'Angry Birds' Maker Suffers a Harsh Reality

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In the gaming industry, trends move fast.

That’s a lesson Zynga, the social gaming company behind FarmVille, learned the hard way:  Founded in 2007, it experienced a meteoric rise. But as users began to ditch Facebook for mobile games like Angry Birds, the San-Francisco-based company was slow to adapt. Stocks plummeted and hundreds of employees were let go.

Now the maker of Angry Birds is also feeling pressure to stay current in a rapidly evolving industry.

Rovio Entertainment, the Finnish gaming company responsible for the once red-hot franchise, announced its full-year financial results today, and they're not encouraging. After years of rapid growth, Rovio's revenue was up slightly to $216 million. Its net profit, however, plummeted: at $37 million, earnings were less than half of what they were back in 2012.

Related: Zynga Makes Its Biggest Buy Yet, Announces Fresh Round of Layoffs

“After three years of very strong growth, 2013 was a foundation-building year," Rovio CFO Herkko Soininen said in a statement. "We invested in new business areas, such as animation and video distribution, ventured into new business models in games, and consolidated our strong market position in consumer products licensing. With these investments we have been gearing up for the future growing markets."

Rovio, unlike Zynga, was always a mobile-gaming company. Traditionally, it has charged users to play its games but the pay-to-play model has fallen out of favor with the rise of King Digital (maker of  the Candy Crush Saga) and Supercell (Clash of the Clans), which use a freemium model (players are only charged for in-game purchases). Rovio has struggled to adapt to this shift; "The free-to-play transition has taken longer than we anticipated," Rovio Chief Executive Mikael Hed told The Wall Street Journal.

That's small potatoes, though, compared with the possibility that our cultural appetite for all those Angry Birds is waning. As Pando Daily notes, revenues made from Rovio's tie-ins fell by 2 percent year-over-year. That's a portentous sign, because while the company has reduced its reliance on online gaming with aggressive forays into consumer product licensing and entertainment (including an animated 'Angry Birds' feature film, slated for July 2016) it hasn't reduced its reliance on the Angry Bird franchise.

Related: Candy Crush CEO: If You Don't Get Why We Are Worth $7.6 Billion, Then Play Our Game

Rovio's slumping earnings is just another indication that for a company looking to make it in the mobile gaming space, building a sustainable business model is an uphill battle. Hits are fickle; they explode onto the scene, and then fizzle as users move onto the next game (again, see FarmVille).

Investors are clearly wary of the 'one-hit-wonder' effect; while Candy Crush continues rack in the cash, there's the gnawing fear that King Digital will fail to produce an equivalent hit. (At the day of its IPO last month, King's shares fell 16 percent, and have failed to recover since).

As for an eventual IPO for Rovio? "I have nothing new to report on that," Hed told The Wall Street Journal.

Related: Are Candy Crush and WhatsApp Really in It for the Long Haul?

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