LucasArts to take "around 35%" of Old Republic revenue - report

LucasArts will take "around 35 per cent" of the revenue from forthcoming Star Wars MMO The Old Republic after EA has earned back its investment, according to Wedbush Morgan analyst Michael Pachter.

Following Activision boss Bobby Kotick's suggestion earlier this week that EA's game is unlikely to turn a significant profit thanks to its licensing agreement with LucasArts, Eurogamer canvassed opinion from a number of industry commentators about the publisher's chances.

The consensus? LucasArts will earn plenty from the deal but both parties should see a healthy return.

"I think [EA] will make a profit," said Pachter.

"The revenue split is around 35 per cent to LucasArts after EA earns back their investment. That means EA keeps most of the revenue from disc sales (they have marketing expenses and need to staff up the server farms), so they should earn a nice profit there.

"Keep in mind that EA expensed the development cost when incurred, so much of the disc sales revenue will be profit."

Pachter estimated that the MMO will pull in around 1.5 million subscribers, representing around $80 million a year in profit.

"On an ongoing basis, they will split revenue from running the subscription business. My best guess is that they will attract 1.5 million subscribers paying around $15 a month, so they should generate around $270 million in revenue. If LucasArts gets 35 per cent and if EA incurs around 35 per cent operating expense, they make 30 per cent, or around $80 million per year, in profit. That's not bad."

He also backed up EA CEO John Riccitiello's assertion that the game only needs 500,000 subscribers to be profitable.

"Most MMOs require around 250,000 subscribers to cover the direct operating expense of the server farms. Given LucasArts' revenue split, SWTOR would require around 400,000 subscribers to break even. That means they make money at 500,000 subscribers."

EEDAR VP Jesse Divnich also argued that Kotick was wide of the mark, citing EA's noted ability to negotiate a good deal.

"Based upon user commentary and consumer surveys, the profit potential for The Old Republic is high. We see little risk of failure for The Old Republic," he told Eurogamer.

"Kotick's comments are valid in the sense that licensors do take a piece of the pie and is an economical hurdle that entertainment has been struggling with for years. In the same respect, how successful would EA's MMO be without the Star Wars brand?

"It's a give and take scenario, but given EA's historical ability to negotiate favorable license terms, I don't believe Lucas's share is a detriment to the game's profitability."

Divnich pegged The Old Republic's potential user base a little higher than Pachter, predicting it will attract three million subscribers by next June.

"Taking into account multiple years in service and expansion packs, $500 million in total revenue is not a far stretch. If an MMO can't be profitable at $500m in revenue, than we are all doomed."

Screen Digest's Piers Harding-Rolls was rather more circumspect, arguing that the title will need to be well marketed and of a high quality straight out of the gate if it hopes to succeed.

"I think that any expensive AAA subscription MMOG represents a very high commercial risk," he explained.

"Many companies have tried to succeed in this sector over the years and have failed. EA itself has had hits and costly misses.

"The risk accumulates the higher the upfront investment," he continued, "and in that context The Old Republic must be considered high risk, although EA has a number of factors on its side, which helps mitigate that risk.

"This includes the strength of the IP, the easing competitive landscape for subscription MMOGs (Rift from Trion Words shows it is the best time since 2005 to compete with World of Warcraft), EA's experience in distributing, promoting and managing MMOGs and the game's strong beta testing."

He added that the specifics of the LucasArts deal will also be key to EA making a profit, as will its willingness to "change the service if it is not working, specifically with regards to business models."

The BioWare-developed title is due to launch on 20th December. See Eurogamer's recent Old Republic preview for more.