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Kabam Reaps New Revenue for Studios with Free-to-Play Games

Videogame developer mines movie-based properties from 'Godfather' to 'Hobbit'

Nearly 40 years after “The Godfather” was first released in theaters, Paramount Pictures was made an offer it couldn’t refuse: Turn the aging Mob classic into an online game that, if successful, could put some coin into the company’s coffers.

The studio had little to lose at the time; the trilogy isn’t being prepped for sequels or a reboot. And a game released around an anniversary might help boost homevideo sales.

But Paramount could hardly have predicted that within the first two years of the launch of “The Godfather: Five Families,” the game would generate nearly $100 million in revenue.

That’s a stunning result that surprised Hollywood, which normally views mobile and social games as low-budget marketing tools to promote film releases. Thanks to that success, Kabam, the San Francisco-based gamemaker behind “Five Families,” has truly helped change the way studios look at such games.

Over the past 10 months, Kabam’s mobile game “The Hobbit: Kingdoms of Middle-earth” also has become a breakout hit and will generate more than $100 million by the end of the year from in-game transactions. That prompted the film franchise’s co-producers, Warner Bros. and MGM, to buy an undisclosed stake in Kabam earlier this year, replacing a previous shareholder. Warners CEO Kevin Tsujihara sits on Kabam’s board.

Universal Pictures also has scored via Kabam’s first mobile racer, “Fast & Furious 6: The Game,” which has been downloaded more than 30 million times since May. It became Kabam’s fastest growing game, with better than 17 million downloads in the month of June alone, and topped the vidgame charts in more than 100 countries.


What’s worked so well for Kabam is the free-to-play model, where individuals start a game at no cost, then purchase new levels or outfit characters with upgrades once they’re fans.

According to Kabam and market research firm NPD, people are 10 times more likely to try a game if they can try it for free. “You get people to start playing the game, and then you get people to pay,” says Chris Carvalho, chief operating officer of Kabam. “We as an industry have embraced that.”

The free-to-play model works especially well on social media sites like Facebook and Google+, and mobile platforms like smartphones and tablets, where casual games including “Farmville,” “Angry Birds” and more recently “Candy Crush” have flourished. The thinking is that consumers don’t want to pay for a game they don’t know, and having to stop and take out a credit card might be effort enough to dissuade someone from buying, particularly when downloading a game takes just seconds.

After free-to-play helped put companies like Kabam, Zynga and King on the map, more traditional publishers like Electronic Arts embraced the model for their own games. Disney also has shifted away from producing expensive console games for its films, focusing instead on comparatively inexpensive social platforms that have launched such franchises as “Where’s My Water?”

Studios are certainly eager to exploit free-to-play, given the unexpected new source of income it generates.

Mobile and online games were always seen as marketing tools for the studios — and still are, with Kabam releasing “The Hobbit” game in November around Peter Jackson’s first entry in the trilogy.

But as companies like Kabam stepped up the quality of the games, the titles quickly became ways to keep fans engaged with a franchise long after the films ended their runs in theaters.

“Marketing-based games and apps were nice little time-fillers to get people excited about the movie,” Carvalho says. “It definitely served a purpose. But you get that and much more now. What we’ve done is gone beyond simple engagement and created a new revenue stream.”

Just how much the studios collect is undisclosed, given that Kabam is a privately held firm. Company revenues grew 70% last year and are expected to increase another 65% this year to around $300 million. The company had mulled an IPO but dropped those plans after rival Zynga struggled on Wall Street. Kabam was recently valued at around $700 million.

But the game maker does share revenue with the studios — in much the way Netflix splits its sales. “They make money when we make money on the game,” Carvalho says.

Moving forward, Kabam will work with its studio partners to use games as a way to drum up interest in a homevideo release, or sell tickets to a film’s opening weekend the way Rovio is using the 1.7 billion downloads of “Angry Birds” to promote new spino s, animated short films or the full-length feature set to fling into theaters in 2016.

When Warner Bros. released “The Hobbit,” the studio promoted the fantasy pic through Kabam’s “Hobbit” game. More than 1 million people wound up watching a trailer for the fi lm via the game, which offered incentives to buy tickets to the movie’s opening night.

Kabam isn’t entirely reliant upon film licenses, however. Its staff of around 700 also produces homegrown hits, including strategy game “Dragons of Atlantis.” Combined, “Kingdoms of Camelot” and sister game “Kingdoms of Camelot: Battle” have turned into a $250 million franchise over the past four years.

Clearly, as consumer interest in free-to-play builds, so will Hollywood’s.

“It’s part of the evolution of the industry,” Carvalho says. “We’ve helped elevate the expectations of the studios.”

KABAM STATS

Founded in: 2006
CEO: Kevin Chou
Investors: Warner Bros., MGM, Google, Intel
Venture Capital: Redpoint Ventures, Canaan Partners
Location: San Francisco

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