EVE Evolved: Lessons from 38 Studios

This week we heard the news that Kingdoms of Amalur developer 38 Studios shut down and let go all 379 full-time staff. It's always a tragedy when good developers are made jobless, especially if the job losses come out of nowhere and hit people who have only recently been hired. 38 Studios was still hiring people shortly before it collapsed, and some of those recent hires were ex-CCP developers who were part of the 20% of staff fired at the end of last year.

The shutdown of 38 Studios is a sobering reminder of the problems in EVE Online's development that led to monoclegate. Both studios were mismanaged, with the jobs of hundreds of developers gambled on the outcome of poorly researched business decisions. EVE Online thankfully survived CCP's failed microtransaction gamble, but 38 Studios' Project Copernicus may never see the light of day.

In this week's EVE Evolved opinion piece, I look into the similar circumstances that forced CCP Games and 38 Studios to fire staff, and draw some lessons from them for which I believe the industry should take heed.

Don't hire more people than you can afford

Not spending more than you can afford seems like an obvious rule, but when it comes to the payroll, that rule often seems to go out the window. There's nothing wrong with growing a business and offering as many jobs as possible, but those jobs should be secured. CCP grew its ranks every year, merging with White Wolf to create its Atlanta office and acquiring existing offices in China and the UK. The number of employees was trotted out at each year's Fanfest as a measure of success right alongside subscription numbers, and every year it had to increase.

When EVE's subscriptions dropped during monoclegate, CCP's revenue suddenly shrank and there was no financial buffer to keep all the staff while the damage was undone. The company had spread itself too thin by trying to develop three games at once on the income from EVE's subscriptions. Similarly, 38 Studios rapidly grew to have 379 full-time staff and hired industry veterans who wouldn't have come cheap. The existing jobs were being paid out of a massive loan and would be forfeit if a payment was missed, but the studio kept hiring more people.

Stop chasing the number one spot.

EVE has always had high player retention, and subscriber numbers grew steadily from release until a few years ago. Following 2009's blockbuster Apocrypha expansion and Dominion's nullsec rework, CCP began chasing the millions of players that other MMOs had secured. Incarna was a well-intentioned but ultimately misguided attempt to attract players from avatar-based MMOs, and Incursion was a side-project repackaged as an expansion while Incarna was being developed. The Tyrannis expansion even ended up as a casual FarmVille clone, probably because Zynga had to invent several new numbers to count FarmVille's players.

38 studios pulled out all the stops to develop a triple-A MMO and to finish and rebrand Big Huge Games' polished singleplayer RPG. Fantasy writer R.A. Salvatore was reportedly paid a whopping $1.46 million for his work on Kingdoms of Amalur, plus royalties from sales. Even though the game reportedly sold over 1.2 million units, it's estimated that it would have needed three million sales to break even. With its massive budget and rack of industry veterans, Project Copernicus was similarly aimed at the top of the MMO market and would have needed a lot of sales to be profitable. It's a big industry, and there's plenty of room to be successful without being at the top of the ladder. 38 Studios spent far beyond its means to reach that top rung, and it didn't pay off.

Reduce uncertainty with research

When we talk about the risk in a business decision, most of us don't distinguish between genuine risk and uncertainty. Risk is something negative that can't really be predicted, like a competing game being announced or an important deal falling through. Uncertainty is when we don't know what the outcome of an event will be but it may be possible to predict it with some degree of confidence, such as not knowing how many sales a game will get or how much money it will cost to complete. The key difference is that risks are usually unavoidable, while uncertainty can be reduced with research.

CCP's microtransaction plans weren't just risky business decisions that didn't pay off, they hinged on uncertainties in player response that could easily have been mitigated by presenting the issue fully to the CSM. Basic research into microtransactions would have indicated that a strict vanity scheme with inexpensive items would have been well received. Likewise, when 38 Studios was setting aside the budget for its projects, early feasibility studies should have shown the number of sales that would be needed and how many could be reasonably obtained with a known degree of confidence. That should probably have informed cutbacks on extravagant costs like hiring big industry names and paying $1.47M for game lore.

Grow organically

Although it's a massive global company today, CCP Games started life as a small indie studio with not much more than a dream. To fund EVE's development, the group initially produced and sold a board game called Danger Game. With some additional financial wrangling, the team got enough funding to develop EVE and released it in 2003. From then on, subscriptions were poured back into the game and the studio grew organically. That's an incredibly successful business model for a new studio: Start small, and work your way up to larger and larger scales of development as and when income allows.

38 Studios skipped this organic growth process by taking on a $75m US loan from the state of Rhode Island in exchange for promising to create 450 new jobs over two and a half years. With no released games, there was no revenue coming in until Kingdoms of Amalur was released in February. Though the game sold well and reportedly outperformed expectations, it evidently didn't make enough money to keep the studio open. No employer wants to admit the jobs he's offering are riding on the back of a very large bet on sales or the potential to secure future funding, but ultimately these ones were.

Taking on a loan for the full development costs of a game is a massive risk, and it's not the only way to get the required funds. EVE Online is the product of an organic growth process that eliminated the need for massive up-front investment. If a studio does need to take on board a large amount of cash, it should be very wary of the terms on which that money is being accepted. 38 Studios' loan locked the company into making huge repayments and adding hundreds of employees to its payroll.

Both CCP Games and 38 Studios have been responsible for major losses of jobs in the MMO industry, and lessons have to be learned from their mistakes to avoid repeating them. CCP admitted to and corrected its mistakes before they became fatal to the company, but still lost 20% of its staff. 38 Studios didn't reveal the depth of its financial trouble until it was too late, and gambled away 379 people's livelihoods. We can only hope that these mistakes are not repeated by another studio in the near future, and that CCP remains a prime example of how to turn things around.

Brendan "Nyphur" Drain is an early veteran of EVE Online and writer of the weekly EVE Evolved column here at Massively. The column covers anything and everything relating to EVE Online, from in-depth guides to speculative opinion pieces. If you have an idea for a column or guide, or you just want to message him, send an email to brendan@massively.com.