Angry Birds' feathers plucked as Rovio reveals 50 percent decline in profits

By Nathaniel Mott , written on April 28, 2014

From The News Desk

Rovio has defied conventional wisdom by using its Angry Birds game series to create an entire franchise around which candies, stuffed animals, and countless games have been built. It was one of the rare companies able to take what seemed like a fad and make it a cultural mainstay. Now, with a 50 percent decline in annual profits, it seems that its feathers have been plucked.

According to Rovio's latest financial report, overall revenue was stagnant between 2012 and 2013. Revenues drawn from the tie-ins that allowed Angry Birds to outlive many mobile games fell by 2 percent year-over-year. The furious golden goose has finally stopped laying its eggs.

The Guardian notes that Rovio said Angry Birds games had more than 263 million monthly players in 2012; the company didn't reveal the number of monthly players in 2013. Either it has suddenly grown shy, or the number of players was more embarrassing than halved profits.

To recap: Rovio is making less money from all of the candies, toys, and other products it built around a video game series that presumably boasts fewer players than it did just a year ago. The company is said to be experimenting with new business models and games -- including one made specifically for young girls -- to recoup those losses, but so far its success is limited.

Rovio has said that the halved profits are the result of investments in its animation division, which is said to be hard at work for a feature film set to debut in 2016. But that expenditure combined with the company's inability to keep consumers interested in its newer games, the decline in revenues from its tie-in business, and its hesitance to disclose player counts makes it hard to blame the news of its falling profits on increased spending alone.

That should worry any company hoping to find its riches with a mobile game. Rovio was able to make Angry Birds a cultural icon for years, which is longer than most games are able to stay atop the hype cycle, but that seems to have finally come to an end. Furthermore, the company had the benefit of being one of the first mobile game-makers to capture the attention of many gamers.

How are companies introducing another mobile game series into a crowded market supposed to fare better? How are investors -- both venture capitalists and others -- supposed to believe that there's a future in gaming when Zynga has fallen and Rovio may not be far behind? And while it's possible for the Angry Birds film to be a surprise success like "The Lego Movie," it's unlikely that the dreadful-sounding film can save the company alone.

Reactions from around the Web

The Wall Street Journal writes that part of Rovio's problem is the amount of time it's taken to switch from a paid business model to a free-to-play model:

Until last year, Rovio's flagship Angry Birds games generated revenue through download fees. However, nearly all the top-performing titles in the industry today are so-called free-to-play, or freemium games, meaning they cost nothing to download and revenue is generated through in-game purchases. As a result, Rovio has been adjusting its model and that is a slow process.

'To be honest, the free-to-play transition has taken longer than we anticipated,' Rovio Chief Executive Mikael Hed said in an interview. He said the roughly flat revenue curve was largely attributable to the transition.

But the Guardian notes that its first free-to-play game hasn't fared well in the App Store:

Kart-racing title Angry Birds Go! – released in December 2013 – was Rovio's first game designed from scratch for the freemium model, including currency and virtual items sold for up to £69.99 in an in-game store.

The game won't have had a major impact on Rovio's 2013 financials, but it doesn't appear to have set the app store charts alight: at the time of writing, it is the 125th top grossing iPhone game and 79th top grossing iPad game in Apple's US store, for example, having so far failed to dislodge free-to-play kingpins like Clash of Clans and Candy Crush Saga.

TechCrunch points out that Rovio is still working on a feature film:

Consumer products made up 47 percent of Rovio’s total revenue last year and there are plenty of other global brands like Hello Kitty or Mickey Mouse that have endured for decades, even if they have become totally divorced from their origins.

Rovio also bought an animation studio and is still working on a feature-length animation film that is supposed to come out in the middle of 2016. They also bought an animation studio to create shorts on YouTube, started a publishing program to promote third-party games and built out several Angry Birds “activity parks” throughout Europe and mainland China.

Pando weighs in
Pando alum Hamish McKenzie wrote about the weakness of hits-driven gaming in 2013:

But what if 'Clash of Clans' were surpassed by the next hot game of the moment? What if people grew tired of it? Both situations will happen at some point. Ask Zynga about 'Draw Something' or 'Words With Friends.' It’s just a matter of when. And in that case, Supercell has to be ready with another world-beating game to replace it.

That imperative also highlights a weakness: Beyond revenues from in-game purchases, Supercell doesn’t have many ways of making money. It’s not like, say, fellow Helsinki company Rovio, which has built 'Angry Birds' into an entertainment brand, with movies, theme parks, and merchandise all part of the business.

Pando’s Cale Weissman wrote about the possibility of "Candy Crush Saga" maker King “rotting its teeth out” with an IPO when it first filed to go public in February:

Those who claim that games are nothing but mind candy are right in this case. If so, people really crave sweets. King generated $1.88 billion of revenue last year, most of it from a single game. As Re/code’s Peter Kafka explained, that was after a loss of $1.3 million the previous year.

A revenue jump like that would normally be celebrated. But in this case it’s also a problem. The insane boost is undoubtedly due to Candy Crush. Yes, it’s addictive. Yes, half a billion people have downloaded it on both Facebook and mobile. But games aren’t sticky, and people lose interest. We are even starting to see evidence of this, with King’s declining fourth quarter revenue, which went from $621 million to $602 million.

Pando contributor Kevin Kelleher wrote that there's hope for even the most unlikely of companies -- including Zynga:

Reversals of fortunes are so common in the gaming industry that they sometimes feel like they’re part of a game. Win an early round only to find things have turned against you in the next round. That’s okay, because there’s always another round. There’s always a chance to become a winner again.

It’s not just that gaming is as hit-driven a business as Hollywood movies. It’s not just that consumers are unpredictably fickle about the games they like, and scornful of attempts to try to manipulate them into new titles. It’s also that the platforms where people play most games keep shifting – from graphics-intensive consoles to web-based casual games to addictive mobile apps.

[Image courtesy Denis Dervisevic