Rovio, Finland’s Answer To Zynga

Gartner projects worldwide mobile gaming market to reach $11.4 billion by 2014. The mobile gaming market is estimated to have grown 19% over the year in 2010 to cross $5.6 billion in revenues. Gartner’s report estimates that 70% to 80% of all mobile app downloads are mobile games. Further, 60% to 70% of those downloaded games are free. Most mobile games are priced in the range of free to $5. The low price of these games is causing concern among veteran video game players. Recently, Nintendo’s management voiced concerns that mobile games are impacting the quality of games and influencing the consumer’s expectations of prices for games.

Rovio’s Financials
Angry Birds, a mobile puzzle game, is the most popular title developed by the Finland-based entertainment media company, Rovio. Initially called Relude, Rovio was founded in 2003 by three students from the Helsinki University of Technology as a mobile game development studio. Since then, it has shipped more than 50 mobile game titles. Rovio has worked-on-hire for multiple game publishers and owns 16 of its 52 titles. Angry Birds, Rovio’s 52nd title, was released when the company was almost bankrupt. The title was published by Chillingo, originally for the iPhone. Today, the game is available on most mobile platforms except BlackBerry. A Windows 7 version is already being developed. The app has become the leading paid app in over 65 countries across the world.

Rovio earns revenues from app sales and licensing. Analysts estimate its annual revenues to be in the range of $50 million to $70 million. Its biggest revenue and profit generator, Angry Birds, is priced at $0.99 for the iPhone. The game was also released on the iPad, where it is priced as high as $4.99 for the HD version. Rovio gets to keep a 70% share in the sales made through most platforms.

Angry Birds has been downloaded more than 50 million times by smartphone and tablet users worldwide. Reports estimate that 40 million active users worldwide spend more than 200 million minutes of game time every day on the app, which has a fan following that includes the British prime minister, David Cameron.

Rovio is also looking at alternate revenue sources. In October of last year, it launched a free version of the game for Android-based devices that is supported by ad revenues. According to management, the company expects to earn $1 million a month from advertising. Angry Birds has also become a successful franchise, and the company sells Angry Birds characters plush toys and iPhone cases for $11.99 and $34.99 apiece, respectively. Since the launch in November of last year, about 2 million plush toys have been sold.

Recently, Rovio raised a $42 million round of funding from venture capital firms Accel Partners, Atomico Ventures, and Felicis Ventures in exchange for a 15% share in the organization. The funding pegs Rovio’s valuation at close to $280 million.

Rovio Expands Market Reach
Besides mobile devices, Rovio is also expanding its presence in the gaming console market. Angry Birds is expected to be available soon on the new Nintendo 3DS, in addition to PS3, XBox 360, and Wii. Also, Rovio is working on launching other spin-offs in the form of a racing game and a sports game.

To continue to increase the number of people it reaches, Rovio has successfully been marketing its games through social networks. It opened a Facebook fan page last year, has its own Twitter account, and had a video on YouTube that it claims has been viewed more than 6 million times. The Facebook version of the game has been in development since last year and is expected to be released this summer.

By expanding into Facebook, Rovio’s Angry Birds could ruffle some feathers in Farmville. Farmville developer Zynga is a much larger player with projected annual revenue of $1.8 billion and an estimated 360 million active users across its game properties. Rovio’s Angry Birds may have better gameplay, but it is still a single-player game with social interaction limited to comparison of scores among players. I hope that in the highly anticipated Facebook version, Rovio has learned from Zynga how to leverage the idea of social networks, which will help it give Zynga some serious competition.