A New Online Frontier

 SONY ONLINE ENTERTAINMENT BECOMES DAYBREAK GAME COMPANY

 From EverQuest to PlanetSide, Sony Computer Entertainment in its various forms has created and curated massive worlds of content and imagination for more than a decade. Now it is looking out on arguably its most daunting horizon the company is leaving the umbrella of Sony with a new name and owner. New York investment firm Columbus Nova has bought SOE now named Daybreak Game Company for an undisclosed amount. Daybreak says it will continue on in the same manner with the same games, but the path before it is undeniably different from here on out.

Daybreak has already stated that it wants to bring its existing properties to new platforms as well as create new ones for them. In a statement the company mentioned supporting the Xbox, mobile, and other platforms in addition to Sony’s systems. In a tweet shortly after the deal was announced, Daybreak president John Smedley specifically said, “I can’t wait to make Xbox One games.”

Both Daybreak and Columbus Nova declined to elaborate on the deal, but its public statement gave a glimpse of what existing customers can expect. “It will be business as usual and all SOE games will continue on their current path of development and operation,” it read. “In fact, we expect to have even more resources available to us as a result of this acquisition. It also means new exciting developments for our existing IP and games as we can now fully embrace the multi-platform world we are living in.”

This is Columbus Nova’s first pure gaming acquisition, although it has some experience in the field. Senior partner Jason Epstein brokered Harmonix’s deal to buy back the Rock Band-maker’s independence from Viacom in 2010. With Columbus Nova largely an unknown quantity in the industry, the question is how much appetite does it have for the inherent risk of shouldering big-budget, network-intensive free-to-play titles while simultaneously trying to strike out onto even riskier platforms for MMOs console and mobile?

“They must see it as a growth space,” says DFC Intelligence analyst David Cole. “SOE is different because the type of products they build are very risky, capital intensive investments. That risk/reward proposition has scared off lots of investors. Ten years ago, when World of Warcraft came out, a lot of investors were jumping into the space, and they got burned. It makes it interesting that an investor would be willing to acquire SOE.”

Joost van Dreunen, CEO of market-research firm SuperData, specializes in areas such as free-to-play gaming. Having worked with  Columbus Nova in the past, he thinks that Daybreak has a few factors on its side: the products, the development talent, and the fanbase. “[SOE] has a very loyal fanbase. What you’re buying, essentially, is not just only the talented group of  developers, but you’re buying an audience. That’s key. There’s so much content out there, there’s so much supply. Having a title like an EverQuest a generation of gamers excited about the next version of it you don’t get a chance to buy that very often. So I think that in terms of overall risk that a finance company can take, this is on the low end.”

Despite its pronouncement to expand to new platforms, both van Dreunen and Cole think we won’t see that for a little while. “...Right out of the gate in the next 12 months, there might be some announcements, but I doubt they are going to be releasing PlanetSide 2 on mobile,” van Dreunen says.

“They’re probably going to have to narrow-down their focus a little bit more instead of expanding it per se,” Cole says. “It’s tough to go in a lot of different directions at once. I think you’ll have these layoffs then they’ll probably announce a very specific direction of where they want to go.”

The layoffs have already occurred at the developer’s Austin and San Diego offices as part of the realignment. Furthermore, senior leadership such as EverQuest director of development David Georgeson, and PlanetSide 2 creative director Matthew Higby have left in the wake of the deal.

Currently, Daybreak has zombie survival title H1Z1 (shown above), EverQuest Next, Landmark, and the PS4 version of PlanetSide 2 in development. The company has stressed that all shall be unaffected. The games are all free-to-play (although they charge for early access), with monetization through post-release functionality options and discounts, as well as an optional subscription service through Daybreak’s Station.com online portal.

Since Sony Computer Entertainment got direct control of SOE in 2008, the company expanded with satellite offices in Denver, Austin, and else-where, and contracted out work as well. In 2011 massive layoffs hit the SOE structure, including the closing of offices and the canceling of The Agency. That same year Star Wars Galaxies shut down, and SOE suffered a massive security breach whereby information from 24.6 million accounts was stolen. In 2014, SOE shut down Free Realms, Star Wars: Clone Wars Adventures, Vanguard: Saga of Heroes, and Wizardry Online.

Sony as a larger entity has recently had its own share of troubles; projecting a loss for the fiscal year ending on March 31, 2015 of 170 billion yen ($1.45 billion), and through the sale of SOE Sony is writing off 6.2 billion yen  ($52.8  million).

“[SOE] was always kind of an odd duck making these PC games,” Cole says. “The audience of the games they were making wasn’t that console audience. It’s a surprise they kept it for that long, really.”

Beyond the context of Sony’s financial troubles, the MMO genre as a whole looks healthy. Van Dreunen and SuperData say that revenue for all free-to-play MMOs in the U.S. last year was just under $1.4 billion, with over 51 million monthly active users. SuperData estimates that in 2015 these numbers will hold and the genre will be stable, perhaps with a slight dip in the monthly active users. On consoles alone, van Dreunen told Fortune.com he believes MMOs will bring in $96 million this year despite the fact that both the Xbox One and PlayStation 4 require memberships to their respective online services.

Currently, some of Daybreak’s titles are doing well. The company says DC Universe Online for PC, PlayStation 4, and PS3 has over 18 million registered users as of November of last year, with PS4 players accounting for 40 percent of new registered users and console players in general logging 76 percent of the hours played.

Overall, van Dreunen thinks Daybreak is well positioned in the market and could thrive on its own. “By having more freedom, both creatively and financially perhaps, I think that they will probably pursue free-to-play more aggressively,” he says. “I think that’s a good thing.” He thinks current titles such as H1Z1 and PlanetSide 2 are well positioned to do this, and that the com-pany’s monetization of user-generated content paying users a royalty for the content they generate and sell in Landmark/EverQuest Next is the “next version of monetization.”

Changing from Sony Online Entertainment into Daybreak presents its share of challenges, but the developer is accustomed to creating new horizons for its audiences to explore.