Analyze the strengths in King’s decision making process, and what decision errors or biases these strengths reduced or eliminated.

9 – 8 1 7 – 1 1 7

R E V : J A N U A R Y 1 7 , 2 0 1 9

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 permission to reproduce materials, call 1-800-545-
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J E F F R E Y F . R A Y P O R T

D A V I D E S O L A

F E D E R I C A G A B R I E L I

E L E N A C O R S I

King Digital Entertainment
The player comes first in everything we do. Player is King.

—King Digital Entertainment, IPO Prospectus

In mid-2015, Riccardo Zacconi, CEO 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 ground—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 compelling, 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

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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 immersive
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
data).

The shift to online and mobile games—in particular, free-to-play games—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 with traditional video
game publishers like Activision Blizzard and Electronic Arts, whose portfolios included console games
in addition to casual offerings (see Exhibit 7).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
jackpot.

With losses mounting, Co-CEOs Zacconi and Rowland asked for help from Melvyn Morris, former
CEO 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 Technology 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

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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 mid-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. At 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
Farm 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 mid-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

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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
possible.”

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 immediately—and 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, “We 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, “We 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. “We take a disciplined approach, running lots of experiments with control groups,” Dale

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

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, “At 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, I 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 for 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.

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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 “maintain 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. Of 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
market.”

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. Knutsson said, “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,

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“The future of casual and mobile gaming will surely be more social, but ‘social’ can take many forms.”
One was multiplayer 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 magic 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
mechanics.

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 “green 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 game. 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 games 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

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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 team focused on developing new features, creating
live ops, and improving the game experience. Game teams 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 templates 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 reach about 20 to 30 at launch. Knutsson continued, “The team does not have to
increase in size after that point. But with a blockbuster like Candy Crush Saga, we knew we could be
more effective by adding more talent. Candy Crush’s group has about 50 to 70 people divided into five
or six small teams so they can stay agile.”

Incentives To foster information sharing, King’s incentive schemes focused on company results
rather than individual or team performance. Knutsson explained, “If we gave every team a bonus based
on their game’s performance, since our games are quite similar, they would not be open to sharing.
Instead, they would try to steal users from each other and fight over who gets network support.” He
added, “This is also why game teams do not decide who gets marketing support. The marketing teams
manage cross-promotion in a neutral manner; they decide which is the best game to support.”

Hartwig added, “Each game team is focused on delivering the ultimate user experience and
entertainment to its players. But we also focus on our network and the ability to attract 500 million
players on a monthly basis, regardless of whether they are playing Candy Crush Saga or Bubble Witch
Saga or Farm Heroes Saga. The studios and their game teams contribute to the network and thus to the
greater good of the company.”

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King Saga, Part II?
Zacconi recalled how, before the launch of King’s Facebook games, his team had been approached

by Activision about a possible merger. They had preferred to go it alone and ultimately took the
company public.

A merger of the two businesses had compelling strategic logic. Activision was a leader in PC and
console gaming, but it had limited traction in mobile and casual gaming (see Exhibit 15). The
company’s revenues derived largely from game sales and subscription fees in developed geographies;
its selection of free-to-play content was limited, which kept its presence in emerging markets low.
Potential synergies seemed large. King’s expertise in free-to-play could be leveraged by Activision to
bring versions of its main console franchises to new audiences in emerging markets. Activision could
also introduce PC and console titles to King’s more than 470 million users, who had a different
demographic profile than Activision’s. 16As Kurgan put it, “We do casual games, mobile games, free-
to-play games, and they do not.” By the same token, Activision could help King expand its male gamer
audience.

Previous acquisitions of technology companies by industry giants had yielded mixed results (see
Exhibit 16). Zacconi wondered, what if Google had sold to Yahoo! before scaling AdWords? What if
Facebook had sold to Google before realizing massive user growth? Indeed, the tech world was rife
with examples of companies that had arguably sold too early, such as YouTube to Google or Instagram
to Facebook, and those that sold just in time, such as Myspace to News Corporation or Tumblr to
Yahoo! At its core, King was a creative company. Would ownership by a diversified gaming conglom-
erate like Activision provide air cover for King’s energy and creativity, or stifle it? Zacconi owed
Activision’s CEO, Bobby Kotick, an answer soon. Whatever King’s board decided, he thought, it had
to satisfy one condition: Player was King.

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Exhibit 1 The Electronic Games Market: Description and Evolution

a) Video Games Categories

Source: Adapted by casewriters from “Toys and Games: Global Trends, Developments and Prospects,” Passport Report,
August 2016, Euromonitor International, accessed December 2016.

b) Overview of the Video Games Industry, 2001–2015 (in $ millions)

0

20000

40000

60000

80000

100000

120000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Hardware Software

Source: Compiled by casewriters based on data from Passport GMID, Euromonitor International, accessed December 2016.

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c) Estimates of Global Video Games Value Sales by Platform, 2015–2020 (in billions)

Source: Adapted by casewriters from “Toys and Games in 2016: Market Overview, Trends and What’s New in Passport,”
Passport Report, September 2016, Euromonitor International, accessed December 2016.

Exhibit 2 Industry Statistics for Mobile Games

a) number of Mobile Game Players Worldwide in 2014, by Region (in millions)

740

178 153 152 148
110

0
100
200
300
400
500
600
700
800

Asia Pacific Middle East
and Africa

Western
Europe

North
America

Latin America Eastern
Europe

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

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817-117 King Digital Entertainment

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b) distribution of Mobile Gamers Worldwide, as of Second Quarter 2014, by Age

32%
35%

21%

9%

3%

0

5

10

15

20

25

30

35

40

16 to 24 25 to 34 35 to 44 45 to 54 55 to 64

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

c) average Monthly Spending on Mobile Games per Capita Worldwide, as of June 2014, by
Region (in dollars)

4

6

5

2
1 1

0

1

2

3

4

5

6

7

Asia Pacific North
America

Western
Europe

Eastern
Europe

Latin
America

Middle East
and Africa

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

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King Digital Entertainment 817-117

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Exhibit 3 Electronic Games Sales and In-Game Purchases

a) Global Video Games Software Value Sales: Game Sales and In-Game Purchases, 2014–2020
(in billions at constant 2015 prices)

Source: “Toys and Games in 2016: Market Overview, Trends and What’s New in Passport,” Passport Report, September
2016, Euromonitor International, accessed December 2016.

Note: Data from 2015 onward are estimates.

b) In-Game Purchases as a Percentage of Total Global Video Games Sales by Platform, 2015–2020

Source: Adapted by casewriters from “Toys and Games: Global Trends, Developments and Prospects,” Passport Report,
August 2016, Euromonitor International, accessed December 2016.

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817-117 King Digital Entertainment

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Exhibit 4 Share of Emerging Markets in the Global Total Sales of Video Games by Platform,
2015–2020

Source: “Toys and Games: Global Trends, Developments and Prospects,” Passport Report, August 2016, Euromonitor
International, accessed December 2016.

Exhibit 5 Number of Paying Mobile Game Players Worldwide in 2014, by Region (in millions)

243

66 59 57 53
35

0

50

100

150

200

250

300

Asia Pacific North
America

Middle East
and Africa

Latin
America

Western
Europe

Eastern
Europe

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

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King Digital Entertainment 817-117

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Exhibit 6 Releases and Unit Sales of Smartphones, Tablet Devices, and Gaming Consoles

a) Unit Sales of Smartphones to End Users Worldwide, 2007–2015 (in millions)

122.32 139.29 172.38
296.65

472

680.11

969.72

1,244.74
1,423.9

0.

200.

400.

600.

800.

1,000.

1,200.

1,400.

1,600.

2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

b) Global Unit Sales of Current-Generation Video Game Consoles, 2008–2016 (in millions)

89.23
81.87

74.53 69.04

54.31
48.62

45.25 42.41

26.74

0.

20.

40.

60.

80.

100.

2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Adapted by casewriters based on data from Statista Portal, https://www.statista.com/, accessed December 2016.

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817-117 King Digital Entertainment

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c) Selected Releases of Smartphones, Tablet Devices, and Gaming Consoles, 2007–2015

Year Product Manufacturer Category

2007 iPhone Apple Smartphone
2008 iPhone 3G Apple Smartphone
2008 Nintendo DSi Nintendo Hand-held console
2009 iPhone 3GS Apple Smartphone
2009 Nintendo DSi XL Nintendo Hand-held console
2009 PlayStation Portable (PSP) Go Sony Hand-held console
2009 PlayStation 3 Slim Sony Home console
2010 iPhone 4 Apple Smartphone
2010 Samsung Nexus S Google and Samsung Smartphone
2010 Samsung Galaxy S Samsung Smartphone
2010 LG Optimus One LG Smartphone
2010 HTC Desire HTC Smartphone
2010 iPad Apple Tablet
2010 Galaxy Tab 7.0 Samsung Tablet
2011 iPhone 4s Apple Smartphone
2011 Lumia 800 Nokia Smartphone
2011 Samsung Galaxy S2 Samsung Smartphone
2011 Nintendo 3DS Nintendo Hand-held console
2011 PlayStation Vita Sony Hand-held console
2011 iPad 2 Apple Tablet
2011 Galaxy Tab 8.9 Samsung Tablet
2012 iPhone 5 Apple Smartphone
2012 Samsung Galaxy S3 Samsung Smartphone
2012 Nokia Lumia 920 Microsoft Smartphone
2012 HTC One S HTC Smartphone
2012 Nintendo 3DS XL Nintendo Hand-held console
2012 Wii U Nintendo Home console
2012 New iPad and iPad Mini Apple Tablet
2012 Microsoft Surface Microsoft Tablet
2012 Nexus 7 Google and Asus Tablet
2013 iPhone 5s and iPhone 5c Apple Smartphone
2013 Samsung Galaxy S4 Samsung Smartphone
2013 HTC One (M7) HTC Smartphone
2013 Google Nexus 5 Google and LG Smartphone
2013 Nintendo 2DS Nintendo Hand-held console
2013 Xbox One Microsoft Home console
2013 PlayStation 4 (PS4) Sony Home console
2013 iPad Air and iPad Mini 2 Apple Tablet
2013 Samsung Galaxy Tab 3 Samsung Tablet
2014 iPhone 6 and iPhone 6 plus Apple Smartphone
2014 Samsung Galaxy S5 Samsung Smartphone
2014 Nokia Lumia 930 Microsoft Smartphone
2014 Sony Xperia Z3 Sony Smartphone
2014 New Nintendo 3DS and 3DS XL Nintendo Hand-held console
2014 iPad Air 2 and iPad Mini 3 Apple Tablet
2014 Samsung Galaxy Tab S Samsung Tablet
2015 iPhone 6s and iPhone 6s Plus Apple Smartphone
2015 Samsung Galaxy S6 Samsung Smartphone

Source: Compiled by casewriters based on Jeff Desjardins, “The History and Evolution of the Video Games Market,”
Visual Capitalist, January 11, 2017, http://www.visualcapitalist.com/history-video-games-market/; Al Sacco,
“iPhone Evolution, Release Timeline and Memorable Moments,” CIO from IDG, September 11, 2013,

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King Digital Entertainment 817-117

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http://www.cio.com/article/2369744/apple-phone/apple-phone-119363-iphone-evolution-timeline-and-
notable-moments.html#slide1; Ross Miller, “From Game Boy to the New 3DS XL, This is the Full History of
Nintendo’s Handheld Dominance,” The Verge, August 29, 2014,
http://www.theverge.com/2014/8/29/6082561/nintendo-game-boy-3ds-xl-timeline; “Timeline of Computer
History—Graphics & Games,” available at http://www.computerhistory.org/timeline/graphics-games/;
Jacob Kastrenakes, “The iPad’s 5th Anniversary: a Timeline of Apple’s Category-Defining Tablet,” The Verge,
April 3, 2015, http://www.theverge.com/2015/4/3/8339599/apple-ipad-five-years-old-timeline-photos-
videos; Philip Elmer-DeWitt, “Where are the smartphones of yesteryear?,” Fortune, August 12, 2011,
http://tech.fortune.cnn.com/2011/08/12/where-are-the-smartphones-of-yesteryear/; Matt Brian, “The 6 Best
Smartphones Of 2012,” The Next Web, December 23, 2012, http://thenextweb.com/mobile/2012/12/23/the-6-
best-smartphones-of-2012/; Matthew Miller, “Top 10 smartphones of 2013: There’s One that’s best,” ZDNet,
December 11, 2013, http://www.zdnet.com/article/top-10-smartphones-of-2013-theres-one-thats-best/; Ben
Woods, “11 of the best smartphones that launched in 2014,” The Next Web, December 30, 2014,
http://thenextweb.com/gadgets/2014/12/30/11-best-smartphones-launched-2014/, accessed January 2017.

Exhibit 7 Overview of Key Players in the Video Games Industry, 2015 (in billions)

Company Name Headquarters Revenue

Microsoft Corporation Redmond, WA, U.S. 93.6
Sony Corporation Tokyo, Japan 72.1
Tencent Holdings Limited Shenzhen, China 15.8
BANDAI NAMCO Holdings Inc. Tokyo, Japan 5.1
Activision Blizzard Inc. Santa Monica, CA, U.S. 4.7
Nintendo Co. Ltd. Kyoto, Japan 4.5
Electronic Arts Inc. Redwood City, CA, U.S. 4.4
Supercell Oy Helsinki, Finland 2.2
King Digital Entertainment plc. Dublin, Ireland 2
Ubisoft Entertainment SA Montreuil, France 1.6
GunHo Online Entertainment Inc. Tokyo, Japan 1.3
DeNA Co. Ltd. Tokyo, Japan 1.3
GREE Inc. Tokyo, Japan 0.8
Zynga Inc. San Francisco, CA, U.S. 0.8

Source: Compiled by casewriters based on data from Capital IQ, Inc., a division of Standard & Poor‘s, accessed January 2017.

Note: Fiscal year ended March 31, 2016, for Sony Corporation, Nintendo Co. Ltd.; Electronic Arts Inc.; BANDAI NAMCO
Holdings Inc.; Ubisoft Entertainment SA; DeNA Co. Ltd. Fiscal year ended December 31, 2015, for Tencent Holding
Ltd.; Activision Blizzard Inc.; King Digital Entertainment plc; GunHo Online Entertainment Inc.; Zynga Inc. Fiscal
year ended June 30, 2015, for Microsoft Corporation; GREE Inc. Fiscal year ended December 1, 2015, for Supercell
Oy.

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817-117 King Digital Entertainment

18

Exhibit 8 Biographies of King’s Senior Management

Name and Title Biography

Riccardo Zacconi,
Co-Founder and
Chief Executive
Officer

Born in 1967, Zacconi cofounded King in 2003 and served as CEO and in its Board of
Directors since then. Previously, Zacconi was vice president of European Sales and
Marketing at the online dating service uDate.com Ltd., and was involved in driving market
penetration and partnerships until the company was acquired by InterActive Corporation
in 2002. From 2001 to 2002, Zacconi served as entrepreneur in residence at the venture
capital firm Benchmark Capital Partners; while from 1999 he was managing director for
Spray Network, an online messaging portal based in Hamburg, Germany, with a presence
also in France, Italy, Sweden, Denmark and Norway, until its sale in 2000. Prior to 1999,
Zacconi held various investment and consulting positions of increasing responsibility with
The Boston Consulting Group and LEK Consulting, both of which are management
consulting firms. Zacconi held a B.A. degree in Economics from LUISS University, Italy.17

Sebastian
Knutsson,
Co-Founder and
Chief Creative
Officer

Knutsson was one of King’s founders and served on its Board of Directors since October
2003, as Chief Creative Officer since June 2004 and as executive product developer from
February 2003 to June 2004. With more than 18 years of experience in the online and
mobile industries, Knutsson led the product strategy, games development, and service
offerings for King, for which he had designed more than 100 games. Previously, Knutsson
served as the founder and chief creative officer of Fjord Network AB, a developer of IP-
telephone services. Before that, he was co-founder of Spray Ventures AB, which seeded
many successful Internet startups within Internet consultancy, consumer Internet services
and e-commerce, and also served in various product development positions at Lycos
Europe, N.V., Spray Network AB and Razorfish, Inc. Knutsson held a B.A. in Cost Analysis
and Finance from Stockholm School of Economics, Sweden.18

Thomas Hartwig,
Co-Founder and
Chief Technology
Officer

Hartwig was one of King’s founders and served as its CTO since September 2011, after
eight years as vice president of engineering. He was responsible for overall technology
decisions, as well as engineering, operations and information technology. Previously,
Hartwig worked as a partner and developer at Fjord Network AB after two years at Spray
Network Services as chief system architect. Before that, he was a system developer at
Razorfish Inc. and Seema Group. Hartwig studied Computer Science at Lund University,
Sweden.19

Lars Markgren,
Co-Founder and
Managing Director
at Midasplayer AB

Markgren was one of King’s founders and served since 2004 as Managing Director at
Midasplayer AB, King’s Candy Crush Studio. From 1998 to 2001 he had served as Chief
Technology Officer at Spray Network Services. Markgren held a Master of Science in
Structural Engineering from the KTH Royal Institute of Technology, Sweden.20

Patrik Stymne,
Co-Founder and
Chief System
Architect

One of King’s founders, Stymne served since 2003 as its Chief System Architect. He had
cofounded in 2001 Fjord Network AB, after serving for one year at Lycos Europe as
systems architect. From 1998 to 2000, Stymne had worked as system architect at Spray
Network Europe and Razorfish. Before that, he had worked at Spray Ventures, which he
had cofounded in 1995. Stymne had studied Electronics at the KTH Royal Institute of
Technology, Sweden.21

Stephane Kurgan,
Chief Operating
Officer

Kurgan served as King’s COO since April 2011 and was part of its Board of Directors since
April 2012. Prior to joining King, Kurgan served as the CFO at Tideway Systems Ltd., a
data center management software company, and as senior vice president and managing
director of Enba plc, a company which provided financial services via the Internet. Kurgan
held various sales and product management roles at the business information publisher
Bureau van Dijk Electronic Publishing BV and was a consultant with the management
consulting firm McKinsey & Company. Kurgan holds a B.A. in Economics from the

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King Digital Entertainment 817-117

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Université Libre de Bruxelles, Belgium, a Diploma in International Relations from Johns
Hopkins University SAIS School, Italy, and an M.B.A. from INSEAD, France.22

Tjodolf Sommestad,
Senior Vice
President for
the Candy Crush
franchise

Sommestad was King’s senior vice president for the Candy Crush franchise since August
2014. Previously, he served at King as vice president for Competitive Games from October
2012 to July 2014, and as vice president for Skillgames from August 2011 to October
2012. Before joining King, Sommestad worked as a consultant at the Swedish supplier of
Microsoft-based solutions Precio, and at the Jadestone Group, a developer of fully
managed online game solutions, as product manager for Casino and Skillgames from
October 2009 to May 2011, as Head of Operations from January 2007 to November 2009,
as product manager for E-Sport Games from June 2005 to January 2007 and as producer
of games from June 2003 to June 2005. Sommestad holds a Master of Science in
Computer from the KTH Royal Institute of Technology, Sweden.23

Alex Dale,
Chief Marketing
Officer

Dale served as King’s Chief Marketing Officer since September 2011. He had extensive
marketing experience in technology companies. Dale joined King from Microsoft, where
he was director of consumer marketing, advertising sales and general management for
Western European online business. Prior to Microsoft, he was the founder and managing
director of broadband Internet Service Provider (ISP) and portal, virgin.net. Part of the
Virgin Group of companies, the virgin.net service was sold to NTL Cable in 2004. Dale
received a B.A. in History from Oxford University, U.K., and an M.B.A from Imperial
College London, U.K.24

Robert Miller,
Chief Legal Officer

Miller served as King’s Chief Legal Officer and Corporate Secretary since August 2012.
Prior to joining King, Miller served as head of legal for the international operations of the
online marketplace LivingSocial, Inc.; as vice president and general counsel at the chat
and voice call application Skype S.a.r.l.; as senior director of legal and government affairs
at the online marketplace eBay U.K. Ltd.; and as corporate counsel at the British
multinational telecommunications services company British Telecommunications plc.
Miller holds a B.A. in Economics from the University of Manchester, England, and qualified
from the City Law School, London, England. He has also completed the International
Executive Programme in General Business Management at INSEAD, France.25

Hope Cochran,
Chief Financial
Officer

King’s CFO since September 2013, from 2005 to 2013, Cochran served at Clearwire
Corporation, a company active in the wireless industry, in several positions, including
Chief Financial Officer, Senior Vice President, Finance and Treasurer, until it was acquired
by Sprint Nextel Corporation. From 2003 to 2005, Cochran served as the CFO of Evant
Incorporated, a planning and logistics software developer. From 2001 to 2003, he was the
Controller of the Americas – Sales Operations for PeopleSoft, Inc. (software products now
marketed by Oracle). Before 2001, Cochran was the founder and CFO of SkillsVillage, a
contractor supply chain management software provider, until she sold it to PeopleSoft,
Inc. Cochran began her career as an auditor at Deloitte&Touche and she received a
number of awards over the years. Cochran holds a B.A. in Economics and Music from
Stanford University, San Francisco, United States.26

Source: Compiled by casewriters based on public sources.

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817-117 King Digital Entertainment

20

Exhibit 9 Selective Overview of King Digital Entertainment’s Games

Game
Title Launch Year Description

Bubble
Witch

Tournament:
Q4 2010

Players achieve top scores by creating groups of three or more magical bubbles
and blasting them in specified move limits. For every shot that makes a bubble
crackle and burst, players earn new spiders at the bottom of the screen and
receive higher points by making the bubbles fall into more valuable cauldrons.

Saga Facebook:
Q3 2011

Mobile:
Q3 2012

Pyramid
Solitaire

Tournament:
NA

Based on the adventures of aviator Helena Lightfoot and her helper Kingsley as
they explore ancient Egypt, the game’s goal is to clear a deck of cards and catch
the scarabs, while collecting points or clearing a certain number of cards in a row.
The treasure hunting storyline behind the game offers exotic graphics that
immerse players in the wonders of ancient Egyptian culture, such as The Hidden
Tomb, the Garden of Osiris, and the Depth of Nautilus.

Saga Facebook:
Q2 2012

Mobile:
Q3 2014

Candy
Crush

Tournament:
Q1 2011

It is a switcher game in which players match candies in combinations of three or
more to win points and defeat obstacles. Players progress through a colorful
candy world with over 500 levels, each offering a different puzzle challenge. In
December 2013, Candy Crush Saga was expanded to include “Dreamworld,” a
parallel world of levels with a magical twist available to players who have reached
level 50.

Saga Facebook:
Q2 2012

Mobile:
Q4 2012

Pet
Rescue

Tournament:
Q3 2009

It’s a clicker game in which players click on groups of similarly colored blocks in
order to clear them from the screen. The game offers over 440 levels of play in an
animal-themed adventure where players have to rescue a range of cute pets from
the evil Snatchers. The aim is to clear enough blocks to guide pets to safety at the
bottom of the screen while also achieving the minimum score required. The game
also offers additional challenges in the form of caged pets, stony floors that require
a key to unlock and diamonds that can only be removed by landing them on a
stony floor.

Saga Facebook:
Q4 2012

Mobile:
Q2 2013

Papa Pear
Saga

Tournament:
Q2 2012

It is based on a colorful fantasy world. Players shoot Papa Pear out of a cannon
at the top of the screen and are challenged to skillfully fire Papa Pear shots into a
selection of barrels, while evading a tricky maze of obstacles. Making each Papa
Pear shot count is vital as players are challenged to hit as many objects as they
can throughout the course of each level to generate further points within the game.

Facebook:
Q2 2013

Mobile:
Q4 2013

Farm
Heroes

Tournament:
Q4 2010

Farm Heroes Saga is a switcher game that focuses on a collection mechanic. The
game is set in a fantasy farmland world and requires players to collect different
farm elements such as carrots, apples, beetroots and water by matching at least
three in a row. To progress, players need to collect sufficient quantities of each
element within a limited number of moves. Once a player has collected enough of
each element, the game goes into “Hero Mode,” enabling the player to boost his
or her score through careful use of the remaining moves.

Saga Facebook:
Q2 2013

Mobile:
Q1 2014

Pepper
Panic

Tournament:
Q3 2012

Pepper Panic Saga follows ‘Pepper Puppy’, a dog who craves spicy chilies and
explosions, as he journeys from Pepperfield Place to Squawker’s Island. Like
other ‘saga’ games, players have to match objects to set of chain reactions, and
get through each level as fast as possible.

Saga Facebook:
Q4 2013

Mobile: NA
Diamond
Digger

Tournament:
NA

Diamond Digger Saga is a clicker game where players blast, dig and explore their
way through the glistening lands of Diamond Dale, Turquoise Meringue and other
fantastical locations while uncovering special treasures and clearing away groups
of three or more jewels to reach the target score. Players are tasked with clearing
a path to allow for the water to flow freely to its destination, sending them through

Saga Facebook:
Q2 2014

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King Digital Entertainment 817-117

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Mobile: Q3
2014

portals to interconnected rooms, each with its own wondrous task for discovering
new gems and advancing to the next level.

Bubble
Witch 2

Tournament:
NA

Bubble Witch 2 Saga is a bubble shooter game presenting the next chapter to
Bubble Witch Saga. Enhancements include, among others, an appealing and
whimsical storyline, upgraded bewitching characters, dynamic visuals, and new
episodic adventures.

Saga Facebook:
Q2 2014

Mobile:
Q2 2014

Candy
Crush

Tournament:
NA

The next iteration in the Candy Crush franchise, it was designed to be played
alongside the original game. The game introduces new graphics and features
including game modes, candy combinations, and gameplay mechanics. It features
the same Saga framework used in the original, where players progress through
new levels and episodes on the Saga map and can experience various social
layers when connected via Facebook.

Soda
Saga

Facebook:
Q4 2014

Mobile:
Q4 2014

Alpha
Betty
Saga

Tournament:
NA

The game sets players off on a bold new quest as Betty, a young mouse living in
the 1930s, follows her grandfather, Professor Alpha, and his loyal assistant,
Barney, to discover lost words to complete the “Encyclopedia of Everything”. As
the world’s authority on collecting words, Professor Alpha will call on players to
help him complete the legendary book. This word-based game uses non-linear
gameplay to enhance creative word play and strategic opportunities for players as
they are tasked with connecting adjacent letters to create words, score points and
ultimately advance through the fantasy world.

Facebook: NA
Mobile:

Q2 2015

Paradise
Bay

Tournament:
NA

Paradise Bay begins as players arrive on the island in a quest to transform their
new home into a thriving port and market. They will journey through lands of crystal
clear waters and the bluest of skies, collecting long-lost map pieces and selling
their wares to players from around the world. They will also discover new islands
where they can find great deals, unique gifts and surprises and trade with the
characters they meet. New trade routes will open up and new relationships will
blossom, creating a world of endless discovery and possibility.

Facebook:
NA

Mobile:
Q3 2015

Blossom
Blast Saga

Tournament:
NA

Blossom Blast Saga sets players off on a new King adventure with Blossom, a
curious and adventurous bee, who loves to collect and grow unique flowers, on a
journey beyond her home to beautiful gardens in the sky. With each flower she
blooms, she earns and collects to power her journey further into this magical world.
Players must help this busy little bee make the buds bloom and clear the
flowerbeds before running out of moves. By linking three or more adjacent flowers
of the same color, players can create a chain which in turn helps clear the board.
The more chains the players make, the more flowers will bloom, setting off an epic
chain reaction that boosts their scores.

Facebook:
NA

Mobile:
Q4 2015

Source: Company data.

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817-117 King Digital Entertainment

22

Exhibit 10 Overview of Selected Game Types

Game
Genre

Definition

Casual

A game that can be played in short sessions and does not require specific skills or long-term
commitment. Casual games can belong to any genre, such as card games and strategy games.

Match-
three

Also called Match 3, it is a subcategory of tile-matching games. The player is required to make tiles
disappear by manipulating them to create matches of three.

Switcher A switcher game is a game where gameplay requires the player to change the position of objects
by moving them into the place of a nearby object, thus switching their positions.

Clicker A game where gameplay requires the player to perform the action of clicking.

Shooter A game where gameplay requires the player to perform the action of pointing and shooting.

Card A game that uses playing cards as the basic device with which the game is played.

Strategy A game where gameplay requires the player to apply strategic thinking and planning to achieve
the game’s goals.

Source: Casewriters.

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29

38

43

71

21

9
48

1
64

8
63

2
64

1
61

1
54

4
58

6
60

4
52

9
50

2
50

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N

on
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ki

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s

—

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N

A

N
A

N

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N
A

N

A

N
A

13

7
21

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25

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26

4
32

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37

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N

A

N
A

N

A

—

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N

A

N
A

N

A

N
A

N

A

N
A

(2

2%
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(3
3%

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(4

1%
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(4
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(5

5%
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A

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A

N

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C
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C
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re
ve

nu
e

26

9
11

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14

2
18

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9
19

6
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3
16

3
17

5
17

9
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9
15

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11

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S
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18

6

14

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22

48

11
3

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89

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71

G
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tra

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8

2
3

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5

7
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23

51

73

37

39

37

40

40

42

56

To
ta

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an
d

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65

22

33

36

62

14

0
30

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33

3
39

5
44

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37

8
34

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36

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5
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15
5

28
8

20
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16
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5
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33

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66
5

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12

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For the exclusive use of l. Liu, 2022.

This document is authorized for use only by liangyu Liu in Decision Making Final Exam Spring 2022 taught by YE LI, University of California – Riverside from Jun 2022 to Jun 2022.

81
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So
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K
in

g
D

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it

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E

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er

ta
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en

t,
“I

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P

ro
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ry

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U

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s
an

d
E

xc
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e

C
om

m
is

si
on

(S
E

C
),

ht
tp

s:
//

w
w

w
.s

ec
.g

ov
/A

rc
hi

ve
s/

ed
ga

r/
da

ta
/

15
80

73
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00
01

19
31

25
14

05
60

89
/d

56
44

33
d

f1
.h

tm
, a

cc
es

se
d

D
ec

em
be

r
20

16
; a

nd
W

ed
bu

sh
E

qu
it

y
R

es
ea

rc
h,

“
K

in
g

D
ig

it
al

E

nt
er

ta
in

m
en

t:
K

in
g

Sl
ow

s
th

e
Pa

ce
o

f B
oo

ki
ng

s
B

le
ed

in
g

as
It

A
pp

ro
ac

he
s

A
cq

ui
si

ti
on

; D
ow

ng
ra

di
ng

to
N

E
U

TR
A

L
as

S
ha

re
s

T
ra

d
e

N
ea

r
D

ea
l P

ri
ce

, M
ai

nt
ai

ni
ng

$
18

PT

,”
N

ov
em

be
r

5,
2

01
5,

v
ia

T
ho

m
so

n
O

N
E

B
an

ke
r,

a
cc

es
se

d
S

ep
te

m
be

r
20

16
.

N
ot

es
:

K
in

g
d

ef
in

ed
G

ro
ss

B
oo

ki
ng

s
in

th
e

fo
llo

w
in

g
w

ay
: “

G
ro

ss
b

oo
ki

ng
s

is
a

n
on

-G
A

A
P

fi
na

nc
ia

l m
ea

su
re

th
at

is
n

ot
c

al
cu

la
te

d
in

a
cc

or
d

an
ce

w
it

h
IF

R
S.

G
ro

ss
b

oo
ki

ng
s

is

eq
ua

l t
o

th
e

to
ta

l a
m

ou
nt

p
ai

d
by

o
ur

u
se

rs
fo

r
vi

rt
ua

l i
te

m
s

an
d

fo
r

ac
ce

ss
to

s
ki

ll
to

ur
na

m
en

ts
. I

n
th

es
e

pe
ri

od
s,

g
ro

ss
b

oo
ki

ng
s

in
cl

ud
ed

a
m

ou
nt

s
pa

id
fo

r
ad

ve
rt

is
in

g
sp

ac
e,

w
hi

ch
h

av
e

be
co

m
e

im
m

at
er

ia
l i

n
re

ce
nt

p
er

io
d

s.
W

e
us

e
gr

os
s

bo
ok

in
gs

to
e

va
lu

at
e

th
e

re
su

lt
s

of
o

ur
o

pe
ra

tio
ns

, g
en

er
at

e
fu

tu
re

o
pe

ra
ti

ng
p

la
ns

a
nd

a
ss

es
s

ou
r

pe
rf

or
m

an
ce

. W
e

be
lie

ve
th

at
th

is
n

on
-G

A
A

P
fi

na
nc

ia
l m

ea
su

re
p

ro
vi

d
es

a
m

ea
ni

ng
fu

l m
ea

su
re

m
en

t o
f o

ur
b

us
in

es
s

pe
rf

or
m

an
ce

d
ur

in
g

a
pa

rt
ic

ul
ar

p
er

io
d

b
ec

au
se

it

m
ea

su
re

s
th

e
to

ta
l c

as
h

sp
en

d
by

o
ur

p
la

ye
rs

in
th

e
pe

ri
od

.”

Fo

r
th

e
op

er
at

in
g

m
et

ri
cs

, a
ve

ra
ge

s
ar

e
on

q
ua

rt
er

ly
d

at
a.

D
ai

ly
A

ct
iv

e
U

se
rs

(D
A

U
s)

m
ea

su
re

s
th

e
nu

m
be

r
of

in
di

vi
d

ua
ls

w
ho

p
la

ye
d

o
ne

o
f K

in
g’

s
ga

m
es

d
ur

in
g

a
pa

rt
ic

ul
ar

d
ay

. M
on

th
ly

A
ct

iv
e

U
se

rs
(M

A
U

s)
m

ea
su

re
s

th
e

nu
m

be
r

of
in

d
iv

id
ua

ls
w

ho
p

la
ye

d
a

p
ar

ti
cu

la
r

ga
m

e
in

th
e

30
-d

ay
p

er
io

d
e

nd
in

g
w

it
h

th
e

m
ea

su
re

m
en

t d
at

e.

M

on
th

ly
U

ni
qu

e
U

se
rs

(M
U

U
s)

m
ea

su
re

s
th

e
nu

m
be

r
of

u
ni

qu
e

in
di

vi
d

ua
ls

w
ho

p
la

ye
d

an
y

of
K

in
g’

s
ga

m
es

o
n

a
pa

rt
ic

ul
ar

p
la

tf
or

m
in

th
e

30
-d

ay
p

er
io

d
en

d
in

g
w

it
h

th
e

m
ea

su
re

m
en

t d
at

e.

M
on

th
ly

U
ni

qu
e

Pa
ye

rs
(M

U
Ps

) m
ea

su
re

s
th

e
nu

m
be

r
of

u
ni

qu
e

in
d

iv
id

ua
ls

w
ho

m
ad

e
a

pu
rc

ha
se

o
f a

v
ir

tu
al

it
em

a
t l

ea
st

o
nc

e
on

a
p

ar
ti

cu
la

r
pl

at
fo

rm
in

th
e

30
-d

ay
p

er
io

d
en

di
ng

w
it

h
th

e
m

ea
su

re
m

en
t d

at
e.

A
ve

ra
ge

M
U

Ps
fo

r
pe

ri
od

s
pr

io
r

to
A

pr
il

20
13

e
xc

lu
d

e
G

oo
gl

e’
s

A
nd

ro
id

p
ay

er
s

d
ue

to

te
ch

no
lo

gi
ca

l l
im

it
at

io
ns

.

M

G
A

B
PP

U
m

ea
su

re
s

th
e

ov
er

al
l m

on
et

iz
at

io
n

ac
ro

ss
K

in
g’

s
ne

tw
or

k
on

a
m

on
th

ly
b

as
is

a
nd

is
c

al
cu

la
te

d
by

d
iv

id
in

g
(1

) K
in

g’
s

to
ta

l g
ro

ss
b

oo
ki

ng
s

in
a

g
iv

en
p

er
io

d
b

y
(2

) t
he

n
um

be
r

of
m

on
th

s
in

th
at

p
er

io
d,

d
iv

id
ed

b
y

(3
) t

he
a

ve
ra

ge
n

um
be

r
of

M
U

Ps
d

ur
in

g
th

e
pe

ri
od

.
G

A
B

PU
m

ea
su

re
s

th
e

ov
er

al
l m

on
et

iz
at

io
n

ac
ro

ss
K

in
g’

s
ne

tw
or

k
on

a
d

ai
ly

b
as

is
a

nd
is

c
al

cu
la

te
d

b
y

di
vi

d
in

g
(1

) K
in

g’
s

to
ta

l g
ro

ss
b

oo
ki

ng
s

in
a

g
iv

en
p

er
io

d
b

y
(2

) t
he

n
um

be
r

of
d

ay
s

in
th

at
p

er
io

d,
d

iv
id

ed
b

y
(3

) t
he

a
ve

ra
ge

nu

m
be

r
of

D
A

U
s

d
ur

in
g

th
e

pe
ri

od
. K

in
g

be
lie

ve
s

th
at

G
A

B
PU

p
ro

vi
d

es
u

se
fu

l i
nf

or
m

at
io

n
to

u
nd

er
st

an
d

th
e

co
m

pa
ny

’s
r

es
ul

ts
g

iv
en

th
at

it
q

ua
nt

if
ie

s
th

e
da

ily

m
on

et
iz

at
io

n
le

ve
ls

o
f i

ts
u

se
rs

.

In

th
e

“a
ct

iv
e

us
er

”
m

et
ri

cs
, a

n
in

d
iv

id
ua

l w
ho

p
la

ys
e

it
he

r
tw

o
of

th
e

co
m

pa
ny

’s
g

am
es

o
n

a
si

ng
le

p
la

tf
or

m
o

r
d

ev
ic

e,
o

r
th

e
sa

m
e

ga
m

e
on

tw
o

pl
at

fo
rm

s
or

d
ev

ic
es

in

th
e

re
le

va
nt

p
er

io
d

, w
ou

ld
b

e
co

un
te

d
a

s
tw

o
us

er
s.

F
or

th
e

ca
lc

ul
at

io
n

of
u

ni
qu

e
us

er
m

et
ri

cs
, K

in
g

do
es

n
ot

d
e-

d
up

lic
at

e
us

er
d

at
a:

a
u

se
r

w
ho

p
la

ys
th

e
co

m
pa

ny
’s

ga

m
es

o
n

m
ul

ti
pl

e
pl

at
fo

rm
s

or
d

ev
ic

es
in

th
e

re
le

va
nt

p
er

io
d

w
ill

b
e

co
un

te
d

a
s

a
un

iq
ue

u
se

r
fo

r
ea

ch
p

la
tf

or
m

o
r

d
ev

ic
e

on
w

hi
ch

th
e

us
er

p
la

ye
d

d
ur

in
g

th
e

pe
ri

od
.

H
ow

ev
er

, d
ue

to
c

er
ta

in
te

ch
no

lo
gi

ca
l l

im
it

at
io

ns
, a

u
se

r
w

ho
p

la
ys

o
n

m
or

e
th

an
o

ne
p

la
tf

or
m

o
r

d
ev

ic
e

w
ill

li
ke

ly
b

e
co

un
te

d
m

or
e

th
an

o
nc

e
as

a
u

ni
qu

e
us

er
.

For the exclusive use of l. Liu, 2022.

This document is authorized for use only by liangyu Liu in Decision Making Final Exam Spring 2022 taught by YE LI, University of California – Riverside from Jun 2022 to Jun 2022.

King Digital Entertainment 817-117

25

Exhibit 12 Comparison between King Digital Entertainment’s Monthly Unique Users (MUUs) and
Monthly Unique Payers (MUPs) Worldwide, 2012–2013 (in millions)

20
28 31 43

101

194

269
304

352 345 348 356
364

340
330 323

0.41 0.67 0.85 1.32 4.1 10.34 13.01 12.17 11.86 10.42 8.67 8.34 8.52 7.59 6.84 6.71
0

50

100

150

200

250

300

350

400

Q1
2012

Q2
2012

Q3
2012

Q4
2012

Q1
2013

Q2
2013

Q3
2013

Q4
2013

Q1
2014

Q2
2014

Q3
2014

Q4
2014

Q1
2015

Q2
2015

Q3
2015

Q4
2015

Avg MUUs Avg MUPs

Source: Compiled by casewriters based on company data.

Notes: Monthly Unique Users (MUUs) measures the number of unique individuals who played any of King’s games on a
particular platform in the 30-day period ending with the measurement date.

Monthly Unique Payers (MUPs) measures the number of unique individuals who made a purchase of a virtual item
at least once on a particular platform in the 30-day period ending with the measurement date. Average MUPs for
periods before April 2013 exclude Google’s Android payers due to technological limitations.

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817-117 King Digital Entertainment

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Exhibit 13 King Digital Entertainment’s Stock Price Performance, New York Stock Exchange,
2014–2015 (in $)

Source: Capital IQ, Inc., a division of Standard & Poor‘s, accessed November 2016.

Exhibit 14 Non–Candy Crush Saga Gross Bookings

137

211
250

264

324
375

0%

10%

20%

30%

40%

50%

60%

70%

0

50

100

150

200

250

300

350

400

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

%
o

f T
ot

al
G

ro
ss

B
oo

ki
ng

s

G
ro

ss
B

oo
ki

ng
s

($
M

M
)

Non-Candy Crush Bookings % of Gross Bookings

Source: Compiled by casewriters based on company data.

Note: Non–Candy Crush Saga Gross Bookings represents total gross bookings (including Candy Crush Soda Saga)
less gross bookings from Candy Crush Saga.

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King Digital Entertainment 817-117

27

Exhibit 15 Company Information and Key Financial Data on Activision Blizzard Inc., as of
December 31, 2015

Company Information

Activision Blizzard Inc. was a developer and publisher of online, PC, video game console, handheld, mobile and
tablet games, headquartered in California. The company was the result of the 2008 merger between Activision
Inc., and a few subsidiaries of the French mass media conglomerate Vivendi S.A. (“Vivendi”). As a result of the
operation, Activision Inc. was renamed Activision Blizzard Inc. and Vivendi became a majority shareholder of
the company, which was traded on the NASDAQ Stock Exchange. On May 28, 2014, Vivendi sold approximately
50% of its then-current holdings of Activision Blizzard common stock in a registered public offering, receiving
proceeds of approximately $850 million from the sale. Activision had four operating units:

• Activision Publishing Inc. developed, distributed, and published “interactive software products and
content for a broad range of gamers, ranging from children to adults, and from core gamers to mass-
market consumers to ‘value’ buyers seeking budget-priced software, in a variety of geographies.” Its
games operated on gaming consoles, PCs, mobile and tablet devices, and were sold through both
retail and digital online channels. Its franchises included Call of Duty®, Skylanders® and Destiny®.

• Blizzard Entertainment Inc. developed, marketed and sold role-playing action and strategy games for
the PC, console, mobile and tablet platforms, such as Diablo®, StarCraft®, and the Hearthstone®:
Heroes of Warcraft™ and Heroes of the Storm™ franchises. Blizzard was also “leader in online PC
gaming, including the subscription-based massively multi-player online role-playing game
(“MMORPG”) category in terms of both subscriber base and revenues generated through its World of
Warcraft® franchise.” Blizzard maintained a proprietary online gaming service, Battle.net®, which
“facilitates the creation of user-generated content, digital distribution and online social connectivity
across all Blizzard games.” Blizzard distributed its products and generated revenues worldwide through
various means, including: “subscriptions; sales of prepaid subscription cards; in-game purchases and
services; retail sales of physical ‘boxed’ products; online download sales of PC products; purchases
and downloads via third-party console, mobile and tablet platforms; and licensing of software to third-
party or related party companies that distribute Blizzard products.”

• Media Networks was devoted to “broadcasting professionally produced eSports competitions around
the world, celebrating players and highlighting their successes.”

• Activision Blizzard Studios was devoted to create “original film and television content based on the
company’s extensive library of iconic and globally-recognized intellectual properties.”

Moreover, the Activision Blizzard Distribution business consisted of “operations in Europe that provide
warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment
software, our own publishing operations, and manufacturers of interactive entertainment hardware.”

Financial performance of Activision Blizzard, 2010–2015 (in millions)

2010 2011 2012 2013 2014 2015

Total Revenue 4,447 4,755 4,856 4,583 4,408 4,664
Gross Profit 2,312 2,983 3,194 3,052 2,883 3,079
EBITDA 996 1,514 1,571 1,559 1,286 1,419
EBIT 798 1,366 1,451 1,451 1,196 1,324
Net Income 418 1,085 1,149 1,010 835 892
Full-time Employees 7,600 7,300 6,700 6,790 6,690 7,190

Source: Compiled by casewriters based on data from public sources, and from Capital IQ, Inc., a division of Standard &
Poor‘s, accessed December 2016; all quotes come from Activision Blizzard, “Activision Blizzard—Our Company—
About us,” http://www.activisionblizzard.com/about-us, accessed September 2016; and Activision Blizzard, 2015
Annual Report, http://files.shareholder.com/downloads/ACTI/2846409547x0x887600/BE853918-329D-4E90-
ABDC-E669E9D097B9/Activision_Blizzard_2015_Annual_Report.pdf, accessed December 2016.

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817-117 King Digital Entertainment

28

Exhibit 16 Selected Examples of Acquisitions

a) selected Examples, 2002–2013 (in billions)

Year Buyer Target Price Outcome Value Target
Company in 2015

2002 Yahoo! Google 3.00 Rejected 528.45
2005 News Corporation Myspace 0.58 Completed NA
2006 Google YouTube 1.65 Completed 70.00
2007 Google Facebook 15.00 Rejected 295.98
2011 Specific Media Group Myspace 0.04 Completed NA
2012 Facebook Instagram 1.00 Completed 37.00
2013 Yahoo! Tumblr 1.10 Completed 0.35
2013 Facebook Snapchat 3.00 Rejected 19.00

Source: Compiled by casewriters based on Nicholas Carlson and Harrison Jacobs, “The 10 Companies That Tried to Buy
Facebook,” Business Insider France, April 12, 2014, http://www.businessinsider.fr/us/the-10-companies-that-tried-to-
buy-facebook-2014-3/; Michael Arrington, “Google Closes YouTube Acquisition,” TechCrunch, November 13, 2006,
https://techcrunch.com/2006/11/13/google-closes-youtube-acquisition/; Julie Verhage, “A Bank of America
Analysis Says YouTube is Worth More than 85 Percent of Companies in the S&P 500,” Bloomberg, May 27, 2015,
https://www.bloomberg.com/news/articles/2015-05-27/a-bank-of-america-analysis-says-youtube-is-worth-more-
than-85-percent-of-companies-in-the-s-p-500; Maya Kosoff, “Here’s how Two Analysts Think Instagram Could Be
Worth Up to $37 Billion,” Business Insider France, March 16, 2015, http://www.businessinsider.fr/us/instagram-
valuation-2015-3/; Andrew Nusca, “Myspace Acquired by Time Inc, Fortune’s Publisher,” Fortune, February 11, 2016,
http://fortune.com/2016/02/11/myspace-acquired-time-inc/; Chris Isidore, “Yahoo Buys Tumblr, Promises to Not
‘Screw It Up,’” CNN Tech, May 20, 2013, http://money.cnn.com/2013/05/20/technology/yahoo-buys-tumblr/;
Saqib Shah, “Tumblr’s Slow Evolution Forces Yahoo to Write down Value by Two-Thirds,” Digital Trends, July 18,
2016, http://www.digitaltrends.com/social-media/tumblr-yahoo-devaluation/; “Yahoo! has Tumbled the Market
Valuation of Tumblr to One Third,” Dazeinfo, July 19, 2016, https://dazeinfo.com/2016/07/19/yahoo-revenue-q2-
2016-tumblr-valuation/; Andrew Nusca, “Why Snapchat is worth $19 billion (or more),” Fortune, April 25, 2015,
http://fortune.com/2015/02/19/snapchat-worth-19-billion-more/, accessed January 2017.

Note: Figures are rounded; “Value Target Company” refers to the market capitalization as of December 31, 2015, for listed
companies, and to the market value as estimated by analysts in 2015 for the unlisted ones.

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King Digital Entertainment 817-117

29

b) selected Technology-Sector Acquisitions
Yahoo! and Google

Launched in 1994, the multinational technology company Yahoo! had once been “the King of the internet,”27
with a market valuation that peaked at $125 billion in 2000.28 In 1998, Larry Page and Sergey Brin, Google’s
co-founders, had tried to sell to Yahoo! for $1 million their PageRank system, the algorithm behind the search
engine Google.29 Yahoo! refused the offer; Google search engine aimed to give people fast answers by sending
them to the most relevant website, while Yahoo! directories were “designed both to answer questions and to
keep people on the Yahoo site, where they could shop, view ads, check their email, play games, and spend
more money and time, rather than less.”30 Yahoo!’s offered to buy Google for $3 billion in 2002, when Google’s
revenue was $240 million while Yahoo! one was about $837 million,31 but Page and Brin refused the offer.
While in 2004 Google’s IPO was considered a “disappointment,”32 in 2015 Google’s stock price was up more
than 1,500% from its offering price of $85, on a split-adjusted basis. Google’s market capitalization amounted
to more than $460 billion, making the company the second biggest in the world after the multinational technology
company Apple.33 In October 2015, while its stock market value amounted to $29.5 billion,34 Yahoo! signed a
deal with Google to provide some ads and search features for Yahoo!’s search results.35

Google and YouTube
In October 2006, the multinational technology company Google announced that it would buy the video-sharing
website YouTube for $1.65 billion.36 Founded in 2005, at the time of the acquisition YouTube had been defined
as “one of the world’s fastest-growing websites,”37 with an estimated 50 million users worldwide.38 However,
YouTube incurred significant costs to store and deliver the 65,000 videos that users uploaded every day,39 and
it was facing serious legal issues as many clips violated copyright law.40 While Google’s growing computer
farms could store information more cheaply, its resources could help YouTube to deal with copyright
infringement.41 Moreover, YouTube could have access to the large network of advertisers that Google
possessed.42
While analysts believed that Google had “overpaid,”43 the deal had beaten out other YouTube suitors,
including the multinational technology companies Yahoo! and Microsoft.44 Google’s clip-sharing website
“Google Videos,” had not proved as much successful as YouTube; the deal allowed Google to incorporate a
direct competitor and, eliminate competition in the video realm, a source of ad revenues.45 For example, some
analysts argued that, without this acquisition, the social network Facebook could have been able to enter in the
video sector and seize Google’s leadership position in digital advertising.46 While Google did not break out
YouTube’s financials, it was estimated that YouTube’s 2014 revenue amounted at around $4 billion and profit
was at a “roughly break even” level.47 In October 2015,48 YouTube launched “YouTube Red,” a paid program
which, amongst others, allowed members to watch YouTube’s catalogue ads-free and also offline, to obtain at
no additional cost a subscription to the music streaming service Google Play Music, and to watch a selection of
original series and movies.49

Facebook and Instagram
Instagram was a “mobile application that enables people to take photos or videos, customize them with filter
effects, and share them with friends and followers in a photo feed or send them directly to friends.” 50 Users
could share photos and videos either publicly or privately on the application and also on social networking
platforms such as Facebook and Twitter. Created by Kevin Systrom and Mike Krieger, Instagram launched on
October 6, 2010. The service soon received widespread success, being used by 1 million users just two months
after its birth. The number of Instagram users kept growing, until reaching 10 million in September 2011.51 On
April 9, 2012, Facebook announced that it had reached an agreement to acquire Instagram for approximately
$1 billion.52 Reversing its tradition of “talent acquisitions,” Facebook stated to be “committed to building and
growing Instagram independently.”53 After the acquisition, Instagram kept introducing improvements and new
features and in January 2012 it could count on 150 million monthly active users and 16 billion photos shared.
On September 22, 2015, Instagram celebrated the expansion of its community up to 400 million monthly active
users.54 The service was free and, at the time of the acquisition, it did not generate any revenue. In 2013,
Instagram introduced paid advertising, a monetization approach in line with the one of the parent company
Facebook. Given Instagram’s nature of photo sharing app, the service was soon embraced by many iconic
companies, such as Nike Inc. and Walt Disney Co., as a “natural platform for branded advertising.”55 Facebook
reported $17,928 million in revenue for 2015 but did not break down Instagram’s financials. According to market
analysts, Instagram was a $37 billion business in 2015.56

Source: Compiled by casewriters based on public sources.

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817-117 King Digital Entertainment

30

Endnotes

1 “Number of Monthly Active Users (MAU) of King Worldwide from 1st Quarter 2012 to 4th Quarter 2016 (in millions),”
Statista Portal, https://www.statista.com/statistics/281595/king-digital-entertainment-quarterly-mau/, accessed December
2016.

2 Larry Frum, “Five Years On, Millions Still Dig ‘FarmVille,’” CNN, July 31, 2014,
http://edition.cnn.com/2014/07/31/tech/gaming-gadgets/farmville-fifth-anniversary/, accessed December 2016.

3 “Toys and Games in 2016: Market Overview, Trends and What’s New in Passport,” Passport Report, September 2016,
Euromonitor International; Stephen P. Bradley and Nancy Bartlett, “Broadband and Video Games: Playing and Winning
Together,” HBS No. 9-708-440 (Boston: Harvard Business School Publishing, 2008); and Statista Portal,
https://www.statista.com/, accessed December 2016.

4 “Toys and Games: Global Trends, Developments and Prospects,” Passport Report, August 2016, Euromonitor International,
accessed December 2016. Free-to-play” or “F2P” games were games offered for free so that players did not face any upfront
cost but could purchase virtual items to enhance their gaming experience, the so-called “in-game” purchases.

5 “How the Free-To-Play Model Captured the Mobile Gaming Market, Why it’s Proven Problematic, and How to Fix it,”
Business Insider France, April 30, 2016, http://www.businessinsider.fr/us/the-mobile-gaming-report-market-size-the-free-to-
play-model-and-new-opportunities-to-market-and-monetize-2016-4/, accessed December 2016.

6 Deutsche Bank Markets Research, “King: Initiation of Coverage—It’s Good to Be the King,” May 5, 2014, via Thomson ONE
Banker, accessed September 2016.

7 Deutsche Bank Markets Research, “King: Initiation of Coverage—It’s Good to Be the King.”

8 Ben Rooney, “King Saga: The Story behind the Maker of Candy Crush Saga,” Informilo, June 19, 2014,
http://www.informilo.com/2014/06/king-saga-story-behind-maker-candy-crush-saga/, accessed December 2016

9 “Saga” is a term dating back to the early 18th century, with origins in Old Norse. Literally meaning “narrative,” saga
indicates a “long story of heroic achievement, especially a medieval prose narrative in Old Norse or Old Icelandic.” King
included the word “saga” in its trademark applications with the U.S. Patent and Trademark Office for all its games’ titles.
[Source: Oxford University Press, English Oxford Living Dictionaries, available at
https://en.oxforddictionaries.com/definition/saga, accessed November 2016.]

10 Roberto A. Ferdman, “How Many Million Active Users Will Zynga Have Lost This Quarter?,” Quartz, October 24, 2013,
http://qz.com/138971/how-many-million-active-users-will-zynga-have-lost-this-quarter/, accessed September 2016.

11 Ingrid Lunden, “King.com IPO Does Not Crush It: Shares Open at $20.50, Down Nearly 9%, Close at $19,” TechCrunch,
March 26, 2014, https://techcrunch.com/2014/03/26/king-ipo-2/, accessed September 2016.

12 Juliette Garside, “Candy Crush Creator’s Share Price Dives on First Day of Trading,” The Guardian, March 26, 2014,
https://www.theguardian.com/business/2014/mar/26/candy-crush-share-price-dives-trading-king, acc. September 2016.

13 Ben Rooney, “King Saga: The Story Behind the Maker of Candy Crush Saga.”

14 King Digital Entertainment, “IPO Prospectus,” February 18, 2014, available at U.S. Securities and Exchange Commission
(SEC), https://www.sec.gov/Archives/edgar/data/1580732/000119312514056089/d564433df1.htm, accessed December 2016.

15 King Digital Entertainment, “IPO Prospectus.”

16 “Activision Blizzard Inc. in Toys and Games (World),” Passport Report, November 2015, Euromonitor International,
accessed September 2016; and Keith Stuart, “Activision CEO Bobby Kotick on the King deal: ‘We Have an Audience of 500
Million,’” The Guardian, November 4, 2015, https://www.theguardian.com/technology/2015/nov/04/bobby-kotick-king-
deal-activision-blizzard, accessed September 2016.

17 King Digital Entertainment, “About Us—Our Team,” http://company.king.com/about-us/our-team/; and “Company
Report of King Digital Entertainment Limited,” Amadeus Database, Bureau van Dijk, accessed September 2016.

18 King Digital Entertainment, “About Us—Our Team”; “Company Report of King Digital Entertainment Limited,” Amadeus
Database; and Sebastian Knutsson’s LinkedIn Profile, available at https://www.linkedin.com/, accessed September 2016.

19 King Digital Entertainment, “About Us—Our Team”; and Thomas Hartwig’s LinkedIn Profile, available at
https://www.linkedin.com/, accessed September 2016.

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King Digital Entertainment 817-117

31

20 Lars Markgren’s LinkedIn Profile, available at https://www.linkedin.com/, accessed September 2016.

21 Patrik Stymne’s LinkedIn Profile, available at https://www.linkedin.com/, accessed September 2016.

22 King Digital Entertainment, “About Us—Our Team.”

23 Tjodolf Sommestad’s LinkedIn Profile, available at https://www.linkedin.com/, accessed September 2016.

24 King Digital Entertainment, “About Us—Our Team”; and Alex Dale’s LinkedIn Profile, available at
https://www.linkedin.com/, accessed September 2016.

25 King Digital Entertainment, “About Us—Our Team”; and Robert Miller’s LinkedIn Profile, available at
https://www.linkedin.com/, accessed September 2016.

26 “Company Report of King Digital Entertainment Limited,” Amadeus Database; and Hope Cochran’s LinkedIn Profile,
available at https://www.linkedin.com/, accessed September 2016.

27 Brian Solomon, “Yahoo Sells to Verizon in Saddest $5 Billion Deal in Tech History,” Forbes, July 25, 2016,
http://www.forbes.com/sites/briansolomon/2016/07/25/yahoo-sells-to-verizon-for-5-billion-marissa-
mayer/#40dfcab471b4, accessed December 2016.

28 Lauren Johnson, “Here’s a Timeline of Yahoo’s 22-Year History as a Digital Pioneer,” Adweek, July 25, 2016,
http://www.adweek.com/news/technology/heres-timeline-yahoo-s-22-year-history-digital-pioneer-172663, accessed
December 2016.

29 Vijay Prabhu, “There Was a Time when Yahoo Refused to Buy Google for $1 Million,” TechWorm, July 26, 2016,
http://www.techworm.net/2016/07/time-yahoo-refused-buy-google-1-million.html, accessed December 2016.

30 Gaurav Mokhasi, “Is It True that Yahoo! Turned down an Offer to Buy Google for around $1 Million in 1998?,” Quora, June
3, 2013, https://www.quora.com/Is-it-true-that-Yahoo-turned-down-an-offer-to-buy-Google-for-around-1-million-in-
1998/answer/Gaurav-Mokhasi, accessed December 2016.

31 Fred Vogelstein, “How Yahoo Blew It,” Wired, February 1, 2007, https://www.wired.com/2007/02/yahoo-3/, accessed
December 2016.

32 Jonathan Chew, “Google Went Public 11 Years ago Today,” Fortune, August 19, 2015,
http://fortune.com/2015/08/19/google-public-ipo-11-years/, accessed December 2016.

33 Jonathan Chew, “Google Went Public 11 Years ago Today.”

34 Ari Levy, “Yahoo’s Business now Worth less than Nothing,” CNBC, October 21, 2015,
http://www.cnbc.com/2015/10/21/yahoos-business-now-worth-less-than-nothing.html, accessed December 2016.

35 Lauren Johnson, “Here’s a Timeline of Yahoo’s 22-Year History as a Digital Pioneer” ; and Matt Rosoff, “Yahoo has Signed a
Deal with Google to Provide Search Ads,” Business Insider France, October 20, 2015, http://www.businessinsider.fr/us/yahoo-
just-signed-a-deal-with-google-to-provide-search-ads-2015-10/, accessed December 2016.

36 Andrew Ross Sorkin and Jeremy W. Peters, “Google to Acquire YouTube for $1.65 Billion,” New York Times, October 9, 2006,
http://www.nytimes.com/2006/10/09/business/09cnd-deal.html, accessed December 2016.

37 Victor Luckerson, “A Decade Ago, Google Bought YouTube — and It Was the Best Tech Deal Ever,” The Ringer, October 10,
2016, https://theringer.com/google-youtube-acquisition-10-years-tech-deals-69fdbe1c8a06#.j7ag3pr5m, accessed December
2016.

38 Andrew Ross Sorkin and Jeremy W. Peters, “Google to Acquire YouTube for $1.65 Billion.”

39 “Google and YouTube—Two Kings Get together,” The Economist, October 12, 2006,
http://www.economist.com/node/8031159, accessed December 2016.

40 Andrew Ross Sorkin and Jeremy W. Peters, “Google to Acquire YouTube for $1.65 Billion.”

41 Andrew Ross Sorkin and Jeremy W. Peters, “Google to Acquire YouTube for $1.65 Billion”; and “Google and YouTube—
Two Kings Get together,” The Economist.

42 “Google and YouTube—Two Kings Get together,” The Economist.

43 Victor Luckerson, “A Decade Ago, Google Bought YouTube — and It Was the Best Tech Deal Ever.”

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817-117 King Digital Entertainment

32

44 Andrew Ross Sorkin and Jeremy W. Peters, “Google to Acquire YouTube for $1.65 Billion.”

45 “Google Ad Revenue Growth to Drop to Single Digits This Year,” eMarketer, April 20, 2016,
https://www.emarketer.com/Article/Google-Ad-Revenue-Growth-Drop-Single-Digits-This-Year/1013853, accessed
December 2016.

46 Victor Luckerson, “A Decade Ago, Google Bought YouTube — and It Was the Best Tech Deal Ever.”

47 Alexei Oreskovic, “How Much Money Does YouTube Make? Don’t Ask the New CFO,” Business Insider, July 16, 2015,
http://www.businessinsider.com/google-cfo-doesnt-disclose-youtube-financial-results-2015-7?IR=T, accessed December 2016.

48 Ben Popper, “Red Dawn—An inside Look at YouTube’s New ad-free Subscription Service,” The Verge, October 21, 2015,
http://www.theverge.com/2015/10/21/9566973/youtube-red-ad-free-offline-paid-subscription-service, accessed December
2016.

49 YouTube, “Join YouTube Red,” https://support.google.com/youtube/answer/6305537?hl=en, accessed December 2016.

50 Facebook, 2015 Annual Report, https://s21.q4cdn.com/399680738/files/doc_financials/annual_reports/2015-Annual-
Report.pdf, accessed December 2016.

51 Geoff Desreumaux, “The Complete History of Instagram,” WeRSM, January 3, 2014, http://wersm.com/the-complete-
history-of-instagram/, accessed December 2016.

52 Shayndi Raice and Spencer E. Ante, “Insta-Rich: $1 Billion for Instagram,” Wall Street Journal, April 10, 2012,
http://www.wsj.com/articles/SB10001424052702303815404577333840377381670, accessed December 2016.

53 “Facebook to Acquire Instagram,” Facebook press release, April 9, 2012,
http://newsroom.fb.com/news/2012/04/facebook-to-acquire-instagram/, accessed December 2016.

54 “Celebrating a Community of 400 Million,” Instagram press release, September 22, 2015,
https://www.instagram.com/press/, accessed December 2016.

55 Ellen Simon, “How Instagram Makes Money,” Investopedia, November 28, 2016,
http://www.investopedia.com/articles/personal-finance/030915/how-instagram-makes-money.asp, accessed December
2016.

56 Maya Kosoff, “Here’s How Two Analysts Think Instagram Could Be Worth up to $37 Billion,” Business Insider France, March
16, 2015, http://www.businessinsider.fr/us/instagram-valuation-2015-3/, accessed December 2016.

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Topic 10b – Course Wrap / Debiasing

© Ye Li 2020. This content is protected and may not be shared, uploaded or distributed. 1

Course Wrap and Debiasing

All rights reserved © Ye Li
This content is protected and may not be shared, uploaded or distributed.

Course Wrap: Agenda

• Chat about categories of errors and tools for
de-biasing
– Examples from the real world

• A quick overview, emphasizing
– Applications (mini-cases)
– Why these effects happen

Topic 10b – Course Wrap / Debiasing

© Ye Li 2020. This content is protected and may not be shared, uploaded or distributed. 2

Meta-Note 1:
Economics vs. Behavioral Economics

• Economics is not always wrong

• Economics (usually) describes what you SHOULD be
doing (normative view)
– But people are systematically biased (descriptive view)

Starting Assumption Observation

Homo economicus
(econs)

People are rational,
respond to incentives

Homo sapiens
(humans)

Sometimes they don’tIncorrect View

Food? Flight? Fight? Mate?

Meta-Note 2: Evolution adapted to
environmental pressures, not modern ones

• Yet, human ingenuity is responsible for wonders of the
modern world, and our rationality is multiplied by reason,
intellectual curiosity, and open debate

Topic 10b – Course Wrap / Debiasing

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How to de-bias: Categories of “Errors”

• Association (memory-based) errors
– Big 3 heuristics: Availability, representativeness,

anchoring

• Psychophysical (sensory) errors
– Visual illusions, loss aversion, temporal discounting

• Strategy (bad problem-solving) errors
– Good heuristics gone bad: Reason-based choice,

automatic thinking, naïve diversification, etc.

Tools for Debiasing

• Association/Memory:
– Activating the opposite or unassociated memories

 Why isn’t this the right anchor? What’s a different analogy? Why might I
be wrong? What if the opposite is true?

– Keep a record rather than relying on memory

• Psychophysical/Sensory:
– Try a different perspective/frame:

 Can I see things in a gain frame?
 What would I say if I were giving someone else advice?
 How will I feel about it in 10 minutes? 10 months? 10 years? (Suzy

Welch)

• Strategy/Problem Solving:
– Use multiple models (like a cognitive sensitivity analysis)

Topic 10b – Course Wrap / Debiasing

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Debiasing Applied

• Use models, not intuition, to value players
– We have limited memories and are affected by biases
– Regression models can point out tradeoffs (e.g., money

vs. performance) that we might not see…
– Find variables that are neglected (not obvious), but

make a difference

• Did “sabermetrics” work?
– From 1998 to 2006…Yes! Oakland A’s won way more

than their payroll would predict (very high efficiency)
– 2002, the A’s won 20 games in a row (longest MLB

winning streak since 1935 Cubs won 21 in a row!)
– But the success didn’t last. What happened?

Values: Loss Aversion,
Mental Accounting, Discounting

Risk and Probabilities

Automatic Behavior

Organizations
and Markets

Topic 10b – Course Wrap / Debiasing

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Context-Sensitivity of Losses

• Loss aversion makes people reluctant to switch
from the status quo…

• And makes them do things they otherwise
wouldn’t…

• Losses are in the eye of the beholder, and
(largely) in the hands of the reference-
setter
– Shifting reference points can change choices, even if

the options are identical

…in part, because context gives people
REASONS to choose

To which parent would you award sole custody of the
child?

To which parent would you deny sole custody of the
child?

• Parent A
– average income, average health, average working hours,

reasonable rapport with the child, relatively stable social life

• Parent B
– above-average income, very close relationship with the child,

extremely active social life, lots of work-related travel,
minor health problems

(64% parent B)

(55% parent B)

Topic 10b – Course Wrap / Debiasing

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Because without a reason…
Iyengar & Lepper, 2000

• Choice overload!
• Two tasting booths

A. Few (6) jams
B. Many (24) jams

• Difficult to make
choice  Choice
avoidance or
deferral

Values: Mental Accounting

• People don’t have a single utility
account

• Accounts are narrow
– Topical, short time frame

• History of investment of effort,
money matters

• Bigger effects because of the
concreteness principle: People
don’t spontaneously reframe

Topic 10b – Course Wrap / Debiasing

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Using Mental Accounting and
Hedonic Editing for Pricing

1. The Silver Lining Principle
– Generate and mix in a small positive outcome

2. Integrate Losses
– Don’t present a price in its parts and bundle “small”

costs into a big purchase

3. Decoupling Payment from Consumption
– Make it hard to connect payment with consumption

4. Pennies-a-Day Framing
5. Price Partitioning

Onto the next topic: What’s this effect?

• Present Bias!

• Dynamic Inconsistency:
– I want A now, but then do B later (e.g., New Years

resolutions, diets, quitting smoking)

224%

47%
21%

70%

0%

50%

100%

150%

200%

250%

0 12 24 36 48 60 72 84 96 108 120

D
is
co
u
n
t
R
a
te
(
A
n
n
u
a
l)

Months Waiting

$85

$5,500

Topic 10b – Course Wrap / Debiasing

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“Curing” your myopia
• Remove temptation (but that’s hard)
• Increase the cost of bad behavior, reduce cost of good behavior

– E.g., asking to be cold called
• Avoid decisions when sad, think about what you’re grateful for
• Connect with the future you who will suffer if you behave badly

• Using ease of recall/construction to make
probabilistic or evaluative judgment

• Examples:

• Availability and product attributes
– Peripheral stuff, like music, even weather
– Mere measurement (do you plan to get a new phone?)

Availability

Topic 10b – Course Wrap / Debiasing

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Representativeness

• Making predictions and evaluations based on similarity
to stereotypes and salient examples
– Problems: Disregards sample size, statistical concerns

• Examples:

Lesson: Create similarity. For example:
Spectral is like splicing Black Hawk Down
with Ghostbusters

Overconfidence

• Overconfidence is pervasive
– Thinking you’re better than you are
– Thinking you know more than you do

• What to do?
– Ask disconfirming questions
– Keep records and adjust confidence estimates

• Remember that confidence has a public face and a private face
• Overconfidence can

– Help win your colleagues’
support for projects

– Help you sink putts
– End your marriage/career
– Kill you on Mount Everest
– Cause a financial crisis

0%

10%

20%

30%

40%

50%

Percentile (relative to rest of class)

Your grades

Topic 10b – Course Wrap / Debiasing

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Mindless Decision Making

• Many choices aren’t much of a choice at all
– Think of all the crazy stuff you do in the grocery store

• Even when choices are made, they are made on a
small subset of options

– Controlling the consideration set
means controlling choice

– Brand memory (when choices are made) is crucial

Organizational Views

• Outside View: Look at other cases, statistical,
base rates of success

• Inside View: Being too focused on the case at
hand and its immediate obstacles
– Often leads to overconfidence

Topic 10b – Course Wrap / Debiasing

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Meta-Note 3: The long-term view

• Is this course about a
set of ‘tricks’…?
– Inflict these on your

competitors and
customers

– Avoid them when you
are the target

• Where is the market
equilibrium there?

• Or should business
leaders be responsible
to help?
– E.g., imagine the value

created in financial
services that debias
investors…

– Can that be captured?

• Virtuous circles are
preferable to vicious
ones

Nudge for good!

• My challenge to you:
– Use your class knowledge to

make better decisions every
day

– Try to improve your own
and other people’s lives!

• For more, read the whole
book. It might help you on
an interview!

Topic 10b – Course Wrap / Debiasing

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Make decisions that make you happy!

• Lesson 1: Everything is relative!
– Louis CK: “Flying is the worst one because people come back from

flights and they’re telling you their story, and it’s like a horror story…
They’re like, ‘it was the worst day of my life! First of all, we didn’t board
for like 20 minutes and then they made us sit there on the runway for
40 minutes!’ Oh really? What happened next? Did you FLY in the AIR
incredibly like a BIRD? Did you partake in the miracle of human
flight…?! You’re sitting in a chair in the SKY! Here’s the thing: People say
there’s delays. Really? New York to California in 5 hours. That used to
take 30 years! And a bunch of you would die on the way there… Now,
you watch a movie, you take a dump, and you’re home!”

• Lesson 2: People underappreciate adaptation
– Implication 1: Everything’s gonna be alright
– Implication 2: Trying to add the 6th or 7th zero to your annual income

likely isn’t the best use of your time

• Lesson 3: Spend your time and money wisely (i.e., happily)