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Disclosure: The organizers of Slush paid my way to Helsinki. Our coverage remains objective.
Espoo, Finland — Rovio was virtually unknown in the gaming and entertainment businesses before it scored its biggest hit, Angry Birds, which was the Finnish firm’s 52nd attempt to make a hit mobile game.
Now, Rovio has left its little nest near Helsinki, Finland, and its ambition is to make Angry Birds as successful as Mickey Mouse. With nearly 2 billion downloads, the organization is well on its way to doing that. The Angry Birds empire includes games, books, plush toys, clothing, cartoons, and movies. Rovio’s goal is to surprise and delight the world with new forms of entertainment as a global media-and-entertainment company.
I recently visited Rovio’s headquarters in an Espoo high-rise, not far from the corporate offices of Nokia, just across a bridge from central Helsinki. The trip was part of a visit to Slush, the Finland-based startup tech conference organized with heavy Rovio involvement. I was able to catch up with various Rovio employees like Peter Vesterbacka, Mighty Eagle and chief marketing officer, while taking a media tour of its office. Thanks to the success of Rovio and Supercell (the maker of Clash of Clans), Finland is now on the map of the global game business. It has 180 game companies with 3,000 employees, most of them funded at the beginning by Tekes, the Finnish government’s technology investment arm.
Three top investment pros open up about what it takes to get your video game funded.
Three students from the Helsinki University of Technology started Rovio in 2003 under the name Relude. Its founders were Niklas Hed, Jarno Väkeväinen, and Kim Dikert. They had participated in a mobile game development contest at the Assembly demo party, which Nokia and Hewlett-Packard sponsored. Vesterbacka organized it. The trio won with a multiplayer title called King of the Cabbage World. They sold it to Sumea, which eventually became a Digital Chocolate studio. In January 2005, Relude got its first round of investment from Niklas Hed’s uncle, Kaj Hed, who became chairman. The firm changed its name to Rovio (it means bonfire in Finnish) Mobile.
The legendary story was that these Finnish students created 51 games at Rovio before they created Angry Birds, No. 52. Most of the hits were selling around 500,000 to 1 million copies. The games had an average critic’s rating of 80 percent, which was very good. But a lot of them weren’t selling, and Rovio never thought to update an existing release. The Java platform that the company used to build its titles was too fragmented on a worldwide basis.
Then, the iPhone debuted in 2007. At the time, Rovio had 12 employees. When Apple opened the iPhone’s app store in 2008, the team sensed a huge opportunity. The roots of Angry Birds started to grow in early 2009. Jaakko Iisalo, a senior game designer, showed his colleagues a screenshot of angry-looking birds with no wings or legs. That inspired the whole team to turn that screenshot into a bigger experience.
The team knew that two-dimensional, physics-based artillery games were very popular. They needed to invent a slingshot because the birds didn’t have any wings. As the development proceeded, Rovio’s existing games were generating no revenues. By the end of 2009, the financial situation became desperate. At about this time, the mobile developer got marketing help from Vesterbacka, a former HP employee, who went by the title Mighty Eagle and later became chief marketing officer. And Niklas Hed’s cousin, Mikael Hed, joined as CEO. Mikael’s father, Kaj, remortgaged his parents’ home in an effort to save the company. Mikael pleaded with his father not to take that risk, but Kaj did it anyway. That gave the business enough cash to develop Angry Birds.
The iPhone had a dazzling display and a touchscreen. Rovio’s designers took advantage of the screen’s swiping function, which resulted in an intuitive way to control a slingshot and a user-interface feature that was unique to mobile devices. Console players didn’t swipe. They tugged on joysticks or mashed buttons. The iPhone was simpler than that, and it could reach a much wider audience of people who had never played games before.
In December 2009, the company released the final Angry Birds, an addictive and amusing puzzle title that took advantage of the aforementioned slingshot physics. People could spend hours with it or snack on it during a five-minute bus ride. It took about six months to hit the No. 1 spot in the U.S. app-store charts. At the time, 160,000 apps were available in the app store. Most had a life cycle in the top ranks that lasted two weeks. Angry Birds stayed at the top.
Then, it conquered territory after territory, and its iconic bird characters became the symbols of the modern mobile zeitgeist. Rovio continuously updated the release with new levels, as if it were operating a service. People have now downloaded the game in various variations almost 2 billion times.
“They finally hit the jackpot,” said Sara Antila, communications director at Rovio.
The studio succeeded in part because Rovio was one of many mobile companies to use the power of the iPhone and Google’s Android mobile operating system to disrupt console games and the Nintendo 3DS portable. Rovio sold its games for much cheaper prices, at 99 cents to $1.99. And it also made free-to-play versions, which either featured ads or in-app purchases, where a player could pay real money for virtual goods. Under this model, people could try out a game and invest money in it if they truly found it immersive. That was better than spending $20 to $30 on a Nintendo handheld title or $60 on a console offering, only to find it was a dud.
The trouble for mobile game companies was that the market soon saw a flood of hundreds of thousands of free-to-play titles. These studios had to take the risk of spending money to acquire users or face obscurity. But if the lifetime value of a customer for a free-to-play game was just $1.99, then a developer couldn’t justify spending more on that game per user in advertising expenses. Yet Angry Birds stood out as the first immediately recognizable brand among the pack. It could promote itself in a viral fashion, without spending much on ads at all. That became a powerful financial engine. Rovio rode this wave of disruption of the traditional game industry.
Angry Birds also rose above gaming, becoming a worldwide cultural phenomenon. An Israeli comedy show, “Eretz Nehederet,” satirized the failure of the Israeli-Palestinian peace process by featuring Angry Birds in negotiations with their enemies, green pigs. The video segment went viral on the Internet. TV comedians Conan O’Brien, Jon Stewart, and Daniel Tosh referenced Angry Birds in sketches. TV show 30 Rock referenced it, and celebrities like writer Salman Rushdie and the United Kingdom’s former Prime Minister David Cameron confessed to playing it.
Vesterbacka formally joined Rovio as an employee in May 2010. In Rovio’s book, Angry Birds: Hatching a Universe, he said, “I decided then that I was not happy with making Angry Birds big. I wanted to make it huge.”
During 2010, Mikael Hed set the course to turn Rovio into something much bigger. In March 2011, the company raised $42 million in venture funding from Accel Partners and Felicis Ventures. In July 2011, the firm changed its name to Rovio Entertainment, and it embarked upon the strategy to make the world into an Angry Birds universe, with its funny mascots adorning everything from clothing to animated cartoons and movies. By May 2012, Angry Birds hit 1 billion downloads.
Raising a big amount of money meant that investors like Accel’s Rich Wong recognized that Rovio wasn’t a one-game company. It was a one-brand company, and it could use that brand to create many releases — 11 based on Angry Birds so far — and leverage its strong financial position to either build or acquire new mobile brands.
Rovio has been an active acquirer, using its war chest to expand its ambitions in entertainment. In October 2011, the company acquired a Helsinki animation company. In March 2012, Rovio acquired Futuremark Game Studios. And in July 2012, it cut a deal with Activision to take Angry Birds to game consoles and handhelds.
It has also been busy with game launches. While Angry Birds debuted in late 2009, the company followed up with Angry Birds Rio, based on the 20th Century Fox animated movie Rio, in March 2011. Rovio then launched its Angry Birds Space game at the beginning of 2012 in concert with NASA, which launched the title from a space shuttle in orbit. That effort was the company’s first 360-degree launch, where it debuted the game, cartoon, apparel, toys, and books all at the same time.
With popularity at a high, Rovio tried to use its brand awareness to launch its first non-Angry Birds game in its modern era. In July 2012, it debuted Amazing Alex, another physics puzzle game, on multiple mobile platforms. Unfortunately, the game wasn’t the huge hit that others had come to expect.
In September 2012, the villains of Angry Birds got their own spin-off release, Bad Piggies, which chronicled the construction efforts of the pigs. That game reached No. 1 in three hours, compared to six months for the original Angry Birds. To keep the brand humming, the company released Angry Birds Star Wars in November 2012. During Christmas Day, 2012, the company saw 8 million downloads. During Christmas week, Rovio had 30 million downloads in a time where individuals activated 50 million mobile devices. And last October, the firm released Angry Birds Star Wars II.
“The key here is we are building a brand, and it can live through various channels of entertainment,” said Teemu Suila, chief operating officer at Rovio. “We are creating stickiness on top of the franchise. And we have a variety of different activities using the same brand and characters. The same machinery could be used to create new brands.”
In April 2013, Rovio reported its financial results. It generated $195 million in revenue in 2012, up 101 percent from $97 million in 2011. Earnings before interest, taxes, and depreciation were $98.5 million, up 50 percent from $60.2 million in 2011. During that year, Rovio doubled its headcount and set up a bunch of new offices. Licensed merchandise had become 45 percent of revenue.
But for much of 2013, a lot of talk focused on whether Angry Birds had lost its sizzle. John Riccitiello, former CEO of Electronic Arts, questioned whether mobile brands such as Angry Birds truly had legs. Would they still be around five years from now at the top of the charts? Rovio hasn’t been high in the top-grossing charts for some time.
In the first quarter of the year, Rovio still had 250 million monthly active users, and the company is able to partner with many of the biggest brands and businesses in the world. Those partners include Cheetos, Microsoft, Nokia, Mattel, and a variety of other companies. More than 500 Angry Birds licensees exist in 55 countries.
By contrast, Supercell, Rovio’s Helsinki-based neighbor, has become even hotter with Clash of Clans, which has held top-five slots in the top-grossing apps for more than a year. While rumors persisted that Rovio would go public, Japan’s SoftBank and GungHo Entertainment invested $1.53 billion in exchange for a 51 percent stake in Supercell, valuing Supercell at $3 billion. GungHo has now set up a deal to market Rovio games in Japan.
Surely this empire couldn’t fall apart? Antila points out that Hello Kitty has become a $9 billion business. With 800 employees, Rovio is busy making sure that it doesn’t fade out like a fad. It is publishing third-party games developed by other studios.
An Angry Birds Toons cartoon show has debuted on TV, and it had gotten 1 billion views in seven months. A total of 52 episodes should air. The company has created a playground in China and is creating a theme park in Spain.
The company’s latest effort is Angry Birds Go!, a mobile card game combined with figurines (using Hasbro’s Telepod technology) that will come out on Dec. 11. An Angry Birds movie, which Clay Kaytis (who worked on Disney’s Tangled animated film) and Fergal Reilly (who had involvement in the Cloudy with a Chance of Meatballs cartoon) are directing, still has a target release date of 2016. More things are coming, Rovio executives say.
Meanwhile, Rovio has spawned numerous spinoffs in Finland for new game companies. In a country with just 5 million people, Angry Birds has given Finns an enormous sense of pride, much like Nokia did in its heyday. Its success has inspired entrepreneurs, and the Finnish government points to Rovio as one of the reasons why it invests 500 million euros a year into research and development that includes startups.
For those startups, Suila advises, “Focus on making something unique and great. Then, get customers to love it.”
Vesterbacka says, “Love what you do, and success will follow.”
Check out our gallery of Rovio photos.
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