Profit $563 million: why the failure of the game Cyberpunk 2077 could not “sink” CD Projekt RED

Profit $563 million: why the failure of the game Cyberpunk 2077 could not sink CD Projekt RED

The company, which began localizing games in the Polish market, at the end of 2020 released one of the most expensive computer games in history. And it is trying to cope with this problem until now.

Polish studio CD Projekt RED, which released the most anticipated game of last year Cyberpunk 2077, reported on the financial results of the year. A sharp drop in shares, the postponement of a big-budget game hit, the discontent of thousands of fans around the world – all this did not prevent the company from setting several financial records in a quarantined year.

In 2020, the CDP group earned over 2.1 billion PLN (about $563 million) and net profit reached 1.15 billion PLN (about $300 million). It is hard to say whether Marcin Iwinski and Michał Kiczynski expected such figures when they created CD Projekt in 1994 or not. All they had then was two thousand dollars, a friend’s apartment as a free office, and the desire to develop the Polish game market.

Both by then were selling pirated copies in Warsaw markets and wanted to work legally. This led to Iwinski and Kicinski becoming the first importers of CD-ROM games in Poland. The next step was localization – CD Projekt began to partially translate the games they were selling in 1996, and a year later launched a full-fledged localization. The first big success was the computer game Ace Ventura: The CD-Rom Game. According to Iwinski, previous translations sold hundreds of copies, while their Ace Ventura sold thousands.

Next, the studio offered their services to such game market mastodons as BioWare and Interplay Entertainment-the first installment of the cult Baldur’s Gate series was just about to hit the market. CD Projekt was sure that the game would become popular in Poland and threw everything they had into it. In the frames of the localization, CDP changed a little the packaging and hired famous Polish actors to voice the characters. The efforts were not in vain and only for the first day 18 thousand copies were shipped.

At the beginning of the twentieth century, having received several industry awards for their localizations, CD Projekt thought about developing their own products. One of the key factors was the cancelled Baldur’s Gate: Dark Alliance. As the Poles were engaged in its porting to the PC, they still had the code after the cancellation of the PC version. They planned to use the accumulated material for a series of games based on Andrzej Sapkowski’s “The Witcher” cycle. Today Netflix is filming the second season of the popular show with Henry Cavill as Heralt, but back then… Back then, it was one of the most popular series in Poland and one of the main fantasy cycles in all of Eastern Europe.

True, the company ran into a problem – neither Iwinski nor Kicinski had any idea how to make games. So in 2002 they opened a studio, CD Projekt Red, headquartered in Łódź. For about a year its representatives went to the offices of game publishers, where in different ways they were explained why the Witcher demo was bad and not worth the effort. Proven partners from BioWare helped to save the situation: the Canadian developers not only offered CDP a place next to their booth at the E3 conference in 2004, but also gave them the license for their game engine Aurora.

But the rights issue was resolved quickly. Sapkowski sold the license back in 1997 to Metropolis Software, which because of the load of other projects was not able to implement the opportunity. Later CD Projekt bought the rights to the entire series from the author for about $10,000. Nearly 15 years later, there was a major scandal because of this story, about which a little later.

In any case, after five years of development and 20 million zlotys the game was ready – The Witcher was released in 2007. Its overall rating on Metacritic was 81 out of 100, and critics praised it for “inviting the player to think and make choices rather than just chopping and punching your way to fame.” The game’s soundtrack was voted “Best Fantasy Game Soundtrack” at the Radio Rivendell Fantasy Awards, and the Academy of Interactive Arts and Sciences named The Witcher one of its nominees for RPG of the Year. In 2010, The Witcher was included in the book “1001 Video Games to Play Before You Die.”

Development of the sequel began almost immediately. However, due to the problems with partners, porting the game for consoles and economic crisis in 2008, CDPR was on the verge of bankruptcy. To avoid this fate, the studio abandoned one of its “out-of-the-world” projects and focused on The Witcher 2: The Kingslayer. Even before the release, the second part was already popular – more than 110 thousand copies were sold at the pre-order stage. For the whole 2011, when the game came out, players bought more than a million copies, and in two years sales reached five million units.

The real furore in the gaming world was “The Witcher 3: Wild Hunt”, which was released on almost all platforms in 2015. It took 3.5 years and more than $80 million to develop this part. CD Projekt initially decided to make a game with an open world and expand its graphical boundaries. That’s why it was decided to abandon the version for old consoles, although it could have increased profits. Even without that, though, Wild Hunt became commercially successful – 6 million copies were sold in the first month and a half, and the studio earned $62.5 million in the first six months.

By 2017, 33 million copies had been sold, it was firmly on the cult list, and it earned several dozen awards. Such colossal success infuriated Andrzej Sapkowski, the author of the books, and in 2018 he demanded 60 million zlotys (almost 14 million euros) from CD Projekt. “I was too stupid to sell them the rights for a one-time payment,” he complained. The studio itself disagreed with the writer for a long time, but after several rounds of near-trial, they admitted that they were “always inspired by the works of Mr. Sapkowski” and partially satisfied his demands.

By that time, however, CDPR was already working on its next game that had nothing to do with the dark fantasy genre – Cyberpunk 2077. Initially it was a board game about the future, influenced by the movie Blade Runner, the anime series Ghost in the Armor, and the games System Shock and Deus Ex. The studio’s concept was born in 2012, and active work began in 2016, after the release of the last addition to the third “The Witcher” – “Blood and Wine”. As part of the development, CDPR attracted the help of third-party companies (Digital Scapes to create additional tools, Nvidia for ray tracing in real time) and even the budget of their country. For example, the government gave the company a $7 million subsidy to hire staff.

Over time, interest in the project grew: the city of the future in the game was designed by urban studies experts, the music was written by the composer of “The Witcher 3: Wild Hunt” Marcin Przybilovich together with BAFTA winner Paul Leonard-Morgan, and Keanu Reeves took on one of the key roles. Today we know that 530 employees of CD Projekt RED worked on the game. However, if you consider everything, the project involved more than 5,200 people. The blockbuster release was scheduled for April 16, 2020. However, the pandemic and some roughness of the product several times forced the developers to postpone the release – first on September 17, then on November 19 and, finally, on December 10.

At the time of release Cyberpunk 2077 seemed to be a triumphant. In CD Projekt RED noted that the number of pre-orders exceeded 8 million copies. And just a few days later the urgent question was already another – will the new game with an open world be the last for the Polish studio?

It turned out that the game was extremely underdeveloped – it crashed at the crucial moments for the story, has a huge number of bugs and was extremely demanding for computers. Most of the indignation was expressed by console owners. It is worth noting that the developers, in a sense, cheated. On all the tests of the game they provided specialized journalists only the PC version, ignoring the variants for Sony PS4 and Xbox. At the same time the official position was that these platforms will also be able to fully play the novelty.

Immediately after the release, it became clear that the consoles Cyberpunk 2077 absolutely unplayable – early zero-second graphics, extremely low frames per second and constant crashes. Expectedly, the players began to demand a return in droves. The situation between the Polish company and the Japanese Sony Corporation heated up to the point that the game was removed from the digital store PlayStation (it is still not there now). For the failure of the company several times had to explain itself to its shareholders.

The fact is that CDPR’s stock reacted in a far from good way. After the release, they collapsed by nearly half. Back on December 4, 2020, one was worth 443 PLN, and on the 21st – already 256 PLN. The situation leveled off a bit at the end of January, when the Poles, who came out of vacation, started releasing patches for the game. The price per share rose to 365 PLN. However, cardinal changes did not happen and the capitalization of the company is still falling.

CD Projekt share price drop chart

In this situation, many gaming analysts wondered – will Cyberpunk CDPR sink for good? As of Friday, April 23, 2021, for example, the price per share had dropped to 169 zlotys. However, the company’s 2020 financial report, published on April 22, says that so far the developers have a margin of safety.

Yes, the development cost of Cyberpunk 2077 makes it one of the most expensive games in history – it spent 1.2 billion zlotys ($313 million) over eight years. On the other hand, in 2020, CD Projekt RED revenue exceeded 2.1 billion zlotys, which is four times more than a year ago. To be fair, it is generally an absolute record for the company: in 2019 it earned 521 million zlotys, in 2018 – 362 million, in 2017 – 483 million, and in 2016 – 583 million. Even in 2015, when the sensational third “The Witcher” came out, the total revenue of the company was 798 million zlotys.

We can also look at the amount of CDP’s net profit for 2020 (1.15 billion zlotys), comparing it to previous figures. In 2019 the company earned 175 million zlotys, in 2018 – 109 million, in 2017 – 200 million, in 2016 – 250 million, and in 2015 – 342 million zlotys.

In many ways, these figures were achieved through the sales of Cyberpunk 2077, which just a month after the release exceeded 13.7 million copies. At the same time, the number of those who wanted to get their money back for the game, many times less. Last year, CDP spent about $2.23 million on refunds, satisfying 95% of its 30,000 requests. In fact, only 0.22% of those who bought the game wanted their money back for Cyberpunk, which is times less than the statistical margin of error.

If we talk in general about the potential losses of the failed launch of the new Reds game, the financial report shows a figure of $51 million. Or just under 10% of the total revenue of the company. There’s $10.65 million budgeted for returns, and the company is projecting $38.34 million in lost revenue in 2021.

In any case, however, so far the math is in favor of CD Projekt Red. And even apart from the financial successes of an albeit imperfect game, the Poles have two serious arguments. First, the studio has announced a wide-ranging restructuring plan after the failed launch of Cyberpunk 2077. One of its aspects will change the way of developing their own game engine REDengine (it works and the new game, and “The Witcher”), which can improve the performance of future games. They are also going to continue to refine “Cyberpunk” so that it returns to digital console stores.

Second, the Herald trilogy remains a driving force among the assets of the “rads.” For example, the results of The Witcher 3 in 2020 were the best since its release, and total sales of the game on all platforms exceeded 30 million copies. Most of these, of course, accounts for computers (52%) and PS4 (31%). Overall sales of the entire The Witcher trilogy have exceeded 50 million copies. So for now, it looks like the Polish studio will be able to survive the trauma of one of the industry’s biggest games and continue to please fans for some time.

Total
0
Shares
Leave a Reply

Your email address will not be published.