsoft ever genuinely thought about selling off this title. If NCsoft was serious about selling CoH/V and / or Paragon Studios, they would have started the process BEFORE announcing the shut down (and maybe they did, but I doubt it). This is because the day that NCsoft announced CoH/V’s closure, they cut a huge amount of potential value out of the title. Announcing the closure before trying to sell told the market that NCsoft didn’t want the game anymore, thus discounting the price they could have received.

So what kind of price would be reasonable for CoH/V? The simplest approach would be looking at the last 12 month’s revenue and make it a multiple of that. The last four quarters earned NCsoft about US$10m from CoH/V, so the starting point to discuss price would be probably be around that US$10m figure.

In normal situations you’d probably factor in things like future earnings, studio debt (which I’d doubt Paragon Studios has much of, at least for CoH/V) and ongoing studio costs (e.g. 80 people by industry-rule-of-thumb $10k a month in earnings and rent costs equals US$9.6m a year) to work out a sale price. In selling a title like CoH/V I’d expect NCsoft to want to get as much back of its ‘potential revenue’ as possible if they were going to sell. No point giving a future competitor a free ride, especially when CoH/V comes in with a lot of goodwill behind it. A back-of-the-envelope sale price for CoH/V and Paragon Studios in the realms of US$10m to US$25m wouldn’t seem unreasonable (at least before the closure was announced, anyway).

As a point of comparison, Perfect World bought Cryptic Studios in a US$50m+ deal with that price covering the entire studio and its IP rights. Cryptic had two active titles (Champions Online and Star Trek Online) and a third underway at the time of purchase, while also apparently running up losses for Atari of US$7.5m for that fiscal year.

When NCsoft announced the closure of Paragon Studios, they shut people out of the office on the same day and appear to have made job offers / other positions available to those people they want to keep. Other ex-Paragon Studios employees have been looking for work elsewhere. This means that NCsoft wouldn’t actually be able to sell off Paragon Studios as it was and only be able to include those who remained or resigned from their new job to come back.

Everyone in the comics seems to have more money than they know what to do with, especially since they don't spend much time actually working.

Any billionaire philanthropists out there?

Again, not a move you’d make if you were seriously thinking about selling the studio off and had the cash reserves to hold out for a good sale price as NCsoft does.

Writing off the studio likely has a number of tax benefits and it is a lot simpler. Corporate tax specialists would be pretty certain about the size of those benefits based off an internal look at the financials, while negotiating a sale price has no fixed outcome and can end up costing you both time and money for zero return.

And again, the crucial question: who buys? Who wants to add a superhero MMO to their portfolio of titles? Their aren’t any obvious contenders that come to mind. Another eastern MMO publisher might consider such a move if they are looking to get into the US and / or Europe, with NCsoft better served to charge those kind of buyers a premium or not sell at all just to avoid dealing with the extra competition.

I’ve seen titles like APB and Hellgate: London mentioned as examples of ‘saved’ MMOs, but it should be remembered that their IP owners basically collapsed financially and those games were picked up cheaply as a result; this isn’t the case with CoH/V.

At this point the future for CoH/V is limited from a commercial point of view. With NCsoft not looking to sell, private servers could be an option if those dedicated to them can get them working, but it is likely that NCsoft would launch legal action if any such servers did pop up.

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10 thoughts on “City of Heroes / Villains: NCsoft Says Sale Not Going To Happen, Closure Happening on Schedule

  1. NCsoft doesn’t sell its canceled games and an investor would have to be incompetent to invest in a property that’s long since been on the decline and has no future growth potential. Too bad the IP will remain buried as long as NCsoft exists. There is a lot of good in the IP and it’s a shame to see it go, but I never doubted the outcome. In the months leading up to the closure I wondered aloud on my blog when (not if) NCsoft was going to kill the game. I got my answer.

    • I think CoH/V could be attractive to an investor, but not as the fans know it. Paragon Studios would be gutted and the rate of new content being developed would be severely reduced until CoH/V started increasing its revenue base.

      Could CoH/V attract either 1) more revenue from current players or 2) revenue from new / returning players? I think it could, but I think a new dev team – or at least a new set of studio management – would be needed to kill the sacred cows and try completely different things. The current Paragon Studio management might be popular with the vocal portion of the forum community, but they’ve failed to grow the CoH/V paying player base.

      That sounds cold (especially now), and I believe that the Paragon Studio team did put their heart and soul into the game, but if you are in charge of a multimillion dollar project that constantly earns below expectation, there are some deadly serious business questions to answer.

      • Yes, Freedom tried and failed to get more out of the current subscribers (or maybe there just weren’t enough current subscribers for their increase to matter) and the Freedom model fumbled the returning player situation badly.

        And you’re so right about the dev team. Talented bunch, but they developed a myopia about the game. I hear they were going to add another city zone to the game in Issue 25 or so. The last thing the game needed was another city zone, but there they were wasting resources on it. That exemplifies the problems with the way they were developing the game.

        Maybe the devs were just on the project too long. I think they’ll all look back on this in future years and come to appreciate moving on to something new and different.

      • My thoughts about where CoH/V should have gone obviously differ from the dev’s view, but I agree that making the city bigger seems an odd choice.

        It’s one of those ironies that Emmert was a lot more disliked by the player base than Miller, but CoH grew under Emmert and declined under Miller. There are absolutely reasons for that outside of the men themselves, but it was always something that came to mind when people said that Emmert ruined the game while Miller improved it.

  2. I am in agreement that the strategies employed by Paragon Studios over the last two years would be condsidered a failure based on the amount of money and time reinvested into a continually shrinking game. UnSub, I recall you writing a post years back about how much more effort was needed just for the game to ‘stay in the same place’ with increased competition in its market sector and the slow but steady bleed of subscribers. That continual expense combined with 3 cancelled projects that had a negative ROI does not actually speak much for the talents of Paragon Studios (or at least the faith that their corporate masters had in them). I won’t fault them for doing the best with what they had though – it’s a royal pain to support legacy applications, let alone rework them and modernize them.

    MMOs are a cuthroat industry in an even more cuthroat industry- video game development. Production costs continue to rise, player expectations are ever-increasing. You need to go big or go home to expect to compete in the MMO marketplace. Consider the fact that Blizzard has rewritten the graphics and audio engine for World of Warcraft 5 times over since its launch just to sustain its current market position in addition to the constant production of huge amounts of art assets. The original launch team for WoW had over 80 artists alone, which was massive at the time. There was no reasonable way that a studio of 80 people (with a large chunk dedicated to supporting a legacy product) was ever going to produce a product that could meaningfully compete at the level that NCSoft was hoping for. I actually find it amazing that they even considered trying for as long as they did.

    Even single player games now have studio productions with teams numbering in the hundreds. (Ubisoft MASSIVE is indeed just that – over 500 people working on a single title!) I am certainly not saying it is impossible for a small dev team to produce extremely popular titles (such as Minecraft) but that tends to be the work of the occasional mad genius and the exception rather than the norm. Paragon never had that mad genius spark to them – they were decent custiodians of an existing property but never successfully managed to expand the audience above that of the City of Villains launch under Cryptic.NCSoft realized this after four years of funding various initiatives that ultimately did not go anywhere.

    What gets me as I watch Titan Network, the official forums, and the random chatter across the net about the shutdown is how completely insane and rabid the SaveCOH movement has become. There seems to be a willful denial of any and all facts regarding economics, game development, corporate reporting, historical trends in MMOs, and just how (not) popular CoX actually is. I understand the desire not to see a game go away but I am being rather sharply reminded as to just how much the original playerbase has eroded – all that remain are fanatics who are incapable of accepting reasonable facts. I loved my time in City of Heroes (I left the end of July) but I realized a long time ago that this was a game coming to an end and that Paragon Studios had no meaningful future ahead of them. Great games don’t mean very much if they don’t sell (or even launch) and the industry is littered with the corpses of countless dev houses that were beloved in their day but ultimately died out. Business is the core of gaming (of entertainment in general, really) and we all too often forget that.

    UnSub, I appreciate the continued commentary you have on this subject as you maintain a very objective point of view regarding the broader industry. Keep up the good work!

    • Thanks for the kind words.

      I’ve also looked at the various posts on the CoH/V forums and on the Titan Network and feel a number of them have a naive (at best) view of what’s going on. NCsoft could have definitely handled the closing of CoH/V better – reports are that the devs themselves thought that game was going to be shut down on August 31 when they were told the studio was now closed – and there is a certain amount of fair criticism that comes with that.

      But calls to get the entire management of NCsoft Korea fired, or stirring up media attention to drop the stock price further so that NCsoft Korea HAS to sell the IP and things like that… it just comes across poorly. “We want other people to lose their jobs and lose money so we can get our game back!” is pretty much a text book case of gamer entitlement. As I’ve said before, I understand that a number of players are hurt by news of the closure and are lashing out in response, but it doesn’t reflect well.

      Plan Z is probably the best option that these fans have to continue with the type of game they like, but the chances of that succeeding are exceedingly slim. Indie MMOs are very hard to even get to the launching stage and appear to be work best when driving by a very small number of individuals who do almost everything (e.g. Love, Golemiser, A Tale In The Desert). Plan Z has so many people willing to help at this stage that basic project management and logistics are going to work against the title moving forward.

      • I definitely agree that the closure notice could have been handled differently; but from all I’ve seen in the past with NCSoft their skills at communicating among their branches (especially those overseas) often leave something to be desired. Your analysis of Tabula Rasa’s troubled development cycle shows how they seem to have an internal communication issue within their own corporate culture. Still, video game studios get axed with little to no warning all the time. Radical Entertainment was quietly killed off by Activision shortly after the launch of Prototype 2, even though the game did sell fairly well. “Doing well” is not good enough to sustain a studio in the hands of a large publisher – the desire to maximize ROI is extreme, especially when game development times continue to push past the 30+ month mark. Investors have gotten used to taking big losses in cycles with releases now at least, but they won’t tolerate a studio just breaking even or making a small profit.

        Regarding attempting to disrupt stock valuation and other efforts? Such things are fanciful at best as NCSoft is dealing with the layoffs of thousands within their own country without it meaningfully impacting their stock price over the long term. It’s disturbing to watch people read normal market fluctations in NCSoft’s stock price as signs that ‘we’re making an impact!’ or ‘NCSoft is doomed!’ when they currently have a new best selling title and their major markets remain relatively stable at the moment. (We’ll see how their Q3 results are soon enough.) A lot of gamers don’t seem to get corporate valuations (such as claiming that Valve should buy EA as opposed to the efforts the other way around, when the former is worth $1.5B and the latter is worth over $4.5B). NCSoft is massive – a $6B market cap, two newly released MMOs in hot markets, with a followup for their most successful title series due soon. Could they fail? Absolutely – video games are a cutthroat business, dev cycles are long/expensive, and gamers tend to be fickle in tastes. It won’t be because of the American markets, or the efforts of a few thousand people in a market of tens of millions.

        Plan Z is indeed probably the best option but there is a current lack of leadership experience that will work against it. The plans they have put forward are far too ambitious (consider that CoX launched with only 5 ATs and a level cap of 40 even after years of development time with professional programmers and designers at the helm) based on expectations that have been set by a title that had millions of dollars and countless manhours invested in it. A small in scope game with a tightly focused development team would be more likely to produce a meaningful result before funding, initiative, talent, and patience inevitably dry up. Their current plans as outlined on Titan Network’s forums basically read ‘second systems effect’ in big bold letters. While claiming to be a preservation effort they are in effect trying to start a new indie game studio with a project scope that is currently beyond their organizational capability. Based off your previous posts I really don’t need to elaborate on the sort of challenges that these folks face going forward.

        I am hoping that ‘heat and pressure make diamonds’ in that the loss of their game helps these folks make something creative and meaningful, but I am realistic regarding their chances. It’s a big jump to go from playing games to designing them and an even bigger one to designing ones that succeed. Competition is fierce, the work is hard, money is tight, and the cost of failure is high. Best of luck to them if they proceed – they certainly are going to need it.

  3. Pingback: City of Heroes / Villains: « Vicarious Existence

  4. You guys need to get a room…

    It has been proven that:

    1. NCSoft let major cash transactions happen in the market and let 3, 6, & 12 month subscriptions be bought up to the day of the announcement of closure.

    2. They put the entire Paragon Studios workforce out on the street with no notice. They were a week or so out of publishing I24 that would brought out a new story line and brand new power sets and other QOL improvements.

    3. They waited two or more weeks before even addressing the COH/V community about the closure. Even then it was very weak and was not very sincere.

    4. The COH/V community as a whole feels betrayed by NCSoft. There are/where a lot of long term subscribers to the game which amounts to not only cash investment but also time investment. The actions taken by the community (as a whole) has shown how dedicated they are to not only COH/V but also with Paragon Studios with the SaveCOH movement. It’s rare to see that kind of loyalty to any type of brand, especially when you read articles about how MMO titles can’t be sustained in this day and age because of lack of loyalty.

    To denigrate the COH/V community for trying to save something that you feel is unimportant just shows that you don’t know what your talking about. Skimming the official forums and titan networks forums does not give you true skin in the game. You are free to your opinions but you don’t speak for those in the community. The community has had real life deaths, marriages and friendships come about due to the closeness and affability of it’s players.

    Also of worthy mention is the various charity drives that have been sponsored by the community such as The 4th Annual Real World Hero charity drive that is going to be held even now during the sun setting of the game.

    While on the surface the argument can be made that it is just a game the same way way other hobby enthusiast can be told it’s just a car, a gun and a photo, but it transcends past the reason that people feel passionate for their particular niche due to the relationships that are formed and the memories that are made.

    Sometimes for a lot of people it’s not about the almighty bottom line.

    • I agree that NCsoft handled Paragon Studios’ shut down appallingly and that they deserve criticism for it. But what you call denigration I see as being more pragmatic – NCsoft supports a title right up to the point it doesn’t, then it shuts it down and keeps the IP. If fans ‘save’ CoH/V, congratulations to them, but I don’t think that will happen.

      (Actually, the whole shut down decision and event chain would be incredibly interesting to know, but that will only come out if the people directly involved talk.)

      It might be about more than the bottom line when it comes to the CoH/V community, but unfortunately it is a community formed around a multimillion dollar entertainment product that is expected to have a financial future if it wants continued reinvestment. If the community is really about more than the game, then it will outlast the game and move into another form.

      Part of the reason for these posts is providing a viewpoint that isn’t “NCsoft shut down CoH/V because they are EVIL”, or some equivalent hyperbole, which I’ve seen a lot of. NCsoft handled this event badly, but there from a business perspective the decision makes sense.

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