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Originally Posted by Papajan
Beta has different rules for AoE. The coefficient is much higher against a single target and supposedly degrades. Whether the degrading is the same mechanic as the supposed hard damage cap, I can't say.
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There's so much confusion around that, so I'll just put the exact quote on Kalgan on the subject here:

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Originally Posted by Kalgan
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Originally Posted by Pusharvi
6) Early reports from beta are saying that AoE spells are doing less damage to large quantities of enemies. The perceived reason for the lower damage is an overall damage cap that the spell is capable of doing. Since this is counter to the primary purpose of AoE, AoEs are already the worst scaling and least mana efficient spells in the game, and AoE is the Mage's main strength, is this an intentional and permanent change? Or is it a side-effect of beta tweaking that will eventually work itself out? What is the intended role of AoE given this new paradigm?
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6. First, it's important to note that we've recently increased the spell damage coefficients on the affected AE spells (although this might not be in the version on the test realms yet). So, this change explicitly gave us the ability to improve those coefficients for the "normal" AE case, yet protect the spells against infinitely scaling against more and more opponents. Our desire is to tune the AE spells so that the damage doesn't cap out until you exceed about 10 targets, as our AE encounters are actually designed around an assumption of players AE'ing around 10 mobs. Any more than that, we consider unintended and/or exploitive. So, we're probably going to be bumping up the damage caps a bit to account for the now stronger effects of +damage gear and our desire for players to be able to AE around 10 targets without really feeling the effect of the damage caps.
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http://blue.cardplace.com/newcache/us/47160568.htm
In summary: The actual change is that there's a static damage cap on each AoE spells. If it affects so many targets that the cap is exceeded the damage cap will be spread around equally on the affected targets.
(Note: The numbers in this example are not real numbers)
Let's say the damage cap on Arcane Explosion would be 7500, and your Arcane Explosion hits for 500. In this case anywhere up to 15 targets would work as expected, 16 targets would each get 468 damage, 17 targets 441 damage, etc.
That is assuming the system hasn't changed since that time.