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#G5 Entertainment: CEO interview

newlogoG5 Entertainment’s Q3 2013 was a disappointment for the market. We reached out to CEO Vlad Suglobov to get this view on what has happened and where he thinks the company is moving. He has successful lead the company through various transitions in the past and seems optimistic that the move towards more F2P will take G5 to the next level:

Nordic Investor: Q3 2013 was the first quarter with an operating loss since Q4 2009. Are you disappointed? Are the 35% EBIT margin levels a story of the past unless a title becomes a monster hit?
 Vlad Suglobov: I am not disappointed. Q3 2013 result needs to be taken in the context of the transition from unlockable to F2P games. The quarter was the low point of the year and we are about to go into the high season. As I mentioned in the report, the momentum is positive coming out of Q3, and Q4 is going to be compared to quite low base last year. If we were thinking Q3 is the “new normal”, we would not be investing in new games and increasing our staff. We believe Q3 is the low point of the transition, and we work according to the plan to increase the number of games in our F2P portfolio. As I mentioned, we plan on getting back to historic margins through the growth in top line revenue.
NI: Would you agree that your development team and approach was very much adapted to the unlockable game type, including you Talisman platform that enables a fast portation between different OS. Do you feel that this is still up to date given your transition from unlockable towards F2Ps or do you feel the need to adapt to the new reality?
 VS: I would not agree. We released our first F2P game back in summer 2011, and we obviously were working on it for some months before it was released. We have been working on adapting our processes and technology for quite a while. It’s a lot of work, though, and there’s a lot still to be done. Our approach with F2P games is just as cross-platform as with unlockable games, so Talisman has the same value for the games that we develop internally.
NI: Would you consider acquiring another studio in order to get an unique IP for a successful F2P game?
 VS: The way you put it, probably not. We might consider acquiring studios in the future if they complement our strategy or fill some expertise gap we have internally, but it is not a part of our strategy to grow the company. We aim for organic growth and our goal right now is to release and achieve success with F2P games already in our pipeline on the way to the market.
NI: What life time do you expect a title like Secret Society to have at current levels?
 VS: Regarding “current levels” this is difficult to say as it depends on other competitive offerings on the market, as well. We do our best to continue to develop the game, make it better, and provide more content to our players. We are also bringing the game to new platforms, and so far the trend has been positive every month, so it’s hard to talk about “current level”. In any case, I expect a lifetime of several years at least, and the game is only one year old now.
NI: A write-down of older unlockable games burdened Q3 by some SEK 2.4m. How big is the risk for further write-downs in the coming quarters?
 VS: It all depends on the performance of our unlockable games portfolio and the market for these games. Unlockable games revenue slid down quite a bit since the beginning of the year, being replaced by F2P games revenue. However, now unlockable games revenue is stable and it brings money every month, and we are approaching high season when we usually see the sales of our games go up quite substantially. The write-down we have taken is a pre-caution. These games still make money, but we written down their development costs ahead of time, in accordance with the impairment test rules. They will still make money for some time in the future. 
NI: Are you planning any special initiatives going into the important X-mas season?
 VS:We do. It’s not the first holiday season for us, and we are preparing for many new devices coming to the market this season. This is important time of the year to gain new users.
NI: What’s your prediction for the Windows platform? So far, G5 games are quite successful on Windows. How much of sales in Q3 was related to Windows and when do you expect Windows to seriously contribute?
 VS: This is difficult to say, as sales grow on all platforms for us. So far we are looking at Windows 8 as nice incremental revenue that is good to have, and additional money maker for our unlockable games portfolio. As you can see we are putting out more games for Windows 8 out there, so it must be profitable for us. We will look at it more closely again after the release of our F2P games on the platform.

NI: So far, your main genres have been time management and hidden object games. Will that change with the new F2P focus?

VS: I would say we have slightly broader offering in our upcoming F2P portfolio.

NI: One of the big success factors of Candy Crush seems to be the fact that a player can play the game on her iPhone in the subway than continue on Facebook at the desktop and play on the tablet in the evening, i.e. cross-platform gameplay. Is that something we can expect from G5 games in the future?
 VS: We can speculate about what are big success factors behind a big hit quite a bit, but we never know if something really is a big factor or not. Perhaps guys at King know more looking at their analytics, but perhaps they also would not give away their secrets. Sometimes it also happens that developers have a big hit game and they don’t really know why – it just worked. It could have been just a good game, or just a hit game, but it became a big hit. So happens in the entertainment industry, I think. What I’m trying to say is that such analysis looks so obvious after the game achieves the status. You pick a good thing about the game and say “It must be it!”. However, you can find good designs in any good game, yet not all good games become big hits. 
That said, we do of course look at what others are doing, and this is an interesting feature we are considering.

NI: Could you imagine a cross-promotion cooperation with other developers such as the one of Supercell and Gungho?

VS: I think they have a pretty unique situation, with products for the same demographic in different territories / gaming cultures. I do not think this is easily applied to G5 and other companies.

NI: You previously stated revenues of SEK 300m as a mid-term target. 2013 revenues seem to land below SEK 100m. Considering your plans to have 10 outstanding F2P games by 2014, when do you hope to be at the SEK 300m level?

VS: 2013 is not over yet. We will announce preliminary sales – as we always do – a few days after the end of the fourth quarter. Regarding F2P games, what we have communicated is that during 2014, we plan to bring the number of F2P games in our portfolio to over 10. 300 MSEK is a target we have set to achieve eventually. It became clear that this would not be possible with unlockable games, but successful F2P games can be scaled quite well, we can see. With our portfolio approach, what we need is a number of successful F2P games to achieve the goal. And this is what we are working on right now.

G5 is in dynamic industry and on the market that is developing and changing fast. If you have followed the company for some time, you know we did a few transitions in the past. First, PC games to mobile games. Then, developer to publisher. Now, from unlockable games to F2P games. We follow the audience. If you can expect something from G5, it’s that we are going to be changing in accordance with the preferences of the players and providing them the kind of entertainment they like, where they like it. As always with transitional periods, there can be bumps along the way, but we have shown that our team can adapt to the changes in the market quite well. We are working to complete the transition and eventually achieve our goals. Bear with us.
Nordic Investor

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