Is the company behind the most addictive mobile game on the planet a sustainable business or a one-trick pony?
Investors will soon find out.
King Digital Entertainment, the Irish company behind the Candy Crush Saga games, announced Tuesday it will go ahead with an IPO, as it tries to cash in on the popularity of its hallmark franchise. In a filing to the U.S. Securities and Exchange Commission, King said its games have been downloaded on roughly 500 million mobile devices, with about a quarter of that number being users who play one or more of its games a day.
“We believe we have a repeatable and scalable game development process that is unparalleled in our industry,” the company said in its filing. “We believe the inherently social nature of our games, our data-driven marketing processes, our cross-platform technology infrastructure and massive player network are key competitive advantages.”
The popularity of Candy Crush, which is by far King’s most successful game, is hard to overstate. Not only does the game’s design allow it to show up on users’ Facebook feeds in a manner that encourages non-users to join up, it is downloaded at an amazing clip – last year, the game was the most downloaded application on iPhones and iPads.
Not long ago, the mobile gaming industry’s primary revenue sources were relatively straightforward. Chiefly, mobile games made money by pummelling the player with ads, or by offering a “premium” edition of an otherwise free game for a small price – one or two dollars, usually.
But in the past couple of years, industry players have developed myriad ways to make money from their addictive titles. For example, the phenomenon of “micropayments” has exploded in recent years – a system by which players can purchase everything from hints to extra lives during the game, essentially paying to progress.
Some companies, such as Farmville-creator Zynga Inc., or Rovio Entertainment Ltd., the Finnish firm behind Angry Birds, have made millions from licensing and merchandising. As a result, the likeness of famous mobile video game characters can now be found on everything from T-shirts to smartphone cases.
All the while, the basic advertising potential of mobile games makes marketers salivate – given that the games are played on devices that, at any given moment, are fully aware of the player’s location, contacts and calendar, among many other things.
As an illustration of the many innovative revenue sources now available to mobile game makers, Ray Sharma, founding partner of Toronto-based Extreme Venture Partners, points to one of his developers’ most popular titles, a design game called Fashion Star Boutique, which allows players to create virtual clothing lines and accessories. As the game gained popularity, Mr. Sharma said, players began asking for ways to transform their digital creations to real-world items. So the developers complied, and built a clothing store where players could purchase their creations.
“What’s happened … in our industry is we’ve gone from one or two ways of making money a few years ago … to many more,” he said. “One thing we’re seeing is a bridge between monetization in apps and in the real world – you’re putting real-world goods purchases into an app environment.”
Investors may will undoubtedly have concerns about the extent to which King can sustain the blockbuster success of its most popular titles. For example, And such concerns will only be heightened by precedent, given the dismal financial performance of social game giant Zynga, which the company behind the Farmville games that went public in late 2011, saw its share price froth to a high of more than $14a few months later, only to drop to about a third of that high since.
Indeed, King may be most famous for its Candy Crush games – so much so that the company tried to trademark the use of “Candy” and “Saga” to prohibit their use by others in a gaming context. But in reality King has built about 180 other games, none of which have garnered the massive popularity of Candy Crush. It is a risk that King’s executives are keenly aware. In the company’s SEC filing, it noted that the three most popular games in King’s library currently account for 95 per cent of gross bookings.
“Our continued growth will depend on our ability to regularly develop new games and enhance our existing games in ways that improve the gaming experience for both paying and non-paying players while encouraging the purchase of virtual items within our games,” the company said. “It is possible that only a small number of our games, if any, becomes successful and generate significant purchases of virtual items.”