Market Insight

Softbank & GungHo take $1.5 billion Supercell stake in largest mobile games deal

October 16, 2013


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Japanese telecoms operator Softbank and Japanese games developer GungHo OnLine Entertainment have acquired a 51% stake in Finnish mobile-games developer Supercell for $1.53 billion. As part of the deal Softbank will invest 80% with GungHo contributing 20%.

Launched in 2010, Supercell is maker of the popular mobile app games Clash of Clans and Hay Day. Clash of Clans has been a top 5 app download in Apple's AppStore since December 2012. Supercell will remain an independently run subsidiary of Softbank based in Finland. Originally focused on iPad and iPhone apps, Supercell recently launched its first titles for Android.

 

Softbank's strategic investment in Supercell and GungHo underscores its aim to expand into international markets outside of Asia and into Europe and North America and become a wider player in the mobile and digital media ecosystem.

The deal itself is one the biggest valuations of any mobile games company. EA's mid-2000s $680m acquisition of Jamdat (later written down) was the previous biggest deal involving a mobile-specific games company. This length of time between large deals is a sign of the mobile games market's growing maturity.

The scale of the acquisition further increases market concentration: Supercell reported $178 million in revenues for Q1 2013 equivalent to 18% of the total Apple paid out developers over the same period and GungHo's hit Puzzles & Dragons has dominated the Japanese app store charts. Other key titles at the top of the market include King's Candy Crush Saga. King is planning for an IPO and recently signed a partnership with Korean messaging app KakaoTalk in a bid to grow its presence in the lucrative Asian mobile games market.

International activity between Asian mobile games companies and Western ones is growing, but so far a product that starts with success in Japan to then expand successfully to Europe and North America, or start in the west and expand successfully into Asia, is rare.  Softbank's investment will aid Supercell in expanding its games offering to an international audience, and provide the operator with a solid base to grow its European activity. IHS research shows that Japan is way ahead of Western markets in terms of average games spend per mobile subscriber, averaging 3-4x higher spend than the leading Western markets.

The deal is also a clear attempt by Softbank to go beyond traditional communication services to providing fully integrated mobile communication and media products as part of a global strategy. However, such an ambitious strategy will need to overcome the games industry's hit-or-miss business model. So far, Supercell and GungHo have only launched a handful of successful mobile games - repeating such a model will always be a challenge and requires luck, scale and investment. Softbank must adjust its thinking accordingly rather than applying operator-style business cases.

Organization
EA GungHo Softbank Supercell
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