Smedley Delves into Reasons for Subscription Changes (mostly Accounts and Tax Laws)

Written by Feldon on . Posted in Daybreak Cash, EQ2, Free-to-Play (EQ2X)

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SOE President John Smedley continues to peel back the curtain on the thinking behind Subscriptiongate and why he is trying to make this right for loyal customers, while addressing the Accounting and Tax Law issues which SOE could ignore no longer.

First up, Smed posted his philosophy on game development and how these Subscription changes were never about squeezing players for more revenue:

When I read through all the posts here and on our forums, it never ceases to amaze me how people can think we’re just money grubbing jerks because we’re trying to make money.

I can tell you from the bottom of my heart that’s just not how we think. Most people I know in the games business are in it because there is literally nothing else they want to do ever. From the time I was in high school I knew that’s what I wanted to do. The same is true for a lot of people here at SOE and around the industry.

Obviously one of our goals as a corporation is most certainly profit. And yes, when you guys buy our stuff it makes us happy. But money has nothing to do with why it makes us happy. We’re happy because you guys bought something we (or one of our other players made).

We’re in the middle of developing Everquest Next Landmark (on schedule right now for end of this month). We rebooted the game 3 times. It was a massive delay and it hurt us financially. But it was the right thing to do for us, and for the industry. Most importantly you all are going to get to play something we’re very proud of and we think is a whole lot of fun.

I believe a lot of this rhetoric is the result of us not being transparent enough, so we’re going to change that. I want us to start explaining the “why” in the decisions we make.. particularly the financial ones.

The changes we originally proposed would not have made us more money than the previous plan. Even if some people cancelled, though to be honest we thought our plan was pretty darn awesome and you would love it.

The same is true for a lot of the decisions we make. We’re trying to make life better for you, and yes.. for us too. But while some of those decisions are financially based, most aren’t. It’s usually something to clean up a tangled process or solve other problems.

So. how do we really feel about monetization?

Here it is.

We believe if we make great games, we’ll make money.

In that order.

So I therefore am going to make it one of my personal missions to explain the thought process behind our business decisions. I want to be able to have an honest enough dialog that I can actually tell you “yeah this is important to our bottom line.. that’s why we did it”… and have you at least not question whether that’s the real reason. You may disagree with it, but at least you’ll be able to make a reasonably informed judgement as to whether or not we’re the greedy company some of you seem to think that we are, but at least you’ll hear the why.

My hope is that by doing this we can at least get people to say “ok. that makes sense.. I don’t love it but it makes sense and I’m ok with it”. And if you don’t, then we have work to do.

many more quotes after the jump. Smedley has been a posting machine!

On SOE being taken aback by customer concerns:

We didn’t expect as much backlash as we saw, but that wasn’t what changed our minds. In this case it was reading the “why” people were bothered that was persuasive.

We aren’t psychic. Well ok I am but most people aren’t. Which means we make decisions we think are right, but sometimes player behavior is different than we expect. In this case we really weren’t seeing the downsides or we would have put it up for discussion.

There are a whole [lot] of moving parts to our business. Companies like Riot have an advantage we don’t have – they started out as f2p. For us bringing our portfolio to f2p involves dealing with pre-existing playerbases. That makes the issue more complicated, we are also on multiple platforms. Again.. More complicated.

Anyways.. It if a ramble but wanted to respond to this.

On why SOE can’t just ignore the Accounting implications of virtual currencies, especially ones paid out to third-party artists (Player Studio:

 Just to be clear here… we don’t care about the accumulation. That’s not the problem. The issue is the people who never log back in.

Sadly accountants around the world have decided (starting with the IRS) that the accounting for virtual items is done not even when we sell you the item (in most cases). If a person tops up $100 in their wallet…. and then promptly spend $50 of it… we can’t even recognize that $50 in the month we sell the items. we have to spread it over the expected lifetime of the player (yes we still have the cash). That’s actually how the accounting for these things works. And that extra $50 if it’s never spent sits on our books.

For those of you that think this method of accounting seems backwards… it is. I agree with you. The irony here is more and more states are starting to charge sales tax on virtual items.

Imagine this scenario – we don’t have to imagine btw.. we live it.

Same guy as above spends $100 to top up SC in Texas (one of the states that implemented this early).

He waits a year before he spends it because maybe he’s overseas on duty or something. We have to remit the sales tax on that $100 but we are unable to recognize any of that revenue until it’s spent.

I don’t want to make this sound melodramatic. I just want people to recognize we aren’t making these decisions inside of a bubble where we aren’t aware that these decisions can have meaningful impact on players spending and their desire to play. I just want you all to better understand the “why” even if you disagree it.

For those who think SOE is just blowing smoke on the Accounting ramifications:

http://www.iasplus.com/en/publications/us/industry-spotlight/tech/tech-spotlight-issue-4

read this if you want to understand it better. Warning – that’s an hour of your life you’re not getting back and it’s boring.

or just google “accounting treatment for virtual items“.

On the costs of Planetside 2:

If we could get 100M subscribers to each pay us a dollar and we could make every item in the game free we would love to do that.

In practice, our primary job is making fun games. That always comes first. PS2 was a $25M investment. We have to show a return on that investment. It really is that simple?

I genuinely believe we offer great value for the money and this perception does bother me. I can’t say we haven’t stepped in it a few times if you could sit in on the conversations around here you would understand that monetization is not the #1 topic around here.

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Comments (15)

  • Grys

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    Nice ramble & very appreciated. I have played EQ/EQ2 since 1998 & honestly SoE have been pretty responsive over the years. But like any large organisation (who in turn is a subsidiary(?) of another even larger organisation – communication with clients/customers continues to be an issue. For most of us an explanation or the “why” is very important. In all cicumstances there are always percieved winners & losers – you can’t please us/them all. Thank you John Smedley for the brave attempt & for an enjoyable game that has seen me through much of my adult life.

    Reply

  • Froak

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    “We’re in the middle of developing Everquest Next Landmark (on schedule right now for end of this month).”

    was this a brain fart or is he saying landmark will go into alpha a month early?

    Reply

    • Feldon

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      Reply

      • Pipsissiwa

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        The cynical bit of me says thinks this is cos they need to cash in all the insane money people have been paying to participate in Alpha. Paying to Alpha test? Leaves a nasty taste. I’ve Beta tested a number of games and Alpha tested two, all for free. and with perks if I played the game once launched.

        Reply

        • Redfred

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          Yeah, I cannot understand this either. I didn’t even get a response to the beta application so I doubt I will even bother to download Next unless it gets rave reviews

          Reply

  • Anaogi

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    OK, I have to admit I love this little look behind the curtains at the nuts and bolts of what they have to deal with to keep the game going. I’m not sure most folks realize there’s so, so much more than just code and hardware that goes into these things–I for one do not envy the people who have to push the paper to make the rest possible, but I appreciate what they do all the same!

    Reply

  • Hurath

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    #respect

    Reply

  • Pipsissiwa

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    I really appreciate this insight, lets hope it marks a fundamental change in how SOE talks to and treats their player base.

    I remain confused about one thing. Smed said before that people hoarding SC is a problem (later suggesting tax reasons) which is why they didn’t want to give it away any more. Surely people can still hoard the SC the buyonline or as cards? And now we can hoard the 500SC again too…. so… what changed about hoarding being a problem?

    Reply

  • Noctew

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    When you are forced to login and /claim the SC, you are more likely to spend the SC immediately, immediately reducing their liabiliies; if you don’t login – maybe because have a long term subscription but do not care about the game anymore – you forfeit the SC thus no liabilities either.

    Reply

  • Pipsissiwa

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    Yeah I get that, but we can still hoard it, and buy cards in stores or via the website and hoard it – Smed said that people hoarding SC was a problem, not just hoarding the free SC.

    Reply

    • Anaogi

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      If an actual SC card is bought and hoarded, the money’s changed hands and they can realize the income, so it’s not quite as big an issue.

      Reply

  • Pipsissiwa

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    I have been told now that asking about the implications of the new all-access plans for us Europeans was repeatedly off topic. Not sure how when Smed himself mentioned us in our own bullet point and everything in the OP. But apparently it was fine to discuss all other aspects of the new proposal EXCEPT the bit about Europeans for some reason. How it constituted off topic I have NO idea – awaiting a response.

    /baffled

    Reply

    • Redfred

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      They prob equate all Europeans with PS7 now so it’s out of their ball game until they have negotiated with PS7 about the issues.

      I wonder how many of us are still on SOE accounts from Europe – I am

      Reply

      • Pipsissiwa

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        Me too, in case it wasn’t clear. I think there are a lot of us – following our huge fight, anyone who was an existing player when PSS1 took over EQ2 in Europe just stayed with SOE so a lot didn’t even realise anything happened, they just carried on playing.

        Reply

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