Methods Used By Game Companies to Recognize Revenue from Sales in Virtual Worlds

[Tina Small]

I thought this was an interesting read: http://www.iasplus.com/en/publications/us/industry-spotlight/tech/tech-spotlight-issue-4 . Makes me wonder how/when EA recognizes income from the sale of UO codes/items. If they spread recognition of revenue over the life of the game, in some cases, I wonder how long they've estimated UO's life to be and how often they've had to change that estimate. I wonder if accounting issues had anything to do with closing down the sale of UO items last month. I also wonder if accounting issues could be a deterrent for changing much about how/when we pay for UO (i.e, subscription model vs. free-to-play) or for the introduction of more UO-related items to purchase.

Interesting read.

Edited to add: The article at this link is slightly more recent: http://www.pwc.com/en_GX/gx/enterta...oup/publications/assets/pwc-online-gaming.pdf . Haven't finished reading it yet.

 

[Tanivar]

Haven't read the articles but I suspect EA might do better with Origin store sales if they brought their prices down more towards what people are willing to pay for a game they may well turn out not liking. Stores can insist on any price their beancounters want to charge, but they often shoot demand where it hurts with those prices so their supply just winds up gathering dust.

Business's need to keep in mind, they've unemployed a lot of people and have dropped the wages of most of the rest of their potential customers. Raising prices and reducing consumer buying power hurts sales since games are not necessities and many these days can't afford more than necessities. America is now mostly service jobs like flipping burgers.

 

[TimberWolf]

That is hilarious....GAAP and IFRS are pretty specific about the rules around recognition of revenue. But it is funny to what extent US tax lawyers will go to in hope of avoiding taxes.

More likely the items were pulled to make sure that UO maintains a specific profit margin. Mess has probably been told that the game can continue as long as it is viable and makes X- return on investment. Assuming most prices are established to hit that number....a sale just before a major launch can sque the numbers and put the launch in jeopardy. And or reduce budgets for operations and advertising etc.

That is my guess anyway

 

[Merlin]

Interesting articles, Tina.

The question I would raise about UO is whether or not EA's auditors are even testing the Broadsword component of revenue, or if their revenue is so immaterial in the grand scheme of EA's company that they're generally looked over. At the end of the day, their auditors are more likely focused on all the big ticket items and probably only connect the most basic dots when it comes to smaller sources of revenue. In my experiences, the audit usually drives the financial reporting process so I'm guessing their auditor's considerations go hand in hand.

On T-wolf's point, I concur that I wouldn't be surprised if the reason no UO codes were offered during the recent Origin sale were due to UO/Broadsword needing to maintain a minimum level of ROI. It's possible that some degree of compensation (i.e., year end bonuses) for the developer's (or other Broadsword execs) are tied to this metric of performance.

 

[TimberWolf]

Interesting articles, Tina.

On T-wolf's point, I concur that I wouldn't be surprised if the reason no UO codes were offered during the recent Origin sale were due to UO/Broadsword needing to maintain a minimum level of ROI. It's possible that some degree of compensation (i.e., year end bonuses) for the developer's (or other Broadsword execs) are tied to this metric of performance.

Lol so cynical!!....you aren't suggesting a manager would do something like that just to make sure they stay in bonus are you??? Lol