EA games has so far splashed out an impressive $80 million in the development of the next Star Wars based MMO, “Star Wars: The Old Republic”. On top of this revelation however, EA is also saying that the title may not be released until some time in 2012.
“The contribution from the ‘Star Wars’ MMO is significant,” said Michael Pachter, Wedbush Securities analyst. “Under the terms of its deals with LucasArts, EA is required to pay a royalty, but was required to front all of the development, marketing and distribution costs, as well as the costs of building out servers for the game. We estimate that LucasArts’ share is 33 percent of revenues, after EA recoups its investment in game development. Given that the game was in development for over four years, with an estimated 200 full-time developers working on it, we estimate that EA’s investment exceeds $80 million.
“Fortunately for investors, the company expenses R&D spending, meaning that its revenues on sales of the ‘Star Wars’ MMO DVD will be pure profit. EA will be required to spend marketing dollars on the game, and we estimate total manufacturing, marketing and distribution spending will total around $20 million, meaning that at two million units sold, EA will generate $60 million of operating profit on the DVD sales.”
This means that EA won’t even have to get a large subscriber base for a long period to turn a profit on this game. That’s either a good thing or a bad thing. EA will now either have more free development money for the game to continue updating and supporting it, or it could mean that they’ll quickly move on to something else, the money made.
“We estimate that EA will cover its direct operating costs and break even at 500,000 subscribers (actual number is closer to 350,000 subscribers), meaning that with 1.5 million paying subscribers, EA will have 1 million profitable subs,” said Pachter. “We estimate that the incremental operating cost for each subscriber above break even is around $5 per month, so if the revenue split is 33 percent to LucasArts ($5 per subscriber per month), EA will be left with $5 per subscriber per month in operating profit. At 1 million profitable subscribers over the last six months of its fiscal year, EA should generate $30 million in operating profit from subscribers.”