Many people are baffled as to why anyone thinks it would be a good idea for King, maker of the super-addictive mobile phone game Candy Crush Saga, to file an IPO.
Bad things happen to mobile game companies who want to sell equity on the stock market, as Zynga has recently discovered.
But then you hear about the guys who made Bejeweled — acquired for $700 million-plus in 2011 — and it becomes clear. Perhaps Candy Crush is the new Bejeweled, and perhaps King is the new PopCap.
That, obviously is the temptation.
Unfortunately, the odds are going to be against King. Here's why.
Games are, by definition, fleeting and faddish. You can't even copyright them (only their names and branding). So competition is fierce. And no one needs them, the way they need food, housing or transportation.
Games therefore seem like the very definition of something you should not invest in — and game companies seem like the kind of startups who might best remain private, where they can ride the financial roller coaster of the App Store behind closed doors.
We got a recent glimpse of the terrors of game company economics from Zynga. In Q1 2013, its revenue declined 17% to $264 million, as users got bored of Farmville and Zynga Poker. 520 workers lost their jobs.
Zynga acquired OMGPop for $180 million in 2012, to obtain its super hot Draw Something app brand. In 2013, it laid off the entire OMGPop staff. Few play Draw Something now.
Yet over at Rovio, maker of Angry Birds, there are rumors of an upcoming IPO, too. The company has a new COO and a new board member, which makes people thinking it is planning a strategic move.
Angry Birds is one of the most successful mobile games ever. Yet what little we know about Rovio — it's still private — suggests all is not well in the land of green pigs.
A recent Forbes article pointed out just how one-note the company is. Its games include: Angry Birds, Angry Birds Space, Angry Birds Friends, Angry Birds Star Wars, Bad Piggies, Angry Birds Seasons, and Angry Birds Rio. It also does a lot of Angry Birds licensing, for toys and movies.
Its latest product launch is expected to be … Angry Birds Go.
Simon Moller, chief creative officer at Kiloo — a company that makes Subway Surfers — believes Rovio is in trouble: “The games are the drivers of the brand and they’re declining at a rapid pace. They are relying on the plush toys to sell themselves, because all of their games are just the same game… again. Every time they launch a new game it’s worse than the last one.”
Take Moller with a pinch of salt. He's a rival, of course. But he has a point: How much further can Angry Birds possibly go before the demand for boomeranging toucans is satisfied?
A Rovio IPO would be guaranteed to make at least one person rich, however. Kaj Hed, its current majority stockholder. According to Arctic Startup:
Ever since writing our, "Rovio's $42M Investment In 2011 Actually Went To Its Owners," we've been curious about the Angry Birds creator's ownership structure. What's most defining of the structure is is Kaj Hed's near 70% ownership through Trema International Holdings, followed by Niklas Zennström's Atomico Ventures and Accel Partners at roughly 10%.
So why does King want to expose itself to this less-than-promising "next level"?
In 2000, three guys — John Vechey, Brian Fiete and Jason Kapalka — invented Bejeweled, the gem-matching game that was originally played on the web. In 2011, after Bejeweled had become one of the dominant games on hundreds of millions of feature phones and then smart phones, PopCap was acquired by EA for ~$732 million, mostly in cash.
Here are its revenues through 2010:
In 2011, revenue grew grew 30%, EA reported.
See those bars on the PopCap revenue chart, reaching smoothly for the sky, year after year? That's the lightning that King is hoping to rebottle.
Maybe it will succeed. Maybe, like PopCap, King can grow its portfolio of addictive games so large that even if a few fall out of favor there are newer bigger ones to replace them. (PopCap has 169 different games, when you count versions for various platforms.)
But even PopCap isn't immune from misfortune. It just laid off 96 people at its Dublin studio. EA said it wasn't sufficiently profitable.
PopCap will be fine, of course. But that's the thing with games. More often than not they end with the phrase, "Game over."
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