Profitability of free-to-play games is falling

The high profitability of market leaders is falling. One of the reasons is the marketing race taking place against the background of slowing revenue growth.

Reducing the profitability of shareware games will be one of the trends of this year, he believes Nicholas Lovell, founder of the Gamesbrief blog and the book Design Rules for Free-to-Play Games.

He makes a similar conclusion based on the annual results of Supercell and King.

Supercell

In 2014, the Finnish company earned one billion euros more than in 2013. The growth of 200% cannot fail to impress. At the same time, the company’s operating expenses increased by 275% over the same period to €1.04 billion.

Nicholas notes that, most likely, these are not staff costs at all. In 2014, the number of studios grew slightly. Perhaps we are talking about spending on external employees and on various technologies, but, in his opinion, the main reason for the growth of costs is marketing.

And he is right, according to the Financial Times, as we have already written, Finns spent € 400 million on advertising. And now, attention, the company’s profit for 2014 before interest, taxes and depreciation was €515 million. Not to say that much more.

King

The situation with King has a slightly different character, which, nevertheless, indicates a similar trend. King’s revenue grew 20% more last year, to $2.3 billion. The curious thing here is that the company’s marketing spending increased in 2014 compared to 2013 by the same 20%. But only the profit for the same period rose only by 8%.

Nicholas explains the latter partly by payments to shareholders. However, this does not deny that King, like Supercell, has spent about €400 million ($455 million) on marketing. This is 20% more than a year earlier.

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So it turns out that the advertising costs of market leaders are growing much faster than their profits. And, most likely, marketing costs will only grow this year, but whether the profit will grow is a question.

A source: http://www.gamesbrief.com