Analyst: SWTOR could cost EA as much as $80 million to develop

Thursday, 5 May 2011 18:12 GMT By Stephany Nunneley

Wedbush Securities analyst Michael Pachter has estimated that when all is said and done, EA will have invested $80 million in Star Wars: The Old Republic.

This massive number was figured by the analyst by adding together the presumed cost of development, along with EA having to front all expenses for the game, plus pay a royalty to Lucasarts.

“The contribution from the Star Wars MMO is significant,” he said (via Industry Gamers). “Under the terms of its deal with LucasArts, EA is required to pay a royalty, but was required to front all of the development, marketing and distribution costs, as well as the costs of building out servers for the game. We estimate that LucasArts’ share is 33 percent of revenues, AFTER EA recoups its investment in game development.

“Given that the game was in development for over four years, with an estimated 200 full-time developers working on it, we estimate that EA’s investment exceeds $80 million.

“Fortunately for investors, the company expenses R&D spending, meaning that its revenues on sales of the Star Wars MMO DVD will be pure profit. EA will be required to spend marketing dollars on the game, and we estimate total manufacturing, marketing and distribution spending will total around $20 million, meaning that at two million units sold, EA will generate $60 million of operating profit on the DVD sales.”

Pachter went to state that Wedbush expects EA to cover its direct operating costs and breakeven at around 500,000 subscribers, a number he called “exceedingly conservative,” when it is being estimated that the actual breakeven figure will hit around the 350,000 mark.

“With 1.5 million paying subscribers, EA will have 1 million profitable subs,” Pachter continued. “We estimate that the incremental operating cost for each subscriber above breakeven is around $5 per month (also quite conservative), so if the revenue split is 33 percent to LucasArts ($5 per subscriber per month), EA will be left with $5 per subscriber per month in operating profit. At 1 million profitable subscribers over the last six months of its fiscal year, EA should generate $30 million in operating profit from subscribers.”

EA has said many times before that an MMO doesn’t need one million subscribers to be profitable, and last night, the firm seemed confident when speaking of SWTOR during its financial call to investors.

The firm said last night there was an “outside chance” SWTOR could slip into January 2012 (which would be Q4 of the firm’s FY12), but for now, it was still planned for release during the later part of calender year 2011 – meaning Q3 FY12 which encompasses the months of October through December.

Latest