Apps & Software

Can Rovio Keep Its Fort Standing While Angry Birds Comes Crashing Down?


If there is anything educational to be gleaned from time-wasting games such as Angry Birds, it’s that the app store is a fickle benefactor.

Rovio, the Finnish company that makes the game, is now feeling the impact of shifting tastes and trying to move beyond printing money in the form of one-dollar game downloads. The revenue Rovio made from gaming dropped from 2012 to 2013, the company said on Monday, and its profit fell more than 50 percent.

All is not lost: Rovio did bring in more overall revenue than it did the year before and made $37 million in post-tax profit. And the folks behind Angry Birds have known for some time that the music won’t play forever, which is why they have been trying to learn how to do two things very differently this time around.

When Angry Birds hit it big, the business model for mobile games relied on charging nominal fees for downloads. Angry Birds spent the better part of 18 months as the top-grossing iPhone game in the U.S. using this approach before falling precipitously in early 2012. The blockbuster has never recovered, yielding the limelight to so-called free-to-play titles such as Candy Crush and Clash of Clans. This new wave of games cost nothing to download, extracting small payments instead for advantages sold within the games themselves. Rovio released its own free-to-play game, Angry Birds Go!, late last year with little traction. The challenge with free-to-play games is that they can seem like scams, and critics have said that Rovio has sucked all of the fun out of its new game in an attempt to make money from it.

It’s certainly possible that Rovio never hits it big again with another game. Game makers are particularly vulnerable to the one-hit wonder syndrome, and Rovio has tried to respond to this by increasingly focusing on things that aren’t games. It has been trying to sell toys, make movies, design theme parks, and make its own series of cartoons. Consumer products now make up 47 percent of Rovio’s revenue. “We’re really looking at this much more long term,” Peter Vesterbacka, the company’s chief marketing officer, told Bloomberg TV last fall, “and that’s not dependent on how we’re doing a particular day in the app store.”

Doing this necessarily relies on sacrificing the profit margins of an early-stage digital company, which can see exponential revenue growth with relatively small increases in cost. A plush-toy and amusement park empire isn’t going to be so easy. If nothing else, a company looking to make that shift requires a certain self-confidence. Vesterbacka seems ready to provide it: He has said that Rovio’s goal is to be significantly bigger than Disney.

Brustein is a writer for Businessweek.com in New York.

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