Cyberpunk fiasco is going to make gaming more expensive
When big releases go wrong, they go really wrong. Video game makers need more predictable income that comes from add-on services
Buying a video game these days often feels like flying with a budget airline. By the time you take into account expansion packs, loot boxes and online gaming fees, a game's sticker price can end up being just a fraction of the ultimate cost.
That's why game maker CD Projekt SA found a special place in the hearts of gaming enthusiasts. Unlike giant rivals Electronic Arts Inc., Activision Blizzard Inc. and Take-Two Interactive Software Inc., the Warsaw-based studio made most of its money the old-fashioned way: selling a game that you can fully enjoy without having to keep spending on it.
The strategy helped make its "The Witcher" series a hit — and get adapted into a Netflix show. Over the past five years, the Polish company's shares jumped 1,800%.
Now the approach seems to have come unstuck.
The stock's surge had also been driven by the breathless anticipation for "Cyberpunk 2077," an action role-playing game starring Keanu Reeves that had secured eight million pre-orders. Released last week, players assume the role of an urban mercenary whose abilities are augmented by cyberware implants. But "Cyberpunk" has been beset by poor user reviews and technical glitches, particularly on Sony Corp.'s Playstation console and Microsoft Corp.'s Xbox.
The extent of the problems prompted Sony to pull the game from its online store on Friday. CD Projekt shares fell as much as 22% on the news, extending the decline that investors have endured since Dec. 4. The company is now valued at 25 billion zlotys ($6.8 billion).
It's a tough pill for gamers and shareholders alike to swallow. "Cyberpunk" was supposed to form the basis for new online services that could bring more predictable revenue. Such services currently account for just 8% of CD Projekt's annual sales, which had been expected to jump more than fourfold to 2.8 billion zlotys this year. At EA, live services account for 51% of sales, while game purchases are less than 40%, giving the Redwood City, California-based giant more of a cushion should it mess up new title releases.
Bloomberg Intelligence analyst Matthew Kanterman estimates it will take CD Projekt three to six months to fix the snafus. Keeping its developers occupied with that could push back the rollout of live services and the recurring revenue they promise.
Unfortunately for gamers, the experience highlights why it's important for studios to beef up those add-on offerings. If a new release goes wrong and fewer people end up buying the game, that has a bigger impact on earnings if the studio doesn't have reliable income from live services. CD Projekt's foul-up of "Cyberpunk 2077" means gaming investors won't have much patience for the more straightforward sales strategy again.
Going the budget airline route and totting up additional costs is more likely to keep a studio flying high.
With assistance from Lionel Laurent.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement
