Comment & Opinion

What if Kabam’s breakup is actually a success story?

What if Kabam’s breakup is actually a success story?

At first glance, the rise and fall of Kabam looks like a classic business failure.

The US/Chinese outfit...

  • Expanded fast into mobile
  • Raised too much VC cash
  • Bought too many movie licences
  • Went into high volume publishing
  • Missed its IPO window

... and has since been gutted, with the prime cut sold to ambitious Korean outfit Netmarble for a rumoured $800 million. Boom and bust.

But that’s a lot of baloney, of course.

The rise and aftermath of Kabam is a much more nuanced and cautionary tale for ambitious companies - yes, ones like Netmarble - about the unforgiving dynamics of the global mobile game business.

Yet, it all started so positively.

Right place, right time

A successful developer and publisher of F2P Facebook/web games, by the time Kabam launched its first F2P mobile game in 2012, it had already gone through four funding rounds, raising $125 million.

At that time, its signature product was RPG Kingdoms of Camelot and the mobile version, Kingdoms of Camelot: Battle for the North was a strong performer from the get-go. It was #1 in US iPhone top grossing at launch, and continued within the top 50 until mid-2014.

A typical Game of War-style mobile 4X experience, Kabam quickly reskinned the game, signing a deal to use The Hobbit movie licence.

The Hobbit: Kingdoms of Middle-earth might not have been a good representation of the deeper aspects of Tolkien’s world, but it was another success for Kabam.

Launched in late 2012 alongside the movie release of The Hobbit: An Unexpected Journey, the game remained in the US top 50 top grossing throughout 2015.

Riding high in a F2P game market that was floating all ships, Kabam announced 2012 sales of $180 million, which had risen 100% to $360 million by 2013.

Fast & Furious 6 was a top grosser in 2013

New games included 2013’s exciting Fast & Furious 6; the drag racing game competing well with the likes of CSR Racing thanks to its movie licence.

Kabam also looked to strengthen its portfolio by launching a new publishing division for PC and mobile games that planned over 50 releases in 2013.

The rise and aftermath of Kabam is a much more nuanced and cautionary tale for ambitious companies.

At the time, this made sense and everyone - Zynga, DeNA, GREE, Gamevil, Com2uS, Pocket Gems etc. - was doing it.

The mobile market was big business and the increasing sophistication of user acquisition marketing meant well-funded companies could guarantee their games burst high into the downloads charts, where it was hoped organic downloads would then take over.

In hindsight, however, for most companies, large scale publishing proved to be expensive - both in terms of money, internal resources and management oversight.

The hit games of 2013 and 2014 - Game of War, Monster Strike, Boom Beach - weren’t published but developer-led.

Nevertheless, that’s a retrospective insight. And at the time, it didn’t halt Kabam’s rise, which was underlined by the sale of stock worth $38.5 million by senior employees.

It valued Kabam at $700 million and gave rise to rumours that the company was planning a 2014 IPO.

Peak Kabam

By this stage, Kabam had 750 staff, 11 games grossing more than $1 million every month, and four games with lifetime revenues of more than $100 million.

Little wonder it was seen as the next gaming unicorn.

With 2014 sales predicted to be more than $500 million, Kabam continue to expand.

As part of its publishing strategy, it invested $50 million in games from 23 developers, also setting up a 80-person European office in Berlin to handle live operations, localisation, support and QA activities.

Company communications became less about the games, though, and more about the timing of its IPO.

There was also the odd move to rename the University of California in Berkeley's American football stadium as Kabam Field, which one commentator argued marked the symbolic point at which Kabam's rise turned downwards.

2015 sales were predicted to be $500 million but came in at $400 million.

As for games, more movie licensing deals followed - including The Hunger Games, The Lord of the Rings and Mad Max - although no game using the latter IP was released, and The Hunger Games title was a reskin of one of Kabam’s existing, unsuccessful card-battlers.

Yet, to read too much into these deals is to fall into the trap of deterministic history. Kabam’s decline was not set in stone at this point as a $120 million investment from Chinese internet giant Alibaba underlined.

Indeed, Kabam next big release proved to be its biggest hit yet. Marvel: Contest of Champions remains an excellent combination of beat-’em up gameplay with deep metagame.

It was Kabam’s fastest game to $100 million in revenue, and was the reason Kabam could, in 2016, sell the game and its Vancouver development studio to Netmarble for a cool $800 million.

Ironically, in this sense, Kabam did prove itself as a (borderline) mobile gaming unicorn, albeit one that raised almost $250 million in VC cash and decided it could only realise its value in a piecemeal sale.

Hard times

Marvel: Contest of Champions’ launch was the high point for Kabam.

2014 sales were $400 million, up 11% on 2013, but less than the promised $500 million. CEO Kevin Chou called it “a transition year”.

Obviously, the 50 game publishing strategy hadn’t worked and it was scaled back. Kabam also made the hard decision to sell off its legacy web games to focus on mobile.

More hard decisions followed as high concept original game Moonrise was canned in soft launch.

And the bad news continued into 2015.

High profile - and expensive - RPG Star Wars: Uprising tanked, Marvel United was killed in soft launch, and Kabam sold off its original set of mobile games, including Kingdoms of Camelot: Battle for the North and The Hobbit: Kingdoms of Middle-earth.

Several rounds of job cuts followed in 2016, and although Kabam continued to sign up movie licences - including Avatar and Transformers (now part of the Netmarble deal) - it wasn’t a surprise when rumours suggested the company was up for sale.

Then Netmarble made a move for its most valuable asset.

What this means for the remainder of Kabam, now a presumably well-funded company neatly called Aftershock, is unclear.

It doesn’t currently have any live games, but with development teams in Los Angeles and San Francisco expects to have at least a couple of titles - including the Avatar MMOG - out in 2017.

As is the nature of the beast, it is available for acquisition.

What went wrong?

Looking back over the past five years, it is easy to highlight Kabam’s mis-steps. Yet, it wasn’t alone in most of the mistakes it made.

Kabam proved very good at killing games during soft launch.

Moving into publishing wasted money and diluted the company’s focus on only releasing the highest quality games, as all companies who followed this strategy discovered.

Similarly, as fellow US developer Glu Mobile (James Bond, Mission Impossible, Robocop) demonstrates, movie licences are both expensive and problematic with respect to timing and gameplay.

More important was Kabam’s lack of rigour when it came to its content.

For example, the success of The Hobbit game seemed to lull it into a false sense of security about what was required to be successful for its The Hunger Game tie-in.

Ironically, Kabam proved very good at killing games during soft launch, which demonstrated a certain amount of rigour, but it did end up having a lot of practice in this regard.

As Netmarble is currently finding out with Star Wars: Force Arena - its own current substandard movie tie-in game - failure is now the default state for high-profile F2P mobile games, and perhaps for the companies that develop them too.

All about timing

Aside from the detail of business strategy and game quality, perhaps the strongest argument for Kabam’s current situation is that as soon as it started talking about IPO, it lost control of its future.

The failure of King’s IPO in March 2014 effectively derailed any plans Kabam may have had.

To consider floating a company on a stock exchange takes up a lot of management time - also tempting them to hubris - while disorientating staff with stock options about their potential future wealth: something Kabam’s secondary shares sell-offs further emphasised.

Of course, the failure of King’s IPO in March 2014 effectively derailed any plans Kabam may have had, and from then on, it didn’t appear clear to anyone - staff, investors or even its players - what the company’s Plan B was.

Yet to label Kabam a failure is to damn every mobile game company bar a dozen of the usual suspects - Supercell, MZ et al.

Kabam may not have been the type of success its founders had at one time hoped for.

But it generated well over $1 billion in revenue, most of its investors made back a multiple on their cash, its staff were presumably well paid, and post-Netmarble, the two parts remain in business - hopefully making better F2P mobile games tempered by past experience.

May we all suffer such a failure.

Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.

Comments

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Cathryn Mataga
I was at Kabam when that Second Offering came around and many didn't want to take it. I was telling everyone I knew this was a great deal. For me, was maybe about 1/2 month salary? Not life changing, but I'm taking it. I think the intent was that this was going to dissipate some of the 'going public fever' which it did.
Bryan Bennett
I started at Watercooler/Kabam in 2008 and left in 2012. While the exit was less than I thought it would be when I left 5 years ago, a lot of former and current employees were pretty happy when payouts were distributed last Friday. I learned a ton, met a lot of good friends, put a jolt in my career, and make some decent cash. If that's what working for a failure is like, I hope to only work for failures in the future.
jon jordan
Thanks, Bryan. I think you've encapsulated the entire article in your comment.
Min Zhang
don't forget the failure of their Chinese market version of Contest. That game was in Soft-Launch for a long time before bombing on the market.
jon jordan
Good point, although again I don't think Kabam was doing anything different in terms of its Chinese strategy than many other western companies. As I understand it, only King, MZ and Supercell have done well in China.
Min Zhang
No, they weren't doing anything too different. However, I believe you guys also wrote an article about the changes that were made to that game...vip systems, auto clears, progression changes. Regardless, Longtu and Kabam had a lot riding on that game. If they had been able to replicate the states of the global release it would have effectively doubled to tripled their revenue stream.

I'm more curious about the reasoning behind the exit though. Kabam had to kill several high profile games but that isn't really out of the ordinary. Contest is still doing very good and doesn't seem like it will be slowing down...they have at least another few years of free acquisition from the marvel movies.

Would love to hear an interview. I wonder if it is just a case of management not wanting to be in this market anymore.