🎮 What’s next for Rovio? 7 Questions that Paint the Picture.
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🚀 This week, now that the big news on Rovio is confirmed, we look at the question on the industry’s mind — what’s next for the company under Sega?
On the go? Listen to one of our podcasts from this week, we’ve got:
🎧 TWiG #231 - Xbox Admits Defeat in the Console Wars + Riot & Activision Gender Discrimination Lawsuits
How did Metacore land one of Hollywood's hottest stars at the absolute peek of his fame? How have these ads performed? And just what is Granny Ursula hiding in that mansion?
To answer these burning questions, Tapio Tuomola (CBO, Metacore) and Mika Tammenkoski (CEO, Metacore) join Ethan Levy in conversation to reveal everything. Everything, that is, except for Granny Ursula's master plan. Link to the interview below:
🎧 In Conversation: How Pedro Pascal Become the Face of Merge Mansion
What’s next for Rovio after the Sega Acquisition?
Japanese gaming giant Sega has confirmed that it’s buying Finnish Rovio in an all-cash deal worth $775 million.
Before the acquisition, Playtika had tabled a €750 million ($810 million) bid for Rovio, though talks collapsed last month with no reasons provided by either company. The analysts and investors would have likely been up in arms had Rovio not confirmed that it was still in talks with other parties. One of these parties was Sega, which ended up taking making the deal.
Sega’s offer represents a 63.1% premium on Rovio’s closing price on January 19 and a 19% premium on Rovio’s final closing price on, April 14. The sale price is 22% lower than the IPO price.
Our analysis takes a look into the future of Rovio as a part of Sega. If you liked this analysis, you’ll love: Why Rovio is Such a Juicy Catch
#1 What is the rationale and Strategic interest behind Sega Sammy’s desire to acquire Rovio Entertainment
Firstly, Rovio is an earnings-generating mobile gaming company with studios in Europe and Canada. The emphasis here is on profitability. It’s a big deal as companies of all sizes are facing difficult financing conditions and high-interest rates. Acquiring a company that is loss-making would require further financing and thus place more stress on the acquirer, who likely had to raise finances to make the acquisition.
Secondly, Rovio has experience working with internal and external brands. In the post-IDFA era of marketing, the role of a brand has significantly increased while programmatic user acquisition is gradually handicapped by privacy changes. This means that - at least in this factor - Rovio is well suited for growth in this new environment, and there could be synergies with Segas IPs.
Thirdly, Rovio is boasting an organization with both technical and operational capabilities to publish games. In other words, the company has all the resources to build, launch and grow games. This is somewhat debatable though. Rovio’s track record of launching games nearly every year is solid. Sadly many of those games haven’t lived up to their expectations, which paints a picture of Rovio making the game launch investment decision too easily.
2022 net profits:
Sega: 337.4M USD
Rovio: 24.9M USD
The first two factors are valuable for all acquirers. The third factor is something that Sega likely found very appealing. You see, 91% of Sega’s revenue on mobile comes from Japan. By acquiring Rovio, they get access to all the resources needed to take their brands to new platforms and wider audiences.
#2 Why did Rovio choose Sega over the other suitors?
Sega Sammy’s history of acquisitions dates back to 2005 when the company bought the makers of the Total War Series, Creative Assembly. They haven’t been the most active ones, but they haven’t been sitting on their laurels either, acquiring a new company roughly every 30 months.
Most notably, from the perspective of the acquired company, the studios that Sega Sammy has acquired over the years have retained their autonomy, branding, and company identity. Sega is also known to divest from a studio in a positive way, as was the case with Demiurge Studios, which was sold back to its founders.
Sega’s track record makes it an easy pick for Rovio compared to the likes of Playtika. You see, Rovio is not exactly a growth company. And it is arguably in need of corporate boot camp to shed some of the fat it has built over the years.
Under Playtika, Rovio’s corporate boot camp would have been brutal. Even fatal. They would have likely shut down their cost-accruing studios in Canada and Denmark, reduced overall new games in development, focused staff on live services, and significantly reduced the size of the internal publishing organization.
Playtika’s actions could have made Rovio much more profitable and efficient while boosting revenues of live titles through a vigorous push from the headquarters in Israel. Or they could have killed the company altogether and transferred the games to their other studios - as they did with Seriously.
Under Sega though, it’s very likely going to be business as usual for Rovio. In fact, the job of management will get easier as they will not have to be worried by the quarterly reporting efforts of a public company and therefore focus more on the products themselves. On the other hand, it also possibly means less pressure to be ambitious and grow.
#3 What is the near-medium-term outlook for Rovio, as a standalone entity?
We mentioned before, that Rovio is not a growth company. The fact is, that Rovio, just like most of the mobile gaming companies, is a declining business right now.
Four games in Rovio’s portfolio make nearly 90% of the publisher’s in-app purchases revenue. In more detail, we can see that:
Angry Birds 2 declined by 20%. This was accompanied, or caused by, installs declining by the same percentage.
Angry Birds Dream Blast grew revenues massively! Yet while the revenues went up nearly 70% the installs went up by 300%. Is the growth profitable? Likely. But it seems like the publisher is betting on paybacks sometime in the future.
Over a decade old Angry Birds Friends is one of the oldest games in the publisher’s portfolio. The game grew revenues while seeing a 15% decline in downloads. That’s impressive!
Angry Birds Journey is the latest Angry Birds game to be released globally. Looking at the revenue curve, this game was pretty much dead on arrival. It clearly has an issue in retaining players as the surge of tens of millions of downloads hasn’t helped it to stabilize. The failure of a new Angry Birds game with a slingshot mechanic must have been a blow to the organization.
What we can’t see in the numbers below is the ad revenue generated by both the Angry Birds portfolio and the hypercasual games produced by the Turkish Ruby Games, which Rovio acquired a few years ago. Given the bind hypercasual publishers are in post-IDFA, the future for Ruby games is tied to their ability to pivot to hybrid monetization.
Looking at the revenue charts, Rovio is an Angry Birds company through and through. The company has long list of games out (list above only a portion). Yet the four top titles are what matters as they generate nearly 90% of all in-app purchase revenues.
Rovio’s last quorter as a public company painted a picture of profitable and gradually declining Angry Birds mobile games company with few bright spots to tackle the wider darker trend.
The medium-term outlook for Rovio with or without Sega (because we doubt that Sega will have much say in how Rovio operates) can be described as a gradual decline.
The revenues and profitability will go down unless Angry Birds 2 can do a turnaround again. There’s always the chance that the new Moomin game and Bad Piggies 2 will become breakout hits like Dream Blast, but the chances for that are low. Bad Piggies is a much weaker brand compared to Angry Birds, which will be seen in lower installs. And the Moomin game has a niche brand and from a game design perspective is yet another reskinned version of Angry Birds Dream Blast (Sugar Blast was the previous one).
The downloads will decline. The launch of new games can offset the decline but the overall trend on the market and in Rovio’s portfolio is showing a very rapid decline at over 30% year-over-year. Rovio’s decline is accelerated due to their acquisition of Ruby Games, whose hypercasual portfolio is becoming rapidly obsolete due to the privacy change effects on in-app advertising.
The likelihood of the two new games failing is high. While Rovio has all the resources to build, launch and grow mobile games, the fact is, they have only been able to do so with Angry Birds IP. The two new titles are not Angry Birds and are launching into a more difficult economic and regulatory environment.
Rovio’s profitability will continue to erode as the company invests in its cost-accruing studios, such as the two new Canadien studios that haven’t shipped a game. Rovio’s central organization will also continue increasing spending with various cross-platform efforts, which are expected from modern mobile game publishers.
#4 How are Sega’s IPs likely to fit into Rovio’s portfolio?
Apart from Sonic, Sega doesn’t have IPs currently widely resonating in the West. Most of the company’s IPs are dormant. And while they may have nostalgic value, they are not likely to resonate with the needed amount of installs.
Although the same could've been said of Street Fighter: Duel a RPG mobile game, which has worked relatively well generating around $5M last month, mostly coming from the US. So potentially, we’ll see Sega IPs adapt Puzzle+RPG bets?
Also, it seems like Rovio is nearly fully focused on puzzle games. Does the company have the needed expertise to make an action game? Or will they make a Dream Blast version with Sonic IP next?
#5 What explains the resilience of Angry Birds?
Angry Birds rode two massive waves that allowed it to amass billions of downloads and leave an unwavering experience.
The first wave was the adaptation of touchscreen devices. Angry Birds was one of the first natively touchscreen games for the iPhone.
The second wave was the ability to make in-app purchases on the device. This addition really created the app stores and the whole mobile gaming as we know it. While Rovio wasn’t among the first ones to implement in-app purchases, the company still benefited from all the new players.
While the waves were imperative for the growth of the Angry Birds IP, none of them would have come to fruition without the organization the company had at that time. An organization that was hungry and bullish for growth.
#6 Merchandising revenues and Angry Birds IP development?
There was a time when Angry Birds toys, shows and movies were well coveted. But that time is long gone. Or at least, the wave of interest is gone and there’s no other one on the horizon.
After the second Angry Birds movie flopped at the box office, Rovio quickly let go of most of the internal merchandising teams as there was no interest in the third movie. Apart from a new mega-hit from the company, a Netflix show, or a surge of nostalgia, little could invigorate the IP.
#7 What is the potential for the Angry Birds to be ported to PC and Console space?
This has been done before at the height of Angry Bird's success, in 2012. It was never a significant success. And even then it was done with external developers. So the likelihood of entering a new platform with a declining IP doesn’t seem to be the most effective move to make for Rovio.
Rovio should have never gone public
Overall, Rovio’s time as a public company can’t be viewed in a positive light unless you were a shareholder of the company before the IPO. There were more downs than there were ups and the company wasn’t deploying capital raised effectively to grow on par with the rest of the industry.
The only thing that was consistent was the divided payment representing approximately 30 percent of the annual net profit. Something that was clearly important for the family-owned company. In the end, the family owning Rovio was the one to walk away with most of the loot having cashed in with both the IPO and the sale making the case that Rovio probably never should have gone public in the first place.
🎙️ Deconstructor of Fun Podcast
🎧 TWiG #231 - Xbox Admits Defeat in the Console Wars / Riot & Activision Settle Their Gender Discrimination Lawsuits
The crew is dropping heat with another action packed week of news. Guest host extraordinaire Jen Donahoe returns to the podcast to educate us on how to be a better ally in the wake of the Activision and Riot gender discrimination settlements. Phil breaks down the incredible admission of defeat on the part of Xbox's Phil Spencer as he, in Kress's words, says the quite part out loud. Laura defends the honor and integrity of free-to-play games and Ethan explains how Apple Arcade and Netflix aren't competing against each other, but against the hundreds of free, ad supported games launched on mobile every day. As every Twiggy knows, it's tough to beat with free!
🎧In Conversation: How Pedro Pascal Become the Face of Merge Mansion
With their mysterious, high drama, high production value advertisements featuring soap opera worthy twists and turns, Metacore's creative game for Merge Mansion has always been top notch. But last March, the chart topping merge game made waves when it released a series of live action advertisements staring The Mandalorian himself, Pedro Pascal. How did Metacore land one of Hollywood's hottest stars at the absolute peek of his fame? How have these ads performed? And just what is Granny Ursula hiding in that mansion? To answer these burning questions, Tapio Tuomola and Mika Tammenkoski join Ethan in conversation to reveal everything. Everything, that is, except for Granny Ursula's master plan.
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