So what happened? To tell the truth, I don't know. I see that research and development costs rose from $16.5 million in 2012 to $56.6 million in 2013. In numbers that seem related, a non-current asset line item called "development cost" decreased by $20.6 million and retained earnings declined by $21.3 million. Those numbers seem to match up so probably have something to do with each other.
Brighter financial minds than mine (which isn't a big bar to clear) indicate that CCP lost $21.4 million in assets due to something called "derecognition." CSM Vice-Chairman Ripard Teg explained in a blog post on Monday:
"On page 22, you'll find CCP taking a 21.4 million USD "derecognition" hit. The note for that says the following:Now, Ripard continued on and not only stated that he knew exactly what was happening, but that the subject was NDA'd. That didn't stop him from giving a heavy hint that the code in question belonged to DUST 514. If he didn't break the NDA with that, he's about to fall over the line. So in the interest of not losing New Eden's most prolific blogger, let's see if I can help pull him clear.
During the year the company assessed its capitalized development assets and determined that a portion of those assets would likely not have future economic benefits. IAS 38 requires that such assets should be derecognized and removed from the balance sheet. The expense related to the derecognized assets are presented as part of research and development expense in the statement of comprehensive income."Translated into English: 'We've decided that some of the code that we capitalized development costs for is no longer likely to be a future income source.' As code goes from 'something that a programmer is working on' to 'something that's going to generate revenue for our business', you capitalize it, i.e. turn it into a capital asset that's going to generate revenue in future balance sheets. CCP is saying that the opposite is happening for some of their code.
"Therefore, that same 21.4 million USD then disappears as an equity asset on page 26. This essentially 'writes these costs off the books' and indicates that CCP no longer regards this code as a capitalized asset."
Looking further at the report, we see on page 17 that the derecognition hit did not involve Worlds of Darkness. In section 5.1 of the financial report we see that the value of non-current assets in North America declined by less than $100,000. Those in Iceland, on the other hand, declined by $21.2 million in 2013. I'm assuming, of course, that no WoD code exists in Iceland while the DUST code in Shanghai counts toward the valuation in Reykjavik.
Now, before everyone starts freaking out, please remain calm. Or stop celebrating, depending on whether you like or hate DUST. Remember what Ripard wrote. Yes, CCP has probably derecognized the value of the code as DUST has not come near the expected profit margin. But just because CCP is writing the current DUST code off the books doesn't mean the game is doomed. Has anyone considered that perhaps CCP plans to port the DUST 514 over to the PS4 after all? One Icelandic-based game site thinks CCP will make the announcement at E3. If so, expect the new code to go on the financial books sometime this year.
Of course, I'm not just making assumptions based on a source in the world's northernmost capital city. My assumptions are also based on the news that came out of a Sony presentation at GDC last night.
And now it can be confirmed: #EVEValkyrie coming to #PS4 and Project Morpheus! pic.twitter.com/fcebdxJ28m
— David Reid (@CCP_Pokethulhu) March 19, 2014
@noizygamer @webspaceships Valkyrie is launching on the PC exclusively w Oculus Rift, and also shipping on the PS4 w Project Morpheus
— David Reid (@CCP_Pokethulhu) March 19, 2014
Project Morpheus is Sony's virtual reality project that will connect with the PlayStation 4. Sony came up with the name a week ago and the project is still in very early development. In addition to EVE Valkyrie, Sony announced that Square Enix was creating a special build of Thief as well.
David Reid, for those new to CCP, is the company's Chief Marketing Officer as well as serving as the interim executive producer of EVE Online since last Fanfest. He also revealed that the Shanghai studio will not convert from DUST 514 to EVE Valkyrie production.
@noizygamer @ali_of_space depends on what ya mean by "project" :-) the same studio in Newcastle is making the game for both platforms
— David Reid (@CCP_Pokethulhu) March 19, 2014
So with PS4 development for EVE Valkyrie in the U.K., that leaves the PlayStation coders in China free to continue development of DUST.
Now, why would CCP wish to consider its continued investment in Shanghai? For one thing, the Chinese government in January lifted the ban on the sale of foreign console platforms in the People's Republic first imposed in 2000. Sony has wanted to crack into the Chinese market for a long time. Having a free-to-play FPS like DUST would help work around the problem of pirated software that is rampant in the PRC. In addition, Sony could boast of a locally developed product, which would gain favor with Chinese authorities. And the Chinese authorities may wish to gain favor with Iceland. The Chinese are interested in some of the natural resources in the Arctic and have come up with some pretty wacky ways to try to invest in the island nation. An Icelandic company could actually grease the skids for Sony.
Finally, I have to wonder if the search for a new executive producer for EVE Online is about over. David Reid also sent out this tweet last night.
@Cookie_Stein ya I was a bit busy w that EVE Online thang past few months, but now I'm back and reloaded w Red bull!
— David Reid (@CCP_Pokethulhu) March 19, 2014
If he doesn't have to do the "EVE Online thang," does that mean CCP has finally found a permanent replacement for John Lander? I realize this post has probably asked more questions than it answered, but that's the nature of EVE. Or at least, the little bit of it I cover.
