Activision Blizzard is once again holding the news headlines hostage, between Black Ops 3, WoW subscriber news, the latest expansion, Hearthstone, Overwatch, the film studio, the Warcraft film, Blizzcon, and of course the quarterly finance releases you all love to pour over, but what is really turning heads and inspiring groans from the Blizzard base is the news that the developer publisher is acquiring King, a company whose titles (including Candy Crush) are sure to be in every hardcore gamer's library.
After a long, hard process of coming up with a suitable headliner for this article, I decided to settle upon King DE and the Policy of No Refunds, to hopefully highlight just how disappointed Bobby Kotick will be when he shows up at the bank a year from now with a receipt in hand and buyer's remorse on the mind and unfortunately is turned away. It's not that I'm saying acquiring King for the massive price of nearly six billion dollars was a bad idea, but that it was a terrible idea that we will no doubt hear words of regret from someone at Activision in a year or two, even if they have to come from the mouths of (to be) recently fired executives.
Let's put six billion into perspective, shall we? That is one and a half LucasArts and Lucasfilm, who were purchased for a grand total of $4 billion by Disney back in 2012. If the acquisition of King manifested itself as a country, it would rank around 147th in terms of GDP. With six billion, you could cover the entire bill for the 2016 American presidential race, pay back the entire country's late video fees, or even upgrade your Starbucks latte to a grande.
King follows a long line of well-known one-hit wonders who valued their initial public offering based on the then-awesome revenue from a single, highly volatile product, and subsequently fell off the stock market breaking their falls on the unlucky backs of gullible investors. You see, the mobile casual market doesn't exactly work the same way as it does elsewhere. In console gaming, you have series like Call of Duty, Battlefield, Halo, etc, that not only maintain their success with each iteration, most of the time they grow up to a certain point of saturation. The mobile market doesn't work the same way. Developers don't have the same kind of luck in replicating the success of whatever got them massively popular, and will slowly fade into obscurity as they waste capital trying to create the next best thing.
We've talked about this before with Zynga, a company who got big on Farmville and the lack of competition in its space, and has managed to spend all those years since without a suitable successor. The same goes for Rovio, makers of the highly successful Angry Birds game, who are now finding that Angry Birds 2 isn't improving over the original, but rather that customers aren't coming back for a second time and no one is buying their merchandise anymore. Now the company is likely praying that the Angry Birds franchise won't be irrelevant by the time the movie hits.
So what's the problem? Are mobile developers just bad with money? Yes and no.
The actual answer isn't as simple and can't be summed up without looking at each company. Zynga, for instance, was the successful product of a young platform with a lot of headroom and no competition. As I've said numerous times about the success of very early MMOs, it comes easy when you're the only water salesman in the middle of a desert. Competition and a shift in technology ultimately outed Zynga as a company clueless about the market and one that is creatively bankrupt to boot. This is a company that, had they missed out on a big initial break, very likely would never have become the juggernaut they were for those few years.
Often times these developers are just a victim of their own success. In the case of developers like Rovio, the massive influx of revenue from the one title leads the developer to expand its team greatly in search of the next great title. The successor never comes, the company puts out a few titles that perform fairly, and all of a sudden the revenue from the big game (ie: Angry Birds) begins to decline. Less revenue means less money to pay employees, which means layoffs. Lots and lots of layoffs. Effectively they act like the average lottery winner, who don't know what to do with the sudden influx of money and wind up spending more than they can afford.
Luckily I'm not the only one who noticed the writing on the wall, primarily that King's increasingly desperate attempts to pool money into a Candy Crush-sized successor at a time when the actual Candy Crush is petering out. While King's other titles are growing as Candy Crush falls, the likelihood that any of them will be able to take the throne seems slim. Candy Crush continues to outrank its successors by miles, pulling in a majority income.
Ultimately this purchase is likely to come down to the fact that Activision isn't looking for the next Candy Crush, but merely plucking a giant name in order to secure a group of existing franchises, a massive user base, and one of the world's most successful mobile games. The goal is to diversify Activision into the mobile sector, an industry that the publishing giant has yet to break into apart from Hearthstone, whose 25 million players pales in comparison to King's 454 million. Presuming that King can stay where it is and even grow, Activision will get its money back in a few years time.
But the path to irrelevance in the mobile market is fast, and often hits when you least expect it. Anyone remember Flappy Bird?