Technology

Will Candy Crush deal leave Activision with a bitter taste?

Candy Crush Image copyright Getty Images
Image caption King.com has convinced players across the globe to pay micro-transactions to advance in its Candy Crush Saga games

Candy Crush describes itself as the "sweetest game around" - but even so there's no guarantee that the $5.9bn (£3.8bn) takeover of King.com won't leave both investors and players with a bitter taste.

The big-budget, action-centric PC and console titles that Californian buyer Activision Blizzard is best known for are quite different to the more simple puzzle and role-playing mobile and web-based games its Stockholm and London-headquartered acquisition is skilled at making.

Furthermore, the size of the acquisition dwarfs other mega-deals in an industry already prone to consolidation.

For comparison's sake, other recent mergers include:

  • Microsoft's $2.5bn purchase of Minecraft's developer Mojang
  • Facebook's $2bn takeover of virtual reality headset-maker Oculus
  • Amazon's $970m acquisition of the games community Twitch
  • Electronic Arts' $750m payment for Plants v Zombies developer PopCap

So, what's behind the huge sum involved in the latest deal?

Image copyright Activision
Image caption Activision Blizzard's bestsellers include the Call of Duty series, Destiny and World of Warcraft

Mobile gaming

Gaming on smartphones and tablets is enjoying a growth spurt.

Research firm Newzoo predicts that 2015 will be the year that mobile games revenues overtake those of console titles, despite the fact the latter typically cost much more to purchase.

This is in part down to the fact many more people own and game on handsets and tablets, but also because of the success King.com and some others have had at convincing players to make multiple "in-app" purchases.

In other words, rather than trying to make players shell out a large sum to buy access to all of a game's content upfront, consumers are instead charged a low price or given the software for free but then convinced to pay extra to unlock levels, add abilities, change the appearance of their character and get other booster content.

Image copyright Reuters
Image caption The two Candy Crush Saga games have been top grossing titles on smartphones ever since their launches

As many a player - and parent - has learned to their cost, the prices of such virtual goods may seem cheap, but can soon add up.

Big names, small sales

Activision Blizzard has struggled to make much impact in the mobile sector despite it releasing dozens of titles.

Efforts to build on existing franchises including Call of Duty, Skylanders and Tony Hawk skating games have had mixed success.

It can only really claim hit status for Hearthstone - a World of Warcraft spin-off - and even that ranks outside the top 25 grossing titles on both the iOS and Android platforms at present.

Image copyright Getty Images
Image caption Hearthstone has been a rare hit for Activision Blizzard on mobile

By contrast, King.com's puzzle game Candy Crush Saga and its sequel Candy Crush Soda Saga both appear inside the top six titles and have been consistently high-earners over the years.

Post-Candy Crush

At the end of its most recent quarter, King.com reported an impressive $490m worth of sales and 501 million active players.

Even so, some analysts still have concerns about its prospects.

"Its actual audience has declined [from a peak of 550 million active users]," said Piers Harding-Rolls from the IHS Technology consultancy.

"King would say that the audience it shed were less committed players who didn't monetise as well, and that it's hanging onto people who play more than one of its games and tend to spend more on average.

"So, it says it is holding onto its best customers.

"But I still think it has a challenge about what to do post-Candy Crush, which Activision will now have to take on."

This latter point could prove crucial.

The firm has developed more than 200 titles since it was founded 12 years ago. But none of them have come close to repeating the two Candy Crush titles' success.

Image copyright King.com
Image caption AlphaBetty Saga has not had the same long-term appeal as the Candy Crush games

King.com might like to boast that a recent launch - AlphaBetty Saga - shot to number one in both the iOS and Android game download charts when it first went on sale.

But the sad truth is that it no longer appears in either platform's top 100.

Other mobile developers - including Angry Birds' Rovio and Clash of Clans' Supercell - have also found it harder to create new franchises than to carry on milking their best-known brand.

The risk is that over time this leads to ever-decreasing returns.

One statistic that might cause particular concern is that about 40% of King.com's revenue for the first six months of 2015 came from a single title - the original Candy Crush Saga - and its earnings power is diminishing.

Image copyright Rovio
Image caption The fortunes of King.com's rival Rovio are also largely dependent on a single franchise

Even so, at least in the short term, Mr Harding-Rolls acknowledges there is logic in the merger, in large part because it gives Activision Blizzard access to players it has previously struggled to appeal to. Especially women.

"Female players make up 40 to 50% of gamers globally," he explained.

"And many of them are playing on mobile and tablet devices.

"The takeover will allow Activision Blizzard to tap into that audience."

One final thought: although $5.9bn may sound a lot for King.com, it's still less than the $7bn the company was valued at when it floated on the New York Stock Exchange last year.

Activision Blizzard may have picked up a bargain - alternatively it may discover the subsequent "micro-transaction" costs of trying to repeat Candy Crush's success add up quicker than expected.

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