Unpacking The Financials of Jagex

posted by on 15th November 2018, at 4:52pm | Discuss Article

It’s November 2018 and Old School RuneScape for mobile has just been released. RuneScape player numbers are skyrocketing. Questions abound regarding direction in RuneScape 3. RuneFest has just finished. And… the Jagex financial report for the year ending December 31, 2017 has just been released in September. Jagex is making a killer profit and that leads to some interesting questions.

But first, recall that last October I had a look at the year ending 2016 Jagex financial report in an articled entitled The Reality of Micro Transactions (MTX). The truth of the day was that Jagex made a grand total of roughly £28.8m profit, with £27,025,917 originating from MTX. Put simply for the year ending December 31, 2016, Jagex would have only made £1,811,828 profit without MTX. The article went into some potential strategies to make up for this drop in profit. Read it and now compare with the year ending 2017!

Before we begin you can find Jagex’s public filings here. The document we’ll be looking at today is “Group of companies’ accounts” dated September 5, 2018. This document details the financial situation of Jagex Ltd. for the year ended December 31, 2017.

For the year ending December 31, 2017 Jagex made a profit of £43,546,491. This is a spike of £14.7m over 2016 profits. Jagex did this on a revenue of £84,863,699 (compared to £74,423,778 in 2016). This is largely made up from £55m in subscription revenue and £29.2m in MTX revenue. If MTX were to disappear as a revenue source, Jagex would still bring in a healthy £14.3m profit. That’s not to say MTX should disappear but it raises interesting questions since subscription revenue increased 17% year over year while MTX revenue increased 8% year over year.

The first question is: which game drives more subscriptions? RuneScape 3 or Old School? We don’t know actual subscriber numbers thus are forced to rely on player counts, as a result we have to ask, which game brings in more revenue? We’re going to engage in some back of the envelope mathematics here in a moment which means the resulting conclusion may or may not be right. We’re going to be looking at June 2017, where we see a general player split of 30k for RS3 and 45k for OS. As per the report we know that RS3 was responsible for ~£53m revenue while OS was responsible for ~£32m revenue. We can then extrapolate revenue per player:

  • RS3: £1,766 revenue/player in June 2017.
  • OS: £711 revenue/player in June 2017.

First some caveats:

  1. We don’t know the overlap of RS3 and Old School members. If you buy membership for one, you get it for both.
  2. We have to assume that all revenue for Jagex Ltd. goes into a single pot and is spread around between RuneScape 3, Old School, and other projects as required. That is there’s nothing saying RS3 revenue stays with RS3 and OS revenue stays with OS.

The upshot here from the pure perspective of the balance sheet is that RuneScape 3 players generate way more revenue. Jagex also has the experience that RuneScape 3 players as they exist today are less likely to revolt giving them more leeway in their RuneScape 3 strategy. This means that while RuneScape 3 players should be treated as first class citizens, they are more likely than not to have the focus placed on revenue over content value.

At the end of the day we know that RuneScape 3 leads the revenue per player of Old School by almost a factor of 2.5. We would have a much better picture of where the revenue came from if subscription numbers were reported for each game. The question to be asked in 2019 and beyond is: how much revenue per subscriber does each game bring in?

This leads to a natural question regarding Old School: Can Old School stand on its own? We know the OS team is smaller, probably has lower budgets, and moves quicker. This means that their costs should also be lower than RuneScape 3. OS makes up more than one-third (37% to be precise) of Jagex’s revenue. Dropping everything else Old School RuneScape probably could support its own membership fee. The game would survive any community backlash because of the universal law: follow the money. People love Old School RuneScape and many will keep playing just to keep padding their RuneScape 3 accounts with wealth (via OS->RS3 wealth transfers). This would also benefit the RuneScape 3 community as long as the assurance is made that revenue from RuneScape 3 is invested into RuneScape 3 while revenue from Old School is invested back into Old School.

For a game that started as a reaction to changes made to the combat system (the Evolution of Combat), Old School has become an entity of its own stature. It has recently seen an impressive mobile launch, though we’ll see if the peak continues. This leads to the question, should Old School have its own membership fee and if not, why not?

Players June 2017

A price structure could be set up in such a way that people pay $9.99 for one membership (currently $10.99) and $14.99 for membership on both games. Gold Premier Club could include membership to both games at the current pricing scheme for Premier Club packages. Combining this with RuneMetrics for Gold Premier Club would create the best value Premier Club package ever offered.

As with 2016, the results for the year of 2017 show that Jagex is headed in the right direction from the point of the financials. The company is settings personal records as it goes forward in terms of profit, profit growth, and revenue growth year over year. This leads us to ask some final questions. First, as Jagex continues to mature and reveal its path forward to players, should it structure its games in the same way Alphabet (parent company of Google) structures its companies? Each game (RuneScape 3 and Old School right now) would stand on its own and report its own revenue and profits. Finally, should subscriber counts be included in these reports as a way to further understand where the corporate revenue originates?

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