The mobile game ecosystem is a volatile market space in which changing trends and dependence on hit games are a key driver to success. Finland-based Rovio Entertainment Ltd., the maker of the hit game Angry Birds, is a clear example of how the ecosystem works. The company saw a drop in revenue and profit in 2013 after gamers lost interest in the continuing release of new Angry Birds games.
The company and its Chief Executive, Mikael Hed quickly expanded the company’s revenue model and moved to licensing and other entertainment products, while the market shifted to the so-called “freemium” model where new titles are offered for free and then improved using in-app purchases. Rovio also moved to this particular business model, but felt that the free-to-play transition took longer than anticipated.
The financial figures over 2013 translated into a clear message of change. The Finnish company took €156 million in revenue. This is a slight increase from €152.2 million in the previous year. The net profit of €26.9 million was less than half the €55.5 million it made in 2012. The operating profit in 2013 fell to €36.5 million from €76.8 million.
While still profitable, the game developer stated that 2013 was a foundation-building year which included a refocus on new business areas, changes in licensing strategy and a move to freemium billing. The total workforce grew to more than 800, up from about 500 the year prior. Video and animation operations were also increased.
In 2014, monetization is the highest priority for Rovio with them expanding the freemium business model. The company will stick to its philosophy of “delighting fans”, even when explosive growth remains the norm across the mobile gaming market space.
Next to the mobile gaming business, Rovio also lost money on merchandise. Products like candies, toys and other products developed and sold around the game series were less popular last year, presumably because fewer players were interested in Angry Birds. Exact numbers of monthly players in 2013 weren’t revealed, but the Angry Birds games had more than 263 million monthly players in 2012 and definitely lost a considerable amount of players over the following year.
The Finnish company also revealed that the halved profits were the result of investments in its animation division, which is said to be working on a feature film set to debut in 2016. But that expenditure combined with the company’s inability to keep consumers interested, the decline in revenues from its tie-in business, and its inability to disclose player counts makes it hard to blame the news of its falling profits on increased spending alone.
Rovio was once a brand that made Angry Birds a cultural icon for years, which is longer than most games are able to stay atop the hype cycle, but it has now come to an end. For 2014, it is important for the Finnish brand to renew its focus and revenue generating drivers, and to turn around the negative spiral it is falling down.