By Mia Shanley
STOCKHOLM (Reuters) - With 100 million people logging on every day for a fix of its games like Candy Crush Saga, global gamemaker King is showing rivals not just how to hook players, but how to get them to pay.
King is the latest among European tech firms like Rovio, creator of mega-hit Angry Birds, and Mojang, behind Minecraft, to make it big on the global gaming scene. But its stunning profitability in an industry littered with firms who failed to make money from popular games has made it a totem for others seeking to emulate its success.
King's focus on the multi-billion dollar mobile games market - creating short, addictive puzzles for the fastest-growing part of the gaming industry - has helped it reap profits rare in its field. Though the company does not publish numbers, industry experts have estimated its revenues at $1 million-$3 million a day. Media reports now talk about an IPO valuation of $5 billion after a source recently said the company had filed to go public in the United States.
King was set up in Sweden a decade ago by friends working at the same tech startup and got 34 million euros funding from Apax Partners and Index Ventures in 2005. It has been profitable since, a fact that analysts put down to its ability to persuade players to pay several times over to continue the same game. Its "freemium model", in which games are free but players can pay for add-ons or extra lives, has been particularly effective because of the success of Candy Crush, described by some analysts as a global phenomenon.
"Candy Crush is one of the biggest mass market consumer games in years," said Adam Krejcik at Eilers Research in California. "They have been profitable for a while. This game has certainly brought them into a new category."
The puzzle game, in which players line up gleaming 3-D sweets to knock out jelly, chocolate and liquorice, is available online, on smartphone and Facebook. It has held the No. 1 spot for apps on Facebook for nine months and is Apple's top-grossing U.S. app, more popular than Spotify and TripAdvisor. King also says it is considering new platforms for the game such as smart TV.
Globally, mobile game revenues generated through Apple iOS & Google Playstore are expected to exceed $10 billion this year, according to Krejcik. Roughly half of those are revenues generated by seven publishers including King, DeNa, GungHo Online and Electronic Arts.
According to King's Chief Creative Officer Sebastian Knutsson, Candy Crush is addictive because it's equal parts pain and fun and fits consumers' short attention span.
"We talk internally about.. bite-sized entertainment, and we think that fits the mobile generation of today... short game rounds as opposed to having a super deep, long game," he said.
Knutsson, one of the five founders of King who between them hold 25 percent, is also part of the 10-strong Swedish team that came up with Candy Crush. It combines elements of other popular games - the shiny graphics of Bejewelled, the candies of Candy Land and the grid-like action of Tetris.
"Candies felt like something that everybody would have a positive feeling about.. And I wanted something that could have shine and glossiness without being something unattainable," Knutsson told Reuters in a Stockholm office where meeting rooms have names like Bubble Witch Lair, after the game.
Players lured by the appealing graphics of Candy Crush can pay for more lives, or must wait for 30 minutes before they may start again - though some cheat and move the clocks on their smartphones ahead so they can continue. The game's appeal was broadened by its social aspect: Players can share their progress on Facebook, swapping lives as well as tips on how to crack the various levels. Others share their pain: "Die Candy Crush. Die." writes one player, stuck at level 60, on King's Facebook page.
King says its decision last year to shift its focus to its mobile platform was pivotal because that market was booming and the game suited it well.
The candies worked well on mobile screens, Knutsson said. Analysts note the game is easy to hop in and out of, making it a good time killer for mobile players, yet offers new challenges to give players a new twist when they play again.
"We knew it would be big on Facebook but I think the mobile success is what really took us by surprise," Knutsson said.
The game's success led CEO of arch-rival Zynga, former Microsoft Corp Xbox boss Don Mattrick to admit: "I'll fess up, I'm a candy crush player and I've enjoyed it."
California-based Zynga's trajectory demonstrates the fate of many others in the industry. In 2009 it developed social game FarmVille - a huge hit in which players harvested crops and raised livestock - but is now struggling to make money from it because it is still based on Facebook as players migrate in droves to mobile. Zynga's stock price has slumped 65 percent since a high-profile $1 billion IPO two years ago and it is now slashing staff numbers while closing offices.
Market researcher Newzoo estimates global game revenues across all platforms to reach $86.1 billion by 2016 as the number of gamers reaches 1.55 billion. It expects the fastest growth to come from mobile gaming, which will make up almost 30 percent of the total, up from about 17 percent this year.
Accordingly King - currently offering 150 games and boasting more than a billion gameplays each day - is lining up its next mobile games, readying alternatives for when its immense audience is no longer as mesmerized by its cascading candies.
Analysts expect the company to launch a mobile version of Farm Heroes Saga, a game in which players must match 3 items, which is already Facebook's second-most popular app. King is already starting to roll out a mobile version of Papa Pear Saga, currently available on the web and on Facebook, in which players bounce and dive into barrels.
In the meantime, it plans to build on growth in Asia, the latest market to succumb to Candy Crush, which is gaining popularity there along with Supercell's Clash of Clans.
"These are really the first western productions to break into the top 10 or the top 20 in the app store in Japan," said David Gibson, a senior analyst at Macquarie in Tokyo.
(Editing by Sophie Walker)