Rovio CEO Mikael Hed told CNBC.com he wants to use the extraordinary success of the Angry Birds mobile game to build a diversified entertainment franchise spanning all media.
Released in December 2009, Angry Birds has been the runaway leader on Apples [AAPL 337.4964 -3.0036 (-0.88%) ] app store and on other platforms.
By March 2011 it passed 100 million downloads, had a popular movie tie-in with 20th Century Foxs childrens film Rio and had demonstrated its ability to transition to desktop computers by selling 150,000 copies on Apples Mac App Store in its first week.
Angry Birds iPhone app
Source: Apple
Angry Birds iPhone app
The game, which has users flinging ball-shaped birds at green pigs, is kept fresh with seasonally-themed versions and has proved itself to be both startlingly addictive and capable of extending its run well beyond what would normally qualify it as a fad.
Some estimates put its total usage at 200 million minutes per day.
It is this staying power and loyalty that convinced Hed that Angry Birds can become the platform that makes Rovio, based just outside of Helsinki, Finland, into a global entertainment company.
When we realized we had a big hit on our hands with Angry Birds, we looked at companies that had gone before us, especially in the mobile gaming sector where we were at that time very firmly, Hed told CNBC.com.
We saw that most gaming companies had then immediately tried to make another hit game and we realized that had very rarely worked. Rather, we started to look at what we could do around Angry Birds and if there was a way that we could build this into an entertainment franchise, he added.
One-Hit Wonder?
Rovios critics have said that the company is simply a one-hit wonder, and that to genuinely demonstrate its ability to become a force in the market it will need to expand its range of games.
Games are what we are very strong at, and we will do other games besides Angry Birds as well, but now as we are executing our media company strategy, were not in a tremendous hurry to churn out game after game after game, Hed said.
After all, Rovio had produced more than 50 titles before hitting gold with Angry Birds. Taking their existing hit and using its popularity to expand horizontally into film, TV and merchandising is a way to grow the company in a rapid and controlled way, without having to rely on the hit-and-miss nature of online gaming success.
Even so, the companys beginnings in social gaming and interactivity have given it an experience that others are going to struggle to match, Hed said.
We have our own online retail presence as well, because thats where our game is, and it gives us some really interesting opportunities as we do have a great channel to communicate with our fans through the game," he said.
"It does require adaptation from us constantly and learning about how these business areas work, but it gives us opportunities that would not be possible for other media companies because of the uniquely interactive nature of these mobile applications, Hed added.
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Likewise, he said that his business has an advantage over traditional computer game companies, as the sheer volume of users shows.
There is room for many kinds of games and there are different types of players too who prefer different types of games," Hed explained.
"Angry Birds is really popular amongst casual gamers, he said. Our audience seems to be the widest audience out there, the others are quite niche. So the question is can these other companies compete with the very broad demographic of Angry Birds?
Aggressive Expansion Plans
Hed has aggressive expansion plans for Rovio, and said that the company will consider making acquisitions in the more traditional media space in order to advance its strategy. He anticipates that in a years time it will have increased in headcount by three to four times its current level of 100 employees.
While he is in no hurry to exit, Hed has previously said that he would consider an IPO down the line. Valuations of social media and gaming companies are currently running high Zynga, the creator of Facebook games Cityville and Farmville, which is rumored to be planning a flotation in 2012, is being pitched at upwards of $9 billion.
At Wedbush Morgan, analyst Lou Kerner warns investors not to underestimate the value of social gaming, despite those who dismiss the soaring price tags as another dotcom-style bubble.
Angry Birds is a global phenomenon that is likely going to continue for many years to come in many different variations. And while the average revenue per user is low, the cost of additional users is significantly lower than video games. They can achieve massive scale very quickly, Kerner told CNBC.com.
Cityville got to 100 million users in seven weeks. Thats not possible in the world of video games. So youre looking at much larger user bases at a much lower cost. Even though they might monetize at a lower rate they can still be massively valued companies like Zynga, he added.
Many commentators even said that Facebook was overvalued at $1 billion, simply because $1 billion is a big number, Kerner said.
The opportunity today I think is unparalleled in the history of gaming to build profitable companies of significant scale. Thats whats underappreciated broadly. When Zynga was trading at $1 billion, people said it was overvalued. It was overvalued at $2 billion and it was overvalued at $5 billion and overvalued at $8 billion. So why is it overvalued?
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