Jenks at TAGN about SOE’s latest bout with logic:
Wait.
They are going to give you the 500 spacebucks, but only if you log in…
So we can we reasonably conclude that there are people who forgot to cancel their SOE subs, who are paying $20/15 a month and not playing anything, who are in return getting 500 spacebucks, and SOE needs to fix that situation? Are they fucking kidding? That’s the problem they need to fix? People accidentally paying them $15 a month and using zero of their resources, are going to decide to play EQ2 and be able to buy some stupid tiger mount and an xp boost and pink hair? They’ll be deprived of all that revenue, ignoring the $15/mo they’ve been basically stealing from people no longer using their service?Am I missing something here? That’s seriously the problem?
100% agree, and this is all so SOE it hurts.
Hardcore Casual 
There are some accounting rules regarding these things. It’s the same reason that most gift cards expire after a few years. The desire is not really to cheat the user. (Well, for most companies at least.)
Rather, the gift card/virtual currency is a liability on the books. If the card/currency won’t be redeemed, it should be booked as profit and the liability taken off the books. When this is should happen is a bit unclear, at least in accounting circles.
Here’s a decent explanation for accountants: http://catalog.flatworldknowledge.com/bookhub/11?e=hoyle-ch13_s02
First of all, holy crap I’m famous. /sunglasses
Secondly in response to you Rohan, shouldn’t that fake currency be treated differently than a gift card to a store with real goods? It’s not like you can stockpile Station Cash and then come home with a brand new Ford Focus. You can buy a magical bag of holding, or you can buy a crafting xp boost. I know some people find those things super valuable, but in real life they have no value. Not only are they worthless, but they cost no resources to create. They are limitless and worthless. Shouldn’t the rules for Station Cash be completely different than a giftcard that can be used for real things?
It shouldn’t even be compared to something like itunes, because Apple has to pay the artist when Joe Blow uses a 5 year old gift card, so I understand that. I don’t think Sony owes any royalties when selling a wand of trickery.
But they do owe somebody if they sell a Player Studio created cosmetic chest of trickery.
And as Rohan said, the rules are not as clear as you might think. If you owe somebody something, I do not recall there being anything that distinguishes floormats from Wal-Mart, a song from iTunes, or a cosmetic sword from the Station Cash shop. On the books, all of them may need to be logged as a liability.
I’d be very surprised if the IRS is checking SOE’s station cash amounts for liability, not to mention SOE could legally wipe all station cash from players at a moments notice for no reason other than… well because SOE. (No, that’s not a suggestion Smed, don’t copy/paste that).
I forgot about their player created content initiative. That completely answers that question.
I know nothing about accounting, but I do have some common sense (yes, I know it’s incompatible with certain fields). A $50 giftcard for video games means Gamestop is liable for $50 worth of video games. $50 of their inventory is not theirs, they are liable for giving it to you. $50 worth of Station Cash is the same thing? They’re liable for generating some Boots of Escaping? What if the Boots of Escaping don’t sell right away, does their value depreciate? :D
My thoughts on this are different now with your player studio point, a fantastic curveball and kudos to you as always.
Every public company I have worked for in the last 20 years has gotten in trouble for revenue recognition at some point. Erring on the side of caution is very common on this front.
And yes, SOE could wipe all your SC with one SQL command. But somebody would sue, and it would be up to some judge somewhere to determine if Station Cash was, as an example, subject to the laws that govern gift cards in the state of California. That would be quite a blow for SOE and they would probably be better off not putting the question to the test, even if they felt the risk was low.
What do you mean the items cost no resources to create?
An artist had to sit down and make the model. Other people had to test that it worked. Someone had to add it to the game. Someone had to do work on the website to advertise the item. All those people’s time cost money.
You are confusing marginal cost with overall cost. The cost to create a new copy of the item is near zero. But the average cost per copy is not zero, and you have to account for that.
The cost to create the second to infinity item is zero. SC held in accounts isn’t a future cost because that SC can’t be used to force SOE into producing something with a cost; it can only be used to buy something that, at the time of purchase, costs SOE zero to produce.
You are correct in that development (R&D) has to be accounted for, but it is not at the point-of-sale of individual items. As overhead, R&D is a “sunk cost.” If no one ever buys the XP boosts, their development still cost money. And after whatever marginal profits from the items has covered that cost, the accounting doesn’t change because production and sales are a different line item on the books than R&D. When the marginal cost is zero the price will approach that (that last is economics, not accounting). :)
The point is when do you book the revenue? Do you book it when the person buys $25 dollars of virtual currency, or do you book it when the person spends the virtual currency to buy a $25 mount?
Booking it when the mount is purchased is better because it makes more sense time-wise. Look at this scenario:
In Jan, players buy $10,000 worth of virtual currency (and don’t spend it).
In Feb, the company spends $5,000 worth of man-hours to make a new mount.
In Mar, players spend $10,000 worth of virtual currency to purchase mounts.
This transaction structure only works properly if revenue (and thus profit) is booked in Mar. Otherwise you have an actual transaction in Mar, with no equivalent accounting transaction.
Basically, accounting is not completely arbitrary. It’s purpose is to give the business a better sense of how things stand as time changes. In March, the business will make a profit of $5,000.
But to say that in January the business made a profit of $10,000 seems odd and misleading. It implies that making the mount caused the company to lose $5000. When in reality, making the mount earned them a profit of $5000.
The difference is that, unlike cash equivalents (e.g. gift cards), SC points are not any kind of real currency, especially since you can’t get a refund on them. They are what you have purchased. From an accounting (and tax) perspective, any item that you redeem using them is irrelevant to the transaction. And the fact that R&D cost the company money in February is also irrelevant in January. The mount in your example earned them no direct profit from an accounting perspective.
It might also help to think of the items in a cash shop as services rather than goods. If, by way of a gift certificate, you pay in advance for a massage the tax, etc. is recorded at the point of sale, not upon redemption of the service, even though the (labor) cost of the service occurs then. When buying SC (or other cash-shop currency) you are paying for a future service in the form of the intangibles you later redeem from the shop.
Isn’t part of the issue here the redemption of “stipend” SC? What if people buy SC directly? Does that expire, too?
When they buy $10,000 it goes into unearned revenue which is a liability account. Probably not what they actually do but that`s what would happen with your Example.
I have officially started using the “Because SOE” tag on my blog for these sorts of tales. I’ll have to go back and retro-tag a few. Hrmm, more than a few, actually.
I suspect it might be one of your most-used tags, if you are being honest.
What can I say? They do provide grist for the mill… in a bang your head on the wall, Chicago Cubs sort of way.
My current most-used tag is “null sec” followed by “Fippy Darkpaw.” Some of the latter will require “Because SOE” to be appended.
“Because SOE” – new Meme ahoy!
I must have written more about Smedley this week than ever before.Feels wrong some how.
New meme? You must be new around here…
I come up for air once a year then slowly vanish during the summer :)
And Smed says… revenue recognition!
“We believe if we make great wings, we’ll make money.”
Fixed that for ya Smed.
Answers everything. Awesome.
Say what you want about John Smedley, but I’d buy snake oil from that guy anytime.
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