King Digital Entertainment
The player cornes first in even;thing ·we do. Player is King.


REV: J A N U A R Y 17, 2019

– King Digital Entertainment, IPO Prospectus

In mid-2015, Riccardo Zacconi, C E O of King Digital Entertainment, the world’s leading maker of
casual games for mobile devices, was in King’s Stockholm studio, reflecting that it had been only 12
years since he cofounded the company with five other entrepreneurs. Now, Activision Blizzard
(Activision), one of the largest game publishers in the world, had offered to acquire King for almost $6
billion. King’s board needed to respond.

Launched as a provider of video games for web portals, King had managed to survive and thrive
despite industry upheavals, as the locus of casual gaming shifted from portals to social platforms and
then to mobile devices. Candy Crush Saga, in which players matched candies to win points and defeat
obstacles, was the franchise that launched King’s meteoric growth. Debuting on social platforms in
April 2012 and on mobile devices six months later, by the end of 2012, Candy Crush had over 10 million
downloads. Fueled by this success, King had gone public in March 2014. However, King’s shares closed
below their offering price on the first day of trading and had never made up the lost g r o u n d – despite
the enormous popularity of King’s games. According to industry estimates, the company’s games were
played by 500 million monthly active users around the world. 1

As mobile gaming continued to expand, Zacconi believed the company could capitalize on its
leadership position. Activision’s offer to acquire King was compellin g, but did it reflect this upside?
The offer was 20% below King’s IPO price, though it represented a 20% premium over King’s recent
trading range. Was this the right time to sell?

Online Casual Gaming
The rapid expansion of Facebook and other online social networks after 2004 set the stage for a new

chapter in electronic gaming history. Games published on social platforms encouraged players to
interact with friends, enabling the games to reach wide audiences rapidly. In 2009, Zynga’s farming
simulation game, Farmville, had attracted more than 10 million players just six weeks after launch. 2 In

HBS Senior Lecturer Jeffrey F. Rayport, Professor Davide Sola (ESCP Europe), Research Assistant Federica Gabrieli (Europe Research Center), and
Assistant Director Elena Corsi (Europe Research Center) prepared this case. It was reviewed and approved before publication by a company
designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed
solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or
ineffective management.

Copyright© 2017, 2019 President and Fellows of Harvard College. To order copies or request permi s sion to reproduce materials, call 1-800-545-
7685, write Harvard Business School Publishing, Boston, M A 02163, or go to w w w This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

817-117 King Digital Entertainment

the same time frame, the introduction of smartphones further lifted the electronic game industry and
broadened its audience. In contrast to console games that often targeted hard-core male players, social
and mobile gaming had greater appeal to casual female gamers, who were drawn to less imrnersive
games that could be played in short bursts throughout the day. By 2014, female gamers represented
42% of the global mobile gaming population. 3

The shift to casual gaming on mobile devices went hand in hand with the growth of the “free-to-
play” business model, in which companies earned revenues not from the sale of hardware and software
or from subscription payments, but rather from in-game purchases and advertising. 4 In 2015, in-game
purchases accounted for 90% of revenues earned by mobile games (see Exhibits 1 to 6 for industry

The shift to online and mobile g a m e s – i n particular, free-to-play g a m e s – made the industry less
stable. 5 Games quickly became hits but also contracted rapidly when users switched to other offerings.
By year-end 2016, the mobile gaming industry was consolidating, despite attracting a steady stream of
new entrants as it grew. 6 The electronic game industry was led by a small number of players that
focused mostly on mobile games, including King, Supercell, and Zynga, along wit!, traditional video
game publishers like Activision Blizzard and Electronic Arts, whose portfolios included console games
in addition to casual offerings (see Exhibit7).7

King’s Saga
King was founded in 2003 when Zacconi and five of his acquaintances and former colleagues, Toby

Rowland, Sebastian Knutsson, Thomas Hartwig, Lars Markgren, and Patrik Stymne, pooled funds to
start a gaming company, Midasplayer, in London and Stockholm (see Exhibit 8 for founder and
executive profiles). Midasplayer developed tournament games that could be integrated into web
portals. Users played these games for real money, with Midasplayer claiming 25% of every tournament

With losses mounting, Co-CEOs Zacconi and Rowland asked for help from Melvyn Morris, former
C E O of online dating company uDate, where they had both worked. With Midasplayer on the brink of
failure, Morris provided €500,000 and became its chairman. Revenues climbed from €2.3 million in 2004
to €10.8 million in 2005, when Midasplayer reported its first profit, raised a second venture round of
€34 million from Apax Partners and Index Ventures, and changed its name to King. 8

First saga game In 2008, Co-CEO Rowland left to pursue other interests, and Zacconi became
sole CEO. King was facing a challenge as the rise of Facebook diverted online gamers away from Yahoo!
and other web portals, where King had built its franchise. Morris urged King’s management to explore
games for social platforms. In response, Zacconi split King’s creative talent into five teams, each testing
a different game format that might appeal to Facebook users.

The pivot required some major technological changes. Chief Tedmology Officer Hartwig recalled,
“For eight years we had been developing our tournament-based platform. But we couldn’t leverage
that old platform to offer games on Facebook: the platform had too much technical debt and its
technology was too old. We developed a completely new platform, which we still use today to power
our games.”

The five teams developed and launched five games, four of which gained traction. One was Bubble
Witch Saga, in which players had to gather three or more colored bubbles and then burst them with a
limited number of moves. Available for free, the game allowed players to progress faster by asking


King Digital Entertainment 817-117

other Facebook users for help or by purchasing virtual goods. 9 Launched in 2011, Bubble Witch Saga
outperformed the other three Facebook games and attracted a broad audience. Chief Creative Officer
Knutsson remarked, “After we saw success with that format, we plugged it into some of our existing
games. We created a reusable framework that became the basis for many future games.” With such
framework recycling, King’s developers did not have to rethink the conceptual structure of each new
game. They could focus instead on gameplay and production quality.

Candy Crush By late 2011, King’s managers realized that mobile gaming was gaining serious
traction. In July 2012, King introduced a mobile app for Bubble Witch Saga, which enabled players to
synchronize gameplay across Facebook and mobile devices. King’s smartphone breakthrough came
with the launch of Candy Crush Saga. By rnid-2013, the game had attracted nearly 50 million daily active
users (DAUs). 10 Hartwig noted, “We used to have monthly planning meetings to discuss server
capacity. When Candy Crush peaked, those meetings became biweekly and then daily.” During that
period, King also saw huge growth in employees. A t year-end 2012, the company had 338 employees;
one year later, it had 665.

King continued to launch new games on both Facebook and mobile devices. In 2013, it introduced
Fam1 Heroes Saga and Papa Pear Saga (see Exhibit 9 for a list of games and Exhibit 10 for game
categories). King’s gross bookings grew from $43 million in Q3 2012 to $481 million in Q2 2013. In Q4
2013, gross bookings were $632 million, of which 73% were generated by mobile users and 78% by
Candy Crush Saga alone. That quarter, 4% of King’s 304 million monthly unique users (MUUs)
purchased virtual items; these users spent an average of $17.32 per month (see Exhibits 11 and 12 for
key financial and operating data).

IPO and beyond On March 25, 2014, King sold 22,200,000 shares at $22.50 per share in a public
offering on the New York Stock Exchange that valued the company at around $7 billion. King’s Vice
President for the Candy Crush franchise, Tjodolf Sommestad, commented, “There was a sense of
achievement, of course, but also some concerns, like ‘How will this change us?’ and ‘Chapter One
complete: what’s next?”‘

King’s IPO had been the first significant offering in the gaming industry since 2011, when Zynga
had gone public. Zynga’ s shares had fallen by 75 % the following year, cooling investor interest in other
gaming companies. 11 Moreover, investors had found King’s opening valuation rich for a company
whose revenue was derived largely from one popular game. 12 Even though King had 180 games in its
portfolio, many investors did not believe the company could replicate Candy Crush’s success.

Swings in King’s share price (see Exhibit 13) did not discourage the team. The company continued
to release novel upgrades for existing titles as well as new games. In rnid-2014, King launched a version
of Candy Crush Saga designed for the China mainland market, after reaching a distribution agreement
with Tencent, which had over 220 million monthly active users (MAUs). 13 King also launched Bubble
Witch 2 Saga, a sequel to the company’s first Facebook hit, with more colorful characters and dynamic
visuals. A few months later, King announced a worldwide Facebook launch of a sister title to Candy
Crush called Candy Crush Soda Saga. By Q4 2014, bookings for games other than Candy Crush Saga were
55% of overall volume, compared to 22% one year earlier (see Exhibit 14).

By 2015, King employed approximately 2,000 people in 13 locations, with offices in San Francisco,
Malta, Seoul, Tokyo, Shanghai, and Bucharest, and game studios in Stockholm, Malmo (Sweden),
London, Barcelona, Berlin, Singapore, and Seattle. King’s senior management was also distributed
across multiple locations. Management saw the company’s dispersed team and global orientation as
important to its success. Hartwig said, “We started in Sweden, a small market, so it was clear that we


817-117 King Digital Entertainment

would need to expand. We put in place a multilingual service and thought about payments in multiple
currencies. Thinking internationally since day one has helped us grow.”

King’s Business Model
King’s games were easy to learn but hard to master, blending challenge and progress to provide a

sense of achievement and to motivate continued play through a saga’s levels. The games typically
included a puzzle element, meaning a logical or conceptual challenge. They could be played in a few
minutes and were accessible on a wide range of devices. For user convenience, King’s games were
synchronized across platforms. Players could switch between devices and continue wherever they left
off. Built for smartphone lifestyles, the games provided “bite-sized entertainment” that could be
accessed, interrupted, and resumed several times a day.

King’s games were targeted largely to women 25 to 45 years old. Knutsson explained, “I ask our
developers to channel their inner female. Most developers are male and look at games with a
competitive console mind-set. That mind-set might not be an appealing feature to a female player; she
might be looking more for collaboration and shared social expression.”

All of King’s games were offered as free downloads; players could theoretically play through every
level without spending any money. The company’s revenues derived from building high-frequency
play and then monetizing active users by selling virtual goods. For King’s top games, Knutsson
explained, “Anything that improves the user experience, the quality of the game, and the willingness
to come back tends to be linearly correlated with increasing revenue. Revenue comes from game
quality, players’ loyalty, and user engagement rather than getting new users to spend as quickly as

Virtual items available for purchase included additional time or extending the duration of a game
session, skill enhancements, and access to content, such as unlocking new game levels. Most virtual
items were “consumable” – designed to be used i m m e d i a t e l y – a n d priced at approximately $1 each.
King had recently put less emphasis on “durable” virtual items, which could be used over extended
periods of gameplay and typically cost $5 to $30. Durables accounted for only 1 % of King’s revenue in
2013, down from 13% the prior year. The company also had discontinued advertising after 2012, when
such sales accounted for 10% of revenue. In 2014, King aimed to increase user engagement and revenue
with more “live ops,” special events that gave players the chance to win rewards by completing
additional quests available only for short periods of time.

Marketing King enjoyed a virtuous cycle where users played its games across various devices,
sharing their gaming experiences through social networks and word of mouth with friends. The
resulting virality meant that the company could attract new players with modest marketing expenses.

Marketing expenditures to drive player acquisition and retention followed a data-centric, rules-
based approach aimed at maximizing return on investment (ROI). When King launched a new game,
it built awareness through in-game cross-promotion, mainly through in-app pop-up windows inviting
users to download a new game, before commencing paid marketing. Zacconi explained, ” W e target
cross-promotion using a tool that algorithmically predicts what types of new games a given user will
like.” King’s Chief Marketing Officer, Alex Dale, explained, ” W e first get as many people in the game
for free, for example with cross-promotion or word of mouth, and then we start spending marketing
money, not the other way round.” King scaled marketing campaigns according to each game’s
performance. ” W e take a disciplined approach, running lots of experiments with control groups,” Dale


King Digital Entertainment 817-117

continued. “If a game has good monetization and has a good trend in viral installs, we will keep

Brand recognition was enhanced by social interaction. The company entered into licensing and
merchandising agreements that built brand awareness, such as, for example, the 2013 partnership with
Happy Socks for socks inspired by Candy Crush Saga or the 2014 collaboration with Zara Terez for a
fashion line of printed leggings, skirts, and dresses.

Organizational Structure and Culture
As it scaled rapidly after Candy Crush’ s debut, King struggled to recruit employees. Especially for

creative and developer talent, King had exhausted pools of qualified talent in its original Stockholm
location. In response, leadership had set up offices and studios in multiple countries.

Rapid scaling had also motivated King to establish more rigorous recruiting processes. Chief
Operating Officer Stephane Kurgan recalled, ” A t our peak, we were on track to quadruple head count
within 12 months. This can create a huge drag on product development, because we first had to train
the new people. We had to put in place processes for recruiting and onboarding or risk breaking the
company.” Zacconi recalled, “Upon joining us in 2011, the first thing that Stephane [Kurgan]
introduced was rigor in recruiting. Every candidate needed an executive sponsor and had to go
through six interviews; Stephane and I signed off on every offer. We did that for a long time.
Eventually, 1 stepped out of the process, but he is still vetting each of our hires.” Prospective employees
were assessed by a cross-functional mix of managers. Kurgan explained, “When you grow very
quickly, you need cultural homogeneity.”

Another crucial aspect of rapid scaling was robust communication. King management achieved this
in part through its Info Market periodic, large-scale, all-hands events that allowed employees to get to
know one another, share ideas, learn from external speakers, and, as Kurgan explained, “create a
massive amount of energy.” Originally held twice a year, the Info Markets became annual events
starting in 2015 due to the logistical challenges and expense of bringing together 2,000 employees.

King had also formalized its top leadership meetings. Top executives met once a quarter, while the
layer below, comprised of 60 to 70 senior managers, also met quarterly £or one or two days to align
around mission. “We encourage travel by our leadership,” noted Kurgan. Zacconi added, “Culture is
not a bottom-up but rather a top-down process, and leaders have to live it.”

King’s culture emphasized open debate. Zacconi explained, “When innovating, you should always
question what someone does, without assuming that you do it better, and you should self-criticize.
When companies grow fast, gifted doers become managers. You need to step back and ask, ‘Where are
we focusing our best resources, on managing or on creating?”‘

The studios King’s seven in-house game studios created, developed, enhanced, and supported
its games. Each studio managed one or more live games and one or more games in development. Each
studio’s 80 to 90 employees typically were divided into teams of 8 to 12 people. Hartwig explained:

Small, empowered, cross-functional teams are key to our success; they can get stuff
done and be creative. Our teams include game designers, artists, developers, a producer,
and a business performance manager. That unit comes up with a game concept based on
a hypothesis of customer needs, develops the idea initially with a paper sketch, and then,
through experimental iterations with internal and then external customers, improves it
until eventually the game goes live. In effect, each game team is a mini company.


817-117 King Digital Entertainment

Directors in each studio-including an art director, game design director, and technical director-
supported the teams and coordinated efforts with the other studios. Knutsson explained, “Directors
cascade learning from team to team. If two teams are working on similar challenges, directors often
encourage them to meet.” Centralized functional leadership also helped facilitate information sharing.

King’s studios coordinated their innovation efforts. Knutsson noted, “We want them to operate
independently and have control of their games, but they cannot have total freedom in terms of
prioritizing their development efforts and launch dates. We do not want too many game teams focusing
on the same opportunities.”

King’s game studios relied on the company’s proprietary technology infrastructure which, besides
offering synchronized cross-platform gameplay for users, provided the studios with an integrated
development and service platform. The platform featured a common player database, tools for tracking
user engagement and for network marketing, and a repository of code that was shared across King’s
saga games. Any King developer could access, view, and compile every line of code written anywhere
in the company. According to King’s IPO prospectus, this shared infrastructure had driven “speed to
market, low cost, and organic scalability” 14 as King opened new studios. The infrastructure had
likewise allowed King to llmaintain robust service levels for our users while scaling our operations
with far lower levels of capital investment than many of our industry peers.” 15

King’s Game Development Process
.Knutsson described the essence of game development as solving a problem: “You try to create an

experience, figure out how to provide that experience in the simplest and best way, so that as many
people as possible will find it easy to understand how it works. Then you test to see if it is as fun as it
was meant to be. You iterate to improve the experience.” Sommestad added, “We are very test-driven
and numbers-driven. We test a lot and learn as fast as possible. When we find something that works,
we do more of that until it stops working. O f course, we also get inspired by what’s happening in the
market.” Zacconi added:

We generate about 35 billion events a day, so optimizing our game economies and our
network economy is one fantastic quantitative problem. There is a huge amount of work
going into innovation in free-to-play, focused on driving retention for engagement and
monetization, not only game by game but also across the network. We have 150
mathematicians, statisticians, operations research experts, and physicists working on this.
It’s where the mathematician meets the magician.

Investment horizons for new games spanned about two years. Knutsson stated, “It’s a funnel. You
need a lot of prototype ideas to send several into play test and then just a few, the best ones, into the

Concept origination King’s seven studios originated many game concepts, but King also
operated “experimentation studios” that developed and tested “crazy and risky ideas” originated by
game teams. This allowed King to explore new ideas without disrupting the teams working on its most
popular games. Knutssonsaid, “In 2016, the experimentation studios evaluated 110 ideas; most failed,
but 3 really powerful ideas emerged. We proved them out and transferred them to our established
sagas with good, double-digit percentage gains in bookings against a current baseline.”

King’s innovation teams were always looking for new game formats that might augment or even
replace the saga. One possibility was integrating more social features into games. Sommestad noted,


K i n g Digital Entertainment 817-117

“The future of casual and mobile gaming will surely be more social, but ‘social’ can take many forms.”
One was multi player gaming, which allowed users to play together or against each other. But Zacconi
noted, “For most people, playing with others is more fun. But we’re still at Version 1.0 for social
gaming. We are experimenting with it a lot, but we have not yet found the n1agic key.”

Pre-Production The pre-production process started with a “game pitch,” a short document
outlining an idea for a new game developed by one of the game teams or by teams in the
experimentation studios. Knutsson observed, “We have a fairly simple methodology. We always start
with wire frames to get a shared vision of the product. We present the idea to a development team that
serves as a sounding board. If the team is not convinced, then it probably isn’t a good idea.” If the team
had a positive response, they would develop a rough prototype to clarify the game concept and

Knutsson explained the role of intuition in the process: “We might try to estimate the business
opportunity, but sometimes there isn’t a demand for a new game concept. For example, Candy Crush
was the first match-three mobile game. We didn’t take market share from competitors; we created a
new genre by identifying a classic format that nobody was offering to mobile players.”

Production After senior management gave the ” g r een light” to a game idea, it moved into
production. This phase included a “blackout period” during which the company was investing in a
game but had not yet validated its business case through play tests. Knutsson explained, “As the
market has matured, you have to invest more before you can test. Five or six years ago, very simple
games could break through the charts. Today, you need a much more polished game.” He added:

How do you create a great game that’s going to be the right type of game two years
from now? The sure way to fail is to mimic what’s already available. Instead, we look for
opportunities that nobody is targeting, like a successful console game that hasn’t been
moved to mobile yet. This is smarter than trying to come up with an amazing new game
concept that no one has ever seen before. You hope it will surprise people, but instead
everyone is confused because nobody knows how to play it.

Testing As production advanced, the game would be ready for play test, when the product was
brought to market in a beta version. Hartwig said, “We want game developers to structure and run
play tests, so they can fix the game more easily and feel a sense of ownership.” Knutsson explained:

We might put the game in front of thousands of real users in Apple’s App Store. They
don’t need to know that it’s an early test product. The game might have just enough
content to play for three days. That’s sufficient to give an early indication of how people
will interact with the gan1e. When we introduce more content, we can also see how much
money players spend, and what fraction of them remain for longer times. We might run
5 to 15 such play tests before a game goes to market.

Game teams were supported by the Marketing Department, which was involved early in the game
development process. Marketing regularly helped teams refine a new game by testing hypotheses
about how target players would react to a game. However, the mass audience for King’s games posed
some challenges. Knutsson explained, “Our gan1es are so big now that we sometimes have different
profiles and segments that we are trying to address with any single game.”

Transparency was crucial to the game development process, especially in trading off effort and
resources between optimizing existing games and launching new ones. Knutsson explained, “You can
always use data to find a good story. The central business performance team and the central marketing


817-117 K i n g Digital Entertainment

team look at data before we launch a game. They look at play test results, and provide a neutral-party
validation, as opposed to the perhaps biased view held by the team building the product.”

Ongoing development After launch, the tearn focused on developing new features, creating
live ops, and improving the game experience. Game tean1S assessed the monetization potential of new
features. Price changes could be tested more easily than new creative features. Sommestad elaborated:
“We wrestle with prioritization. For example, should we go after something that could give us a quick
3% monetization uplift or something that we feel would boost player engagement over the long term?
We have a consensus-driven culture. It is important that we make the decision, with everyone on board,
and then learn fast. That’s how we win.”

To avoid focusing on features of limited interest to users or little commercial potential, most of
King’s employees had access to data on the number of installs and revenues from every King game on
a particular day. This allowed them to check if another team had already carried out a test on a similar
feature. The company deployed standardized testing and analysis ten1plates to facilitate such sharing.
In the same spirit, successful new features developed by one studio were contributed to a shared
development environment for use by other game studios.

Sunset mode Once a game had fully penetrated, it was put into “sunset mode,” in Hartwig’s
words, who noted, “Our most important and precious asset is developer talent, and we need to deploy
our talent against the biggest opportunities. When we see that a game is going to continue making
money but not grow anymore, we transfer key talent so they can start up a new game.”

Team composition Teams changed in size across the product life cycle. Knutsson explained,
“Typically, in the early prototype phase, the team has three to four people. These are senior, skilled
individuals. When the idea looks good, we might scale the team to eight people, adding another layer
of competencies, for example, one more artist, one more developer, one more back-end technician,
maybe a project producer.” When the game moved into full production, the team scaled up to 15 to 20
people and would …

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