Finnish mobile games maker Rovio pinned its hopes on Thursday on a costly 3D movie project helping it return to growth, after a 73 percent profit drop gave the latest sign its mainstay Angry Birds brand is losing appeal.
A decline in its business licensing the Angry Birds brand on toys, clothing and sweets is adding to the problems of Rovio, which has yet to repeat the success of its original slingshot-based game which became the No.1 paid mobile app of all time after its launch in 2009.
Rovio said total sales fell 9 percent last year to 158.3 million euros ($169 million), although revenue from mobile games grew 16 percent to 110.7 million on the back of new offerings.
Operating profit slumped to 10 million euros from 36.5 million.
"As (Rovio's) franchise begins to falter, the question of whether it is a one-hit wonder rears up again," said Steve Bailey, games analyst at IHS Technology.
He noted that while competition intensifies in mobile games, Rovio's toy business also faces big competition from a new category of physical toys that connect into virtual games, such as Nintendo amiibo and Disney Infinity.
"Angry Birds as a game isn't sufficiently advanced to make a 'smart toy' yet... As a player, you just don't have a longer-term relationship with it."
Rovio, whose aim is to become an entertainment brand on a par with Walt Disney, has also expanded Angry Birds into a spin-off TV series and is backing an animated movie set to premiere in May 2016.
Rantala said the production cost of the Angry Birds movie will be about $80 million, and marketing costs, which will be partly paid by Sony Entertainment, would total more than the production budget.
"The movie will help us get the licensing business back to growth," he said. "Pretty soon we will be able to publish new major partnership deals."
Meanwhile, the company is striving to build new characters to be expanded into new games, consumer products and animations, Rantala said.
Analysts said Rovio has been slow to respond to a shift to freely available mobile games, where revenue comes from in-game purchases and advertising.
"We are still in transition, we have launched free-to-play games but there is room to improve the monetizing in this area," Rantala said.
Analyst Bailey noted that movies and merchandise sales are dependent on sustaining interest in the core game business.
"The performance of the movie will be very telling about where the franchise can go next and how much life it has left in it."
(Additional reporting by Eric Auchard; Editing by David Holmes and David Evans)