Struggling game maker Zynga, confronted by player defections and revenue
declines, is placing its biggest bet on an entirely new category that will have
Wall Street watching closely.
The social-gaming giant is enlisting more talent on so-called midcore combative games as it girds for war in a mobile arena dominated by new studio players. The spoils of battle in its next strategic shift could reshape the company's future.
"We could probably say that we have more working against new games in midcore than any other category," CEO Mark Pincus said in an interview. "We have really moved some of our vast and most seasoned game makers over to midcore and mobile."
Zynga defines midcore as games that "blend the depth of hardcore games, traditionally played on a PC or console, with the approachability and accessibility of casual games that are mobile, free-to-play and social," says Steve Parkis, senior vice president of games, midcore, at Zynga.
Success is crucial. Moving into midcore holds the promise of higher revenue for Zynga, which is facing mounting pressure from Wall Street to prove it can rebound. Investors have pushed Zynga shares more than 60% lower in the past year as the stock, at $3.40, languishes well below its IPO price of $10 per share.
Analysts say it's clear that Zynga needs to quickly branch out into these popular game types to forge new revenue streams. Such games are known to notch higher revenue per user.
Underscoring Zynga's problems, in April, it reported a first-quarter revenue slide to $264 million from $321 million a year before. Also of concern, Zynga's monthly active users slipped 13% from a year ago, while Zynga guidance for the second quarter projected a net loss ranging from $26.5 million to $36.5 million.
Zynga has begun unleashing the first of a barrage of planned midcore titles. War of the Fallen came out in mid-April in what will be closely watched as the first sign of a turnaround. The company still remains focused on its more casual titles as well, launching Draw Something 2 in April. Zynga launched Running With Friendslast month, and it hit No. 1 on Apple's iOS on May 15.
"You're just starting to see the result from a couple of these titles as a result of the strategy shift," Pincus says.
So far, War of the Fallen -- what's known as a card battler -- has garnered positive reviews for the iOS app. The free multiplayer game allows people to collect animated cards with powers that can be used to battle other people's armies of cards. Players can make in-game purchases to give them abilities that help them advance. People purchase bags of virtual gems in War of the Fallen so that they can buy energy or packs of cards containing creatures to enlist in their armies.
As a general rule, players battling one another in multiplayer games tend to pay more for virtual goods to advance in the games than in more casual games. What remains to be seen is if such a strategy is going to bolster Zynga's financial prospects.
In Zynga's earnings call, Pincus pointed to "monetization that's running at roughly 15 times what we've seen across our With Friends titles on a per-player basis" as a key measure for War of the Fallen.
The big test of Zynga's renovation efforts comes with its games Battle-stone, which made its debut in May, and Solstice Arena, set to come out in the coming weeks.
They will go a long way toward determining the company's success or failure in midcore. Several other midcore games from Zynga are expected by year's end.
The company recently launched Solstice Arena for early testing in 21 markets outside the U.S., including in Canada and the Philippines.
Battlestone is "going after the action genre. There's heat, but there hasn't really been a winner yet," says Jon-Paul Dumont, senior director of design on Battlestone.
Don't tell that to Finland-based Supercell, creator of Clash of Clans, whose game sits at No. 2 in top-grossing games on Apple's iOS.
Between that game and its other hit, Hay Day, the company in April was reportedly hauling in more than $2 million per day in revenue. Institutional investor Venture Partners co-led $130 million in financing in Supercell in April.
"All it takes is one huge game," says Digital World Research analyst P.J. McNealy. "It's hard to predict if one of (the) games in their portfolio is it. They will know within a week of launch if one is a breakout hit."
Should this batch of new midcore titles flop, Zynga could have larger issues, particularly as new game studios gobble up the mobile games market.
Zynga faces a wave of game developers from Asia and the United Kingdom, as well as from traditional giants such as Electronic Arts, while transforming its business to compete in mobile.
U.K. game developer King.com's Candy Crush Saga is currently the No. 1-grossing app on iPhones in the United States, according to App Data. The top 10 list of moneymakers doesn't include any from Zynga.
"There is a massive glut of micro-studio content, and they've got some big competitors making strides on mobile," says IDC analyst Lewis Ward.
Zynga is quickly ditching failures. The company announced plans last month to shutter The Ville, Empires & Alliesand Dream Zoo.
In the last six months, it has shuttered 18 titles.
Investors will closely watch Zynga's strategic pivot from losers, knowing it takes just one breakout hit to bounce back.
"Zynga's trick is going to be really focusing in on what is that next killer game and tying into that," says Marcos Sanchez, a spokesman for analytics firm AppAnnie.
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