1Q15 Digital Revenue Report: Pure Digital Publishers

In my last post, I showed some data on where the big traditional publishers have been going in terms of digital revenue. Today I want to show you what can be said about the purely digital publishers, like King and GungHo.

The data for the seven such publishers I have tracked are shown below.

Let me give some context here. Both Activision Blizzard and EA have just hit $2.2 billion in annual digital revenue relatively recently. The figures I've collected for these purely digital companies show that King -- the publisher behind Candy Crush -- hit $2.5 billion for the period ending in June of last year. Since that time, however, they've declined to $2.3 billion, which is still higher than either EA or Activision Blizzard by themselves.

On the low end, note that with the exception of GLU and Zynga, every pure digital publisher shown here has had revenues in the past 12 months which exceed the digital revenues for each individual, traditional Japanese publisher (in my last post) as well as the digital revenues for each of Take-Two and Ubisoft.

Two years ago, DeNA peaked at just over $2.1 billion in annual digital revenue, but has since declined to just under half that value. As of their last quarter, their annual digital revenues were just around $1.05 billion. One year ago, GungHo peaked at $1.8 billion per year in digital revenue, but it has also seen a decline in its business and just ended its last quarter at $1.5 billion for the previous 12 months.

These two are interesting, in particular, because they are two key partners in Nintendo's digital strategy. GungHo partnered with Nintendo to bring its hit game, Puzzles & Dragons, to Nintendo's 3DS handheld in the form of Puzzles & Dragons Z and Puzzles & Dragons: Super Mario Bros. Edition. But more importantly, Nintendo and DeNA have announced a partnership to bring Mario properties to the mobile device world in a way that should benefit both companies.

I will be watching with interest to see if the partnerships with Nintendo begin to help each of these companies stem the declines that they've experienced in the past year or more.

The data for Zynga shows how the company experienced rapid growth, then an equally rapid decline, followed by what appears to be a recent bottoming out of its business. The next year should tell us whether it will be able to make a comeback to reach the previous heights it attained during 2012.

By my estimations, NCSoft and GLU are both at the bottom of this chart, but they're also the two companies that appear to have stable, growing businesses. Specifically, you can see Blade & Soul and Guild Wars 2 start to add to NCSoft's revenues in 2012, and then begin to taper off a bit and stabilize at a level well below the initial rush.

Similarly, GLU is a company that used to bring many games to feature (dumb) phones, but has slowly made the transition to the smart phone space. They haven't had any break-out hits like pretty much every other company has seen, but they have mostly navigated what could have been a very tricky shift in the market.

GameStop's Digital Revenues & Future Business

The huge specialty retailer, GameStop, is a bit of an odd player in the digital market. With a few exceptions (like Kongregate), everything they would call digital revenue is really a case of them reselling digital goods for other companies.

You might remember that a few years ago they set a very ambitious goal of hitting $1.5 billion in annual digital revenue by around this time. Unfortunately, they've not hit that goal, but I will give them credit for hitting just under $1 billion in digital revenues.

The current plan that GameStop has is to continue to use its physical trade-in business to fuel sales of DLC, and from the outside this appears to be working. It can continue to pad GameStop's bottom line with high-margin physical resales while assisting publishers with consumer awareness of DLC products.

However, as the market becomes more digital and fewer physical discs are necessary at retail, GameStop may find itself in a precarious position. When a market is truly disrupted, the final shift in the momentum can come swiftly, leaving the companies still wedded to the old market very much exposed. I'm not saying this is going to happen immediately -- if anything, GameStop's business over the past few years have shown the resilience of the physical goods market -- but I am expecting a shift to come eventually, and for that shift to be rapid and tumultuous for someone like GameStop.

I think that's precisely why the company is continuing to diversify its business. Outside of its core video game business, it has now bought its way into the low-end mobile market (Cricket and Spring Mobile) and the Apple reseller business (Simply Mac) and into the popular culture tchotchke market (Think Geek). These are all markets which depend on physical things: phones, computers, t-shirts and toys. Having cultivated a knowledgeable staff to sell games and developed a first-rate electronics refurbishment facility, GameStop has a good shot at staying around for a long time to come.

I would, however, note that they may choose to change their moniker eventually. GameStop simply won't make much sense for the main company in a couple of years.