The Lord of the Rings Online Interview
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Q: At E3, you showed off a rather complex instancing system. Can you explain instancing in your game, how it works, what it adds and how often it is used?
A: We're using instancing in two basic ways in the game. As has become more common in other MMOs, instances allow us to place fellowships (parties) in an environment that is private to them, so we can craft a compelling adventure that will not be interrupted by other players. The more complex instancing you mention related to layered-instancing we are using to (change-the-world) as part of special moments in the story arc.
As an example, as you may have seen at E3, a beginning Man or Woman completes a (tutorial) instance in a Brigand camp, and then enters the game proper in Archet a village that is having trouble with some local brigands, not to mention a certain black rider in seach of a certain Hobbit (oops, did I say that?). This first part of the game is an instance and is limited to newbie players only. After questing their way through the storyline, the newbie player will discover that the bandits are planning to raid Archet by breaking through the wall in the rear of the town. This triggers a private instance; the player will experience the raid on a burning Archet with only themselves and whomever is in their fellowship at the time. When the raid is over and our hero(es) victorious, they will be transferred into the (real) game world, the persistent massively-multiplayer world. Now, when the player returns to Archet, they will be entering the completely uncovered persistent world and find that key buildings are burnt to the ground. This is how Archet will appear to them from this point on in the game. This would not be possible without instancing.
While we are using instances in multiple key areas and on important quests, the majority of the world will remain open and persistent.