A quick rant...
What if Courage tested on a '12' instead of '10'. I've been thinking about it lately since there has some discussion on Elves lately.

- There would be more disordered formations. I think having it happen too often might make the game kinda sluggish. But it can be offset somewhat with Banner Bearers. I don't like that idea too much.
- Terror tests would be more scarey. More failed charges due to terror and Fight 0 heroes... could get ugly. I kinda like that idea though with Terror being more powerful.
- Spells... Visions of Woe would be OP. Transfix would happen more often and that's not bad considering Pall of Night is automatic.

Just discussing the value courage.

On the good side (Gondor/Rohan) I always like to field a couple Epic Hero's with Inspiring Leader in my army. Its very likely I'll face something either causing terror, prowlers, monsters and/or Ringwraiths. . For this reason I like to keep my Inspiring Heroes in the back so see how a round goes and move them up when the time is right. Nothing worse than being disordered and losing one of your Epic Heroes on the front line. It also sucks to have a formation out of range of your Inspiring Leader because you know that's going to be exploited. The longer I am able to keep the courage up, the more likely I'm going to win.

On the evil side (Mordor/Fallen Realms), I find, its not so important. Sometimes I field the Inspiring Hero wraith but its not really mandatory with so many powerful Epic Hero's to choose from. Being disordered isn't as big a deal, its just an opportunity to play catch-up. Being Transfixed can be bad but usually that's focused on a real threat with the courage 5 Epic Hero in it. Basic evil troops generally have a lower courage therefore are costed less aswell so you can afford more Epic Heroes. I let them lead in front unlike good.

That's all I got.

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http://drinkingwotr.blogspot.com/ - Links to my CrAzY House Rules, Games and 'poor man's' terrain.

In my own rulesets, I use the WOTR courage system, but passing on 12, and I find it makes them only a little bit more important. A better solution (IMO) would be to make a courage value that you must pass with one D6 (ie you have C4, so when you make a courage test you need to throw 4,5,6). However, that would require assigning everyone a new courage value. For an "instant" solution, this would indeed help elves, but make Ringwraiths even more overpowered as well. In general, I find Terror is not too weak. And as you pointed out, certain spells would make problems as well.

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"... Telchar wrought it in the deeps of time."
-On Andùril, The Lord of the Rings

these changes would definitely help my elves you have to remember the flip side of courage draining is courage boosting which becomes more important in avoiding the much more common failed courage test If I field a large elf army with Galadriel lady version, Saruman, Gandalf and Cirdan which I have in the past this gives me 10 Dismay and Command spells a turn. Elves high courage which can be bolstered added to a for example Rohan or Goblin army that's having its courage drained the elves ten spells means that the elves will be able to control the field almost completely.

What I'm trying to say is I use terror a lot and to great effect in fact it's one of the reasons why I win so much with my elf army if this gets even more powerful then I feel an elf army as described above (added to the fact they could also Counsellor Battery) would become the equivalent of the Mordor RAF or WOMT spam and be overpowered (which is something you don't say very often about elves)