Is World of Warcraft Headed to Its Grave?

Player declines have been reduced, but Activision is facing a harsh reality that its beloved MMORPG is headed to its grave.

To most young consumers, Activision

is known for publishing the most successful first-person shooter franchise in the history of gaming: Call of Duty. With more than 20 million units sold annually, Call of Duty is the kind of cash cow Activision loves to produce. On a yearly basis, the franchise is worth more than $1 billion. Over on the PC, Activision thought it had found a similarly successful cash cow in the form of World of Warcraft. Originally released in November 2004, World of Warcraft was the MMORPG the world had been waiting for, appealing not only to hardcore gamers but to casual players as well. This helped propel the franchise, allowing World of Warcraft to sell more than 10 million units, along with several million copies of each expansion pack. Unlike other games in Activision's lineup, World of Warcraft came with an added expense: to play, you must pay a small monthly fee. Thus, in addition to the revenue the publisher made

the game to consumers, Activision also earns a sizeable monthly income. Right now, the company scores more than $100 million per month from game in-game subscriptions, totaling more than $1.2 billion in annual revenue. This figure is probably conservative;

range from $12.99 per month (if you pay for six months up front) to $14.99 per month (for those who pay for each month individually). At 10.2 million subscribers, Activision is in a wonderful position to continue cashing in on a game that will celebrate its eighth birthday this November. Let's think about that for a moment: World of Warcraft is almost eight years old. Anyone who knows the game industry should be impressed by what Activision has accomplished with this series. Whereas most online titles fade away after a few years, World of Warcraft has thrived since 2004. That is huge. The problem, however, isn't with what Activision accomplished in the past – it's what the company might fail to do in the future. Investors have been increasingly concerned by the declines that World of Warcraft has endured. In the third quarter, Activision announced that it had lost 700,000 players (or an average of $9.8 million monthly revenue). In the fourth quarter, the company lost another 100,000. With fewer players leaving the game behind, Activision has attempted to put a positive spin on the news. “When we introduced the content patch we thought the numbers would stabilize and they have,” Activision CEO Bobby Kotick

. Thus far, analysts seem to be fairly happy with Activision's results. In a report released this morning Wedbush said that investor concerns over declining World of Warcraft subscribers “may have been overblown.” “While we expect some modest pressure in January from competitor EA's Star Wars conversions from trial to paying subscribers, the stable subscriber numbers for WoW were a pleasant surprise,” Wedbush wrote. While Sterne Agee believes that Activision's new marketing campaign is working (the company now allows users to play for free for up to 20 levels, and those who sign up for a full year World of Warcraft can get a free pass for Diablo III). “However, EA launched the Star Wars MMO at the end of Q4, and Activision management did not provide an update on WoW subscriber trends in light of the increased competition,” Sterne Agee wrote. “As such, the next quarter's WoW subscriber level will be a key indicator, going forward.” Citi concurred, writing, “While the flattish sequential sub count is positive, in our opinion, we think the March quarter will be a better gauge on Warcraft's ability to hold its own against EA's Star Wars MMO, as SW players would have to subscribe by the end of January.” From the sound of things, you would think that it was Electronic Arts

that just reported a drop in subscribers. But the general consensus seems to be that if Activision can

the speed at which players are lost, World of Warcraft will continue to be a massively successful MMORPG. The long-term dilemma, however, is that World of Warcraft will continue to lose players. This is not a simple prediction or an angry rant from a diehard Star Wars fan looking to tarnish the image of a competing game. This belief comes from years of studying the game industry and knowing how it works. No game can hold onto its success forever. All consumers tire of all things, eventually. World of Warcraft will be no different. But through expansion packs (and the simple fact that people love playing the game), World of Warcraft has lasted longer than any other game of its kind. If Activision wanted to keep it going for another 10 years, it probably could. But don't expect the game's subscriber base to remain the same.