Evolution of a Global Entertainment Empire | My Assignment Tutor

Rovio’s Angry Birds: The Evolution of a Global Entertainment Empire Introduction Rovio Entertainment Ltd are pioneers in mobile games and are most famous for their Angry Birds characters. In the game, players use a slingshot to catapult colourful birds at their enemies (the egg-stealing pigs), with the goal of destroying them. The game stormed to the top of the charts and became the largest mobile app success the world has ever seen with more than 3 billion downloads globally. Over the years, Rovio has stood firmly behind their intellectual property (IP) and determination to build a lasting brand, despite speculation by critics that Angry Birds were just a one-hit wonder and fears they can lose their fans as quickly as they came due to the short attention span of consumers. The founders, however, have said that the game was always the first step of the vision to build a global entertainment empire that they methodically set out to create. The early days The game that took Rovio to the top in the entire mobile gaming industry was neither the company’s first game nor was it their first year of operation. The Finnish entrepreneurial venture started in 2003 when the two cousins Mikael Hed and Niklas Hed, decided to create their own original intellectual property to take to the global market instead of creating and selling games for other companies. They initially thought they would have to do ten to fifteen titles to get the right one, but the team developed 51 games before Angry Birds. Angry Birds was an overnight success, but it took 8 years and a solid strategy – to build a game for iPhone and abandon other platforms. Conquering the App Store was an integral part of the plan to save the company that was on the brink of bankruptcy in 2009 when the game was released. The App Store enabled worldwide distribution. The cousin’s strategy was to focus on local markets to begin with rather than the most lucrative English-speaking markets. The game became number one in smaller markets: Finland, Sweden, Denmark, Greece and the Czech Republic before getting any traction in the UK and USA. When they got on the front page of the UK App Store in 2010 it rapidly became the number one app in the US App Store. By 2011, Angry Birds and its various branded spin-offs had earned €50 million, on the back of a game which originally cost €100 000 to develop. 40% of that income stemmed from activities not related to the game – from the toys and other licensing deals. As shown in Figure 1, revenues continued to grow considerably, not least thanks to a booming merchandise business. The evolution of the mobile games industry The beginning of the mobile games industry can be traced back to 1997, when the iconic Finnish company Nokia introduced the game Snake as a built-in feature to their mobile phones. When Apple introduced the iPhone in 2007, it opened a whole new market for mobile games developers, and the Hed cousins seized that opportunity. Rovio had designed an innovative game based on touch-screen technology and an innovative business model with global distribution through the App Store. In 2011, the American video games company Electronic Arts (EA) boldly estimated that the mobile gaming business would be worth $4.5 billion in 2013. Rovio thought that they were in position to take a slice of that, but it also wanted much more. “I am convinced that this is not just one game with a slingshot” said Mikael Hed who was the CEO of the company.[1] In retrospect, the mobile games industry grew to $12.3 billion[2] in 2013, surpassing even the most optimistic estimations and easily outpacing all other games segments. After the massive success with the first Angry Birds game, they launched 14 different Angry Birds themed games, including a racing game Angry Birds Go!, two Star Wars themed Angry Birds puzzle games and then an official sequel, Angry Birds 2. But the newly established mobile gaming industry was changing. By 2013, freemium became the dominant business model. It implies that apps are free to download, and revenues are instead generated by offering additional features in the app that users can buy. Games such as Candy Crush and Clash of Clans exceeded the popularity of Angry Birds and Rovio thus had to tackle the new business model. They had used a pay-to-download game, meaning the game was purchased with a one-time payment and could then be played uninterrupted by ads or waiting times. Rovio then committed to changing their business model to a freemium model which meant completely redesigning the way they monetized from the games. Figure 1. Rovio Entertainment revenue and operating profit in millions euros However, the massive launch of Angry Birds 2 in 2015 did not meet the company’s expectations, but they did not give up and continued to improve the game with new features and it eventually paid off – it is now their most profitable game. The new Disney? Like Disney with Mickey Mouse, Rovio saw the potential of transferring its powerful brand to other products. The company has been following in the footsteps of the world’s largest entertainment company on the road to building an entertainment empire for the digital age and becoming Disney 2.0. Rovio started building an integrated entertainment franchise where merchandising, activity parks, games, movies, TV, cartoons and comics all came together. Peter Vesterbacka, who has been involved with Rovio since the early days, confidently said in 2015 that Angry Birds will be bigger than Mickey Mouse. Like many other brands, Rovio has set sights on the vast Chinese market. They opened their first international office in Shanghai in 2011 and introduced localized gaming content and merchandise. “We want to be more Chinese than the Chinese. We want to be the leading Chinese brand,” Vesterbacka said.[3] Indeed, Angry Birds has become one of the world’s strongest brands – 93% of Chinese people know Angry Birds, and the global brand awareness is 97% according to the company’s statements.[4] Rovio has partnered with hundreds of brands globally that license the Angry Birds brand in exchange for royalty fees. The colourful birds were soon on T-shirts, toys, key chains, notebooks, soft drinks and many other consumer products. Rovio’s merchandising business is strongly linked to the games; if they become less popular, so will the products that license the brand. At the same time of changing the games business model, Rovio ventured into several new industries – they launched their own video distribution business, started publishing books and opening activity parks. Rovio also announced their first Hollywood feature movie, having faith in the loyalty of their old fans and in the ability to attract new ones. The movie was self-financed with a budget of €175 million, making it the most expensive Finnish movie ever made. Rovio retained creative control of the movie, but hired Sony Pictures Imageworks to produce it, utilizing their global marketing and distribution skills. The movie was a significant investment to keep up the momentum of the brand and to boost the licensing and merchandising business through new partnership deals. Indeed, they made deals with big household names, such as the toy makers Lego, Hasbro and the Chinese e-commerce giant Alibaba. World domination is a tricky business Despite the seemingly overnight success of the mobile game, creating memorable characters that the world embraced, it was not all smooth sailing for the company. As the company grew in four years from a team of 40 to over 800 employees, the company lost the agility of a startup company and the organizational culture suffered from the rapid growth.  Rovio had to cut 130 jobs in 2014, which was followed by another dramatic downsizing the year after, by eliminating another 260 jobs, more than a third of their workforce. The brain drain continued as many of those who helped build the original success of Rovio left and ventured out to start their own gaming companies. Some of the former managers opened up to the Finnish media to point out the lack of shared strategic vision from the family owned business, where each member seemed to have a different idea of the kind of company they are building.[5] Majority owner and chairman of the company Kaj Hed, father to Niklas Hed, explained that after extensive layoffs and financial struggles, Rovio would be restructuring their business operations and going back to their entrepreneurial roots. Part of the restructuring plans was to spin off their books and education businesses and licensing out their activity parks from 2016 onward. Rovio acknowledged they lost focus and tried to do too many things. After the restructuring, Rovio’s operations were divided into two business units: Games and Brand Licensing. Currently the games business is based on two revenue streams: in-game purchases and in-game advertising. A new CEO, Kati Levoranta, was appointed CEO in 2016 and she said they still have the ambition to be a leading entertainment company, with mobile games at their heart. IPO and future plans The family owned business was keeping strong control of their IP and turned down an offer from Zynga who wanted to buy the company for $2.3 billion. Speculations about an initial public offering (IPO) in 2012 had analysts throwing around numbers as high as $9 billion[6]. In 2015, Kaj Hed said in an interview that an initial public offering (IPO) was not under discussion, rather, he had an eye on a possible merger or acquisition.  Merchandise sales declined sharply in 2014 and 2015 with great impact on the company’s profits (see Figure 1), but the long-awaited Hollywood 3D Angry Birds movie helped Rovio bounce back in 2016. The movie opened at #1 in 50 countries around the world, becoming the second highest grossing movie of all time that was based on a video game after earning $352 million at the box office. Following the success of the movie, Rovio eventually went public in September 2017, valuing the company at €896 million ($1.06 billion) with a share price of €11.50. In February 2018, however, Rovio lost half of its market value after warning that revenue and profitability would be significantly below analyst expectations in 2018 (see Figure 2). The CEO Kati Levoranta commented that gaming firms are quite new to the stock market and some volatility is to be expected and instead pointed towards Rovio’s new movie and new collaborations. Figure 2. Rovio share price development from September 2017 to September 2018[7] The Angry Birds 2 movie is to be released in 2019 and expected to yield further returns from merchandise. Rovio also signed a multi-year shirt sleeve partnership with the English Premier League Club, Everton[8]. The Premier League is the most watched sports league in the world reaching over 1.5 billion global viewers in more than 200 territories. Together with Rovio’s 80 million monthly active users, the Angry Birds audience can be reached in completely new ways. The partnership allows many new and innovative marketing opportunities in the stadium and in the smartphone space for both companies. Tapping into Everton, Rovio has a multitude of collaboration options for the future, be it Everton-themed plush toys, in-game features or even a standalone Everton games. Figue 3. Rovio Entertainment partners up with the founding member of the English Football League[9] The Premier League has partnered with EA Sports, the maker of the FIFA soccer video games, to launch their own eSports competition in 2019. Esports are competitions involving the playing of video games where the audience can follow the players through live streams or physical attendance at eSports events. Deloitte predicts that by 2020, the global eSports market will generate $1.5 billion in annual revenues and believes 600 million people will be regarded as eSports fans.[10]  Rovio has spotted the potential to be part of this booming new segment with the Everton partnership and also made a deal with the National Basketball Association’s (NBA) Chicago Bulls: they will install cameras on top of black boards to provide footage from above the basket rim. The new cameras, officially named the ‘Angry Birds Eye View Cam’, provide new and exciting ways to experience sports games and are thought to attract the attention of younger audiences. Brand partners hold a key role in the global awareness of the Angry Birds IP. Over the years, Rovio has moved from the quantity of partners to the quality of them. Besides Everton and the Chicago Bulls, Rovio now boasts international partnerships with the likes of Nasa, Chupa Chups, Crocs, Pez, McDonald’s and Star Wars. In 2018 the global mobile games market is worth $70.3 billion and growing 25,5% annually.[11]: “In the span of a decade, mobile gaming will have grown from the smallest segment of the global games market in 2012 to a 100-billion-dollar industry in 2021”. The founders of Rovio could not have foreseen such growth, which might explain scattering their resources across different ventures such as books, cartoons, activity parks, movies, etc. Now, the primary focus is back on games with at least ten new games under development. In 2018, the first Angry Birds game made its debut on an Augmented Reality (AR) headset Magic Leap[12] and for Rovio it is an opportunity to get in early on yet another burgeoning market. CEO Levoranta saw the Angry Birds coming to life in an entirely new way: “We are happy to expand the brand and the world of Angry Birds to new platforms like Magic Leap”. “This will likely be the future of mobile games. We just want to be there, in the first wave” commented Ville Heijari, Rovio’s Chief Marketing Officer. The management thus remains optimistic that the movie sequel, new partnerships and new technologies will help draw new players to their games in the long run and boost the licensing revenues. Rovio has managed to build Angry Birds into a sustainable global brand over the span of a decade. Now it is ready to kick off its next phase of growth by setting its sights on new markets and exploring new technologies. Discussion questions What contributed to Rovio identifying their business opportunity?Rovio has shifted their products between games, activity parks, movies, licensing etc., how have they handled different steps in the entrepreneurial process?How has Rovio changed their business model over time? What are the advantages and disadvantages of a freemium business model?How has Rovio evolved through the stages of entrepreneurial growth? At what stage of the entrepreneurial life cycle (see 10.4) is Rovio currently? Do you agree that the company is ready for their next phase of growth? Recommended video: The CEO of Rovio Entertainment Kati Levoranta’s view of the entrepreneurial mindset [1]             https://www.wired.co.uk/article/how-rovio-made-angry-birds-a-winner [2]             https://newzoo.com/insights/infographics/global-games-market-report-infographics-2013/ [3]             https://www.cnbc.com/2016/05/18/creator-talks-about-the-angry-birds-movie-and-the-future-of-the-popular-game.html [4]             http://www.rovio.com/investors/rovio-as-an-investment [5]             https://www.talouselama.fi/uutiset/rovios-ex-managers-reveal-serious-problems-with-strategy-and-management/1d50efce-44f4-36b7-8dc4-59c5c5a353f4 [6]             https://www.gamesindustry.biz/articles/2017-09-08-rovio-ipo-a-stark-lesson-in-timing [7]             http://www.nasdaqomxnordic.com/aktier/microsite?Instrument=HEX144044 [8]             http://www.rovio.com/node/1874 [9]             http://www.rovio.com/node/1874 [10]           https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-telecommunications/us-tmt-the-rise-of-esports.pdf [11]           https://www.gamesindustry.biz/articles/2018-04-30-global-games-market-to-hit-usd137-9-billion-this-year-newzoo [12]           https://www.engadget.com/2018/09/19/angry-birds-magic-leap-hands-on/

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