The United Kingdom’s largest independent games studio is coming off a record year in 2012 in which it saw profits rise above $76 million for the first time in history. The free-to-play game maker is preparing to launch RuneScape 3, the first HTML 5 game, and Transformers Universe later this year. The developer recently released Ace of Spades and Carnage Racing.
Founded in Cambridge in 2001, the studio has grown from four employees to 550. Mark Gerhard, CEO of Jagex, told me that the company embraced the now-popular free-to-play business model completely by accident. When the dot-com bubble burst, the ad revenue dried up for RuneScape, so Jagex decided to charge for a premium VIP experience with extra content, skills and other features and offer the a large portion of the game for free. Today, the game has over 200 million registered users.
Michael Pachter, video game analyst for Wedbush Securities, believes RuneScape has 2 million actively engaged players and 20 million more casual players. There were 70,000 people playing concurrently online at the time of this post. Pachter estimates that active players are spending approximately $7.60 per month on the fantasy online game RS 3 Gold.
“Runescape’s unique in that the free game, which is a subsection of the game, has tens of thousands of hours of gameplay so you don’t ever finish,” said Gerhard. “And then to become a member is more like a VIP experience, so it’s really a subscription game at heart. We introduced micro payments into Runescape a year ago and that’s been well received. With Transformers Universe, which we will be launching later this year, that will be almost exclusively micro payments. We launched Ace of Spades late last year and that’s just a pay once to download. We look at what’s right for the game when it comes to the business models.”
Gerhard has watched as big companies like Electronic Arts and Trion Worlds shift games like Star Wars The Old Republic and Rift from a paid subscription model to the free-to-play model.
“With the launch of so many titles there’s big marketing spent and the cost of acquisition goes up something like 60 percent year on year,” said Gerhard. “I challenge you to find someone who’s actually able to spend a dollar and get a $1.10 back. I think a lot of people are just spending money now, and that’s not sustainable. That’s not a way to run a business. It is for a short-term, but I think we’re seeing the casualties of that now.”
Gerhard also believes the bigger entertainment landscape, led by mobile, is impacting player expectations when it comes to costs. With many games being free-to-play and many games, music and movies available starting at 99 cents, but yeah, players expect more for every dollar they spend.
“We’re in a recession, so players want more value and more time for every dollar and even the free players are far more discerning,” said Gerhard. “More than 50 percent of our members have been with us more than five years and growing, and so we develop those relationships. It’s a social network. At any point in time between 10 and 15 percent of our players are just chatting in the lobby with each other. So we work with them in developing new content and trying new things, which we’ve done since Day One.”
Another strategy Jagex has employed with its games from the early days is utilizing the cloud – before the cloud became a mainstream way for games to be distributed. The company has been doing virtualization in the cloud for over a decade.
“The the game logic state is set aside and we’ve only used the cloud for rendering, controller input and audio,” said Gerhard. “We have a very thin client that’s streamed on demand, so porting that to other devices is actually a relatively low effort compared to other games. We‘ve talked about that with Runescape and that’s our same design for taking on Transformers Universe and some other games too. So you can expect a lot of what Jagex produces to launch across multiple platforms.”
Gerhard said the decision to utilize HTML5 was to make the game “future proof” and demonstrate that a complex game like RuneScape can be brought to an infinite technology standard. This fall, RuneScape will expand to tablets with an optimized version of the game that is designed for that experience. The plan is for the game to expand to mobile shortly after that with apps that augment the game and provide productivity and interfacing with the game.
Jagex faces a lot of competition in the free-to-play online games space with companies like Sony Online Entertainment’s EverQuest II, Riot Games’ League of Legends and the upcoming Red 5 Studios’ Firefall enticing gamers.