Late last week, Funcom released their financial report and presentation for Q4 2008.  While there’s plenty of info about Age of Conan not living up to expectations (see below), there is a silver lining to be found in the Sturm und Drang.  In the report, Funcom revealed that they have two, count ‘em; Two free-to-play titles in the works.  Both are MMORPG’s that will monetize via a combination of microtransactions, in-game advertising, and subscriptions.  Both are yet-to-be-named, but one is a Java based MMO aimed at a youth market, while the other is a browser-based MMO targeting a more general, all encompassing market.  Funcom’s Java product has a team of 17 dedicated devs., and the browser based MMO gets 14 of Funcom’s brilliant minds.  These numbers sound good, but – to put things in perspective, Funcom’s upcoming subscription (only) based title; The Secret World has a dedicated team of 80.  Am I on the only one raising the ‘what?’ flag?

And now for the bad news: Age of Conan – fail.  Most of Funcom’s report focuses on how AoC has not lived up to previous hype, and how this will affect Funcom’s future.  Their Q4 gross revenue topped out around $8.7M, which was in fact within the expected parameters of between $8-10M, but obviously, board members were hoping closer to 10 than 8.  In comparison, Q2 saw $12.2M line the coffers, while Q3 really brought home the bacon with $18M.  And while it’s true that Q4 revenues represent a $7.5M increase YOY from 2007, most of this was generated by Age of Conan players’ subscription fees.  Whether or not these players remain or return to play is yet to be seen.

Funcom notes in the report that subscription retention rates were lower than expected.  One key factor was players’ dissatisfaction with the game.  They claim that retention rates are stabilizing and that player activity is on the rise, but are “uncertain” about future usage levels, and how the product will be able to successfully attract new players moving forward.

Given that Funcom recently pulled the plug on over half of Age of Conan’s servers, one can only wonder what metrics they’re using to justify ‘increased player activity’?  Sure, if you remove half the available options, any activity is going to look like increased activity.  And lest we forget, in late 2008 Age of Conan director Gaute Godgar called it a day with Conan, citing his dissatisfaction with the title’s quality.  And to add just a bit more icing to the cake, Funcom’s CFO Olav Sandnes resigned after a $23.3M loss (what was that about following the money?).

While Age of Conan may have been the third best selling PC title of 2008 (World of Warcraft and Spore took the top two spots, respectively), DFC Intelligence reports that Age of Conan put less coinage in the bank than Warhammer Online and Lord of The Rings.  And now for the kicker: AoC was out-earned by several free-to-play, microtransaction-based titles including Runescape, Maple Story, and Club Penguin.

Funcom’s now investing in two free-to-play’s after what come might consider a disastrous year.  Coincidence?  I think not.  The report says that both of Funcom’s free-to-play’s are expected to be in beta status by Q4 2009.  While they did not disclose details as to when development had started on these projects, 9 months to turn out 2 free-to-play, microtransaction driven titles with just 31 people involved?  Sounds like a rush job to me.  Remember, Funcom’s upcoming subscription based title; The Secret World has a team of 80 concentrating on it.  One might think that after devoting so much time and development work to a title that’s delivered ‘Meh’ performance, wouldn’t it be time for Funcom to take a second, look in the mirror (and the balance sheets) and refocus their efforts on products that can really make an ROI?

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