I agree it's a Catch-22. However in the end you're offering a free service that, although unique, is not that different from all those others out there. Now players invest alot of their time into Muds and a mud without people usually diminishes the admins enthusiasm and willingness to improve upon it. In the end the mud dies and the players reward for their time spent wiped into oblivion.
How to go about aquiring players at the beginning... well I leave that question to people like Matt, Molly, Kavir and others...
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