Star Wars: The Old Republic could cost over $80m

EA’s investment in BioWare’s Star Wars: The Old Republic will exceed $80 million, Wedbush Securities analyst Michael Pachter has estimated.

“The contribution from the Star Wars MMO is significant. 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% 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,” he told IndustryGamers.

“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 also agreed with previous claims from EA that the publisher doesn’t require huge subscription numbers to turn a profit on the game.

“We estimate that EA will cover its direct operating costs and break even at 500,000 subscribers (this is exceedingly conservative, and the actual figure is probably closer to 350,000), meaning that with 1.5 million paying subscribers, EA will have 1 million profitable subs,” said Pachter. “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% 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.”

Star Wars: The Old Republic is expected to launch in the second half of 2011, but could arrive as late as January 2012.

Given the time invested in creating Star Wars: The Old Republic, breaking even won’t be good enough for EA. The game is going to require strong retail sales, plus a large million plus subscriber base willing to part with their cash each month.

Typically, new MMOs which aren’t WoW, have launched to modest retail numbers and slowly seen their subscriber base dwindle in the months that follow. Avoiding this fate is vital for EA.