The stock market debut of King Digital rests on the success of a single smartphone game known as Candy Crush Saga.
In one respect, the startup, based in Dublin, Ireland and San Francisco, California, is well positioned to follow Twitter and Facebook with its own public stock offering. Thanks to the popularity of Candy Crush Saga, King pulled in $568 million in profit last year, and some analysts expect an IPO could value the company at more than $5 billion.
But history has shown us that, in the gaming world, the success of individual titles -- and even entire gaming platforms -- can be fleeting. The latest example is Zynga, which has fallen on hard times following its 2012 IPO, as the industry moves away from Farmville and other games that run atop Facebook.
If King is to buck the trend, it must find a way of transcending short-term popularity, and it must fight tooth-and-nail to do so. It needs not just a wildly successful game, but a new way of building games, one that can stay ahead of changing tastes -- something akin to the way Pixar reinvented the movie business. And even that might not be enough. The naked truth is that today's gaming world is even more competitive than Hollywood. It's a place where almost anyone can steal your thunder with very little capital behind them.
In its IPO filing, King says it has already found the edge it needs. The company has been around since 2003, making the transition from Facebook games to mobile titles, and it argues that it has the means and the wherewithal to repeat the success of Candy Crush. "We have developed a repeatable and scalable process for bringing successful mobile and social titles to a global audience quickly and cost effectively," the company says. "We believe our model is fundamentally differentiated from competitors."
According to the filing, this method involves introducing new titles through a kind of online game tournament, where they can undergo a trial by fire. The company says that titles like Pet Rescue Saga and Farm Heroes Saga have risen from these tournaments to become "category-leading franchises." But only Candy Crush has achieved the kind of enormous of financial success the company is banking on. The game generates 78 percent of King Digital's bookings. In 2011, before its success sky-rocketed, King was $1.3 million in the red, a far cry from the $568 million in profit it made in 2013.
Now, King Digital must prove that it has developed a system capable of producing other blockbusters, that it can match the modern production lines built by gaming outfit Electronic Arts or, better still, Pixar. Pixar and its benefactor Steve Jobs invested heavily in two big things: the genius of creative leader John Lasseter, and the cutting-edge technology born at Lucasfilm. The formula was wildly successful, but it was also very risky, and it could certainly breakdown at any time. While Pixar films look and feel like nothing else in the business, they can also look and feel a lot like one another.
Alternatively, King could embrace what you might call the "indie incubation" model, where it seeds small amounts of money across a few dozen relatively autonomous creators who are free to pursue wildly different projects. Whimsical New York startup OMGPop is an exemplar of this sort of system. The company churned out 35 low-risk games in three years before it found a megahit with Draw Something and was acquired by Zynga.
Even if King's methods are as robust as it says they are, the company is in for a fight. The gaming industry is littered with companies that couldn't duplicate their initially enormous success, including not only Zynga, but Atari, Sega, and 3DO. Those who have survived in the videogame business for any length of time, like Electronic Arts, tend to be ruthless about the business.
For investors, the good news is that King has already shown its ruthless streak. To keep a tight grip on its breadwinning games and the ideas behind them, the company has sued the living crap out of competitors, even those whose designs appear to have preceded, and been imitated by, King.
Of course, Zynga is known for much the same thing. And it's hardly on top of the world. King may different. But don't count on it.
