Oct. 17 (Bloomberg) -- “Angry Birds” can fend off egg-swiping pigs, but they aren’t a match for medieval soldiers.
Supercell Oy’s three-year ascent from obscurity to a $3 billion valuation illustrates the fast-changing fortunes of the gaming industry. With a sale announced this week, the maker of the “Clash of Clans” strategy game stole the thunder of neighbor Rovio Entertainment Oy, the developer of “Angry Birds” long considered Finland’s most likely target for a gaming takeover or initial public offering.
Supercell co-founder Ilkka Paananen, 35, has found success betting on a shift in gaming from consoles and big screens to smartphones and tablets, designing free games with features that get fans to spend more money while playing -- the so-called freemium business model. The initial popularity of the Helsinki-based start-up’s titles in Europe and U.S. has quickly spread elsewhere.
“What made Supercell particularly irresistible was its remarkable summer success in Japan,” said Tero Kuittinen, a New York-based analyst at Alekstra Oy, a mobile-diagnostics company. “Right now, the app industry suspects that Rovio hasn’t yet learned how to make freemium games that succeed in revenue competition.”
After players download “Clash of Clans” for free, they can wind up paying $100 a pop for additional features as they reach new levels. In “Hay Day,” trunks of gold coins cost $80 each. Both titles are among the top-five iOS store grossers in the U.S., and have been there for months, according to market researcher App Annie.
The purchase by Japan’s SoftBank Corp. of a 51 percent stake for $1.53 billion marks a swift rise in Supercell’s valuation. In April, Supercell closed a $130 million round of financing that valued it at $780 million.
Paananen, a gaming-industry pioneer, began Supercell with friend Mikko Kodisoja in 2010, seeking to build an organization with no hierarchy and as few managers as possible. They were joined with four other founding members and have continued to work in teams of about half-a-dozen people even as it grew. It has about 130 workers today.
Supercell hasn’t disclosed its finances, though in May it was raking in $2.5 million daily from virtual goods sold on its two top games, equal to about $75 million a month.
Supercell and Rovio now dominate the Finnish gaming market. The two accounted for more than two-thirds of the industry’s 324 million-euro ($437 million) revenue last year, according to researcher Balance Consulting. Neogames Finland, a national non-profit industry organization, estimates the market will more than double to 800 million euros this year.
Paananen attributes the rise of Finland’s gaming industry partly to Nokia Oyj, once the world’s largest mobile-phone maker and the country’s most valuable company by far.
“Nokia brought work both by ordering games and introducing mobile gaming companies, also Finnish ones, to tele-operators, which were the only distribution channel at the time,‘‘ Paananen said in an interview last year. ‘‘They facilitated the market, which was very useful at the time, around 2001 to 2003.’’
Last month, Nokia agreed to sell its handset business to Microsoft Corp. in a $7.2 billion deal. In the past few years, Nokia cutting thousands of jobs helped spur an expansion of Finland’s startup industry.
Supercell’s games are played on devices such as Apple Inc.’s iPads and iPhones, as well as smartphones and tablets running Google Inc.’s Android software. ‘‘Clash of Clans” focuses on combat strategy, with users raising barbarian armies, while “Hay Day” simulates crop tending.
Differing from Supercell’s strategy, Rovio sells “Angry Birds” games for a couple bucks a download -- and a version of the title ranks as the most dowloaded paid app for iOS. Still, its games don’t appear in the top 50 of most-grossing games -- the ones that make the most money.
To expand its revenue base, Rovio, based in Espoo near Helsinki, has licensed its characters to everything from lollipops and soft drinks to T-shirts, toys and theme parks. The company is also going after Walt Disney Co. by expanding to animated films.
“If Rovio is a media company, we’re a gaming company,” Paananen said. “We live and breath games and wish to develop games.”
Saara Bergstroem, a Rovio spokeswoman, said in an e-mail that the Supercell deal is “very good news” for the industry and “is certain to attract new investors.”
Even if it got beaten to a major deal by Supercell, Rovio keeps growing. Sales doubled last year to 152 million euros, with consumer goods accounting for about half of that. The company said last year it’s working toward an IPO. Bergstroem said Rovio has no announcements on its plans now.
“It is not clear how a buyer would value Rovio’s licensing and merchandising power -- it is possible that its strength particularly in Asia might appeal to Disney or Mattel,” Kuittinen said. If its new titles appeal to consumers, “Rovio’s value would increase dramatically.”
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