It’s easier than ever before to bring a game to the market, with a variety of paths available to developers, but publishing remains an attractive prospect. Whilst the developer can earn a higher percentage of the revenue by self-publishing, a publisher can help bring a game to a wider audience and new territories.

However, the primary goal of a publisher is to earn money, and as such many factors come into play,such as genre, marketability and existing success. In this guest post, American developer and publisher ZiMAD discusses its approach to publishing a game, or acquiring the company outright, and what it looks for when making a decision.

ZiMAD has been successfully creating mobile games for over 13 years, and has gained impressive expertise in puzzles and board games. Still, the stable development and functioning of any business requires thinking outside the box, especially during economic turbulence and in the context of new rules constantly introduced by the stores. This is exactly why portfolio diversification should be your focus. The more products of different genres and various traffic and monetisation sources you have, the better.

Apart from our own existing and new products (the long-awaited Jigsaw Puzzle Villa has been recently released), the company is actively looking for more interesting products to acquire or publish, as we do have the necessary experience in this.

Why Studios Sell or Buy Games

Companies buy games for all sorts of reasons, including the most unobvious ones, like sprucing up the reports for stakeholders. As for us, we’re looking for projects with the untapped capacity to bring their revenue to another level. So our game estimation is mainly the analysis of the possible monetary flows and risks of not getting the expected revenue.

For developers, selling a game is an opportunity to get rid of a non-core asset or a chance to get access to the resources that can be used in a more promising direction or genre. Cases can be very different: some decide to focus on a certain genre and sell a very successful game portfolio that doesn’t fit into the new scope of interests. Sometimes, partners split ways and part their business. Some consider the revenue of their game to be insignificant. When you have five games that bring you millions of dollars monthly and one game that brings less than a hundred thousand (but still requires attention and support), selling the latter at a fair price seems reasonable.

Working with a ready-made project saves the buyer’s time. Suppose you need a profitable game in the Merge genre. Creating one from scratch would take from six to twelve months, and there’s no guarantee that the concept would be successful. Consider the rapid changes in the market—even a good business idea might become outdated by the time of release. Taking all the risks into account, it’s better not to wait and purchase a ready-made project if you have such an opportunity or provide budgeting and marketing services, sharing and boosting the developer’s success.

Primary Selection

We receive dozens of projects per month, and for each of them, the developers are ready to provide multipage documents with detailed analytics. Understanding the context and analysing the metrics usually requires several days to a week, so there’s obviously a need for some kind of a primary selection that would sort out the projects and divide them into the ones we like and the ones that don’t fit into our agenda.

The main principle of the selection is the synergy of the portfolio that enables us to considerably increase the overall return on the project investments through cross promo and repeating the successful cases in marketing and monetisation.

Our audience is quite mature, and its significant share is women, so for better synergy, we look for projects aimed at similar users. People should like the game, which can be confirmed by the user stickiness, session duration, retention rate, and positive feedback. We analyse the similarity of the audiences’ interests with analytics services and compare the players’ possible motivations.

It’s important for the genre to be up-to-date. The market is oversaturated with classic match-3 games, and now even some of the market leaders have to rework their games to stay on track. However, as we see from the surge of offers we receive from developers, indie studios tend to underestimate the difficulty of entering such hard-to-reach genres as Match-3 or Hidden Object and continue trying their luck.

Estimation Approaches

After the primary selection is done, a more complicated stage begins—an attempt to understand the possible potential of the project and estimate its cost. Whoever sets the price, they should make sure it’s transparent and reasonable.
There are three basic approaches to product cost estimation:

• Based on expenditures: trying to calculate how much the creation from scratch will cost
• Comparison: applies to cases when there are examples of similar deals with metrics and prices available (metrics can be adjusted)
• Revenue estimation

Even though we use all three approaches, the revenue estimation is the main one for us.

Estimation of Newly-made Games

The most difficult thing is to estimate a game with no long-term metrics. It’s much easier when there’s a high level of organic installs and high revenue (for example, a year after the release, a project has over 200,000 installs per month and considerable ARPU of, let’s say, four dollars in the US), meaning you have a high degree of certainty. At the same time, you can’t really hope to get a good discount for such a project. And visa versa—the higher the uncertainty, the lower the price..

There’s a great story when a finance professor at MIT held an auction for the students. The lot was a small box, but nobody knew what was in it. Five minutes after the start of the auction, the price was $45, and that was the final bet. When the winner opened the box, they found an iPod there (they were still popular at the time). The student didn’t know about the gadget, so his bet was risky. And it was worth it. Had the students known about the content of the box, the bets would have been much higher.

Any game that comes to us through the M&A department is that box that can contain an iPod if we’re lucky enough

Multipliers Can Be Confusing

The estimation of established games can be tricky, too. Here’s a real example:

In the last year, the game earned $800,000. If we use a multiplier to count the cost like some people do (for example, the revenue for three years), we’ll see that the project costs $2.4 million. But there’s a critical error in this approach:

The buyer is only interested in the FUTURE REVENUE. Being profitable in the past doesn’t guarantee high income in the future.

Let’s take a look at the numbers. A year earlier, $1 million was invested into user acquisition, and ROI is expected to be over 100 percent in the upcoming months. But even if the acquired users make purchases for $800 thousand, it won’t guarantee that they’ll spend the next two years in the game and make stable payments. It’s quite obvious that they won’t.
Let’s talk about another vital counting detail. Any deal with long-term plans has inevitable risks of something not going the way you planned. The purchase is considered successful if, for example, it increases the risk-free return (bank deposits or bonds) multifold in three years. Otherwise, buying this project is pointless. So the cost of a project based on the value of the potential revenue is always affected by the possible risks.

The Devil Is in the UA Metrics

Let’s take another case:

The seller purchased 10,000 new users, measured CPI, ROI (day 30 and day 60), LTV, and is selling their project with the expected full payback in eight months.

There’s a whole bunch of pitfalls:

First of all, there’s such a thing as the Honeymoon—a period during which the traffic is cheaper and the ad revenue is higher. This is caused by the way some networks function. Day-30 and day-60 data is usually gathered during the Honeymoon. However, when the Honeymoon is over, you’ll have to deal with completely different and much less attractive rates and payback periods.

Second of all, even without taking the Honeymoon into consideration, CPI is never stable, and it changes every month. It becomes lower during vacation periods and gets the highest on Christmas sales when major advertising providers buy all possible ads. Some game studios even turn off their UA campaigns during that time as competing with major brands is too expensive.

Third of all, we haven’t ever seen a perfect LTV model. Iapp ARPU of the most successful games continuously increases from month to month and from year to year. You can invest a dollar and get $1.5 in a year, $2 in two years, $2.5 after that, and so on. ARPU of less promising projects reaches a certain point and freezes. However, none of the models can tell you when the Iapp ARPU growth will stop and what the line chart based on the monthly growth points will look like in a year. When we give such tasks to the analytics department, they provide us with at least 3–4 prediction models, all with different graphs.

And this is what we consider the most difficult task when looking for a game: finding the games with continuous and high ARPU growth, and the longer it grows—the better. And scaling such projects is something we can take care of.

Technical and Law Risks Affecting the Game Cost

Who do you think risks more when buying/selling a game: the seller or the buyer? The seller, if they work with a famous publisher, is exposed to minimum risks. The publisher values their reputation, and major, well-known companies usually keep away from any kind of fraud, so the developer will receive the sum agreed upon in the contract on time. The buyer’s risks are, on the contrary, very considerable, and here are only a few of them:

• App crashes, AHP, hangs, freezes, and technical issues in the game
• Plagiarism: fragments of code, sounds, or images that weren’t legally documented
• Legacy: the code that is hard to read and outdated project infrastructure
• Rate and feedback in stores: bad reviews add extra work to enhance the game reputation
• Changing the ranking algorithms that can result in losing the organic traffic
• Difficulties with transferring the project to a different account
• Fake metrics created using smart bots or by other means
• Strong competitors that take two thirds of the traffic
• A new turn in genre development that makes the game less attractive

So, the cost of the project calculated according to the potential revenue should be adjusted considering the possible risks. Also, buying from inexperienced indie studios is always more risky, so it’s vital to get to know the team.

Content creation costs should also be estimated. There’s such a thing as superimprovement—for example, in the Interactive Stories genre, characters’ appearance can be either simple or extremely realistic, and the latter is very difficult to execute. We came across cases when such realistic characters didn’t improve the metrics, and thus, that work was excessive. Expensive content can often be seen in the Hidden Object genre, where each location is a piece of art. An experienced buyer knows that if there are few locations, they will have to spend a fortune to create a bunch of new ones.

Things That Increase the Price

Forming the price of the project isn’t just about optimising it through deductions—if the points mentioned above are positive, the cost of your project will only grow. Additionally, the price can increase due to these factors:

• Successfully launched projects in the team’s portfolio
• Vast experience in in-app and ad monetisation of different kinds reflected in the project
• Unique game idea and a competitor-free niche

Publishing or M&A: What’s Your Case?

Sometimes, during the course of the review, we realise that working on a project as a partner might be more profitable in the format of publishing. In such cases, we make a publishing offer to the team, according to which both of us can develop our businesses and exchange resources. Our project reviews for choosing partners for publishing are the same as for M&A: we review the same in-game metrics and traffic with the exception of code review and other technical matters that remain under the developer’s control. At the same time, we share our expertise in monetisation, UA, organic growth, and other spheres to reinforce the project and increase the revenue for both teams. Usually, we estimate the potential and all growth zones of the project, after which we decide what should be performed in order for the project to increase its growth—involve a strong IP with well-known game or cartoon characters or work with the stores.

Here’s what we’d like to add in conclusion: all projects deserve attention, and each of them has their pros and cons. The essence of M&A and publishing is in partnerships and business reinforcement. M&A is always about new growth opportunities for both sides under win-win conditions.

 Edited by Lewis Rees