Ukrainian online games make money for the U.S. and Israel

Many people are familiar with Ukraine through such major gaming projects as World of Tanks and World of Warplanes, which were actively developed with involvement of the largest Kyiv studio Persha and Metro 2033 developed by 4AGames, the Survarium project developed by Vostok Games, as well as Warface developed by Crytek Kiev. Until recently, those challenging games created by hundreds of Ukrainian developers have been the core of the Ukrainian gaming market.

Social networks and mobile platforms created monsters

Over the last 3–4 years, however, Ukraine has become a haven for developers of much simpler, yet mainstream, games for such social networks as Facebook, Vkontakte, Odnoklassniki and the Android and iOS platforms. Our country is home to giants, whose games are installed by tens of millions of people worldwide.

Capital made a list of the Top 8 largest projects associated with Ukraine. Those are domestic publishers, as well as independent major networks of Ukrainian development offices, which are employed by large foreign players. “Most large companies are not residents of Ukraine from the legal standpoint due to undeveloped copyright legislation and other issues critical for IT specialists. Accordingly, they are called Ukrainian companies only figuratively,” says CEO at Nravo Andriy Tabachyn.

“The peculiarity of the Ukrainian GameDev (Game Development) market is that the major players are in fact foreign companies with decision-making centers far beyond the borders of Ukraine,” confirms CEO at Nika Enterntainment Tetyana Yevdokymenko. She named the companies, whose multiplatform games held the top positions in Facebook, AppStore and Google Play: “Plarium’s headquarters are located in Israel, Gameloft – in France, and Zeptolab – in Russia”.

The manager mentioned another important reason for Ukraine not being on the “legal” map of the world: “For a long time our country was not even on the list of countries allowed to register a fully-featured Google Developer account. That means Ukrainian companies were able to release their products on international markets, but could not get paid.” By the way, Nika Entertainment is one of the few Ukrainian companies operating on a full production cycle on the market of mobile and social games. That means that it releases finished products.

Being in the right place at the right time

Splitting from major outsourcing companies more Ukrainian teams are trying to develop and promote their own games. “Development of a big game for social networks may cost more than US $200,000. But in case the game becomes a top-rated hit the investment pays off,” says Roman Dzyhovskiy with Nravo.

In addition to the classic monetization of games, (free games, but paid upgrades and updates) there are other options for turning a profit. For example, advertising, franchising of characters in the advertising industry, production of branded paraphernalia and product placement. The standard scheme of distribution of profits from games in Odnoklassniki and Vkontakte usually varies in the range of 50/50 between the developer and the platform. This ratio may be 58/42 and 55/45.

Social and mobile games, just like mobile operators, have a key indicator of business profitability ARPU (average revenue per user). Representatives of the Ukrainian GameDev sector say this figure is often very peculiar and private. Therefore, it is virtually impossible to calculate the amount of an average check. Although spokesman for Wargaming Serhiy Halenkin notes that Ukrainian studios make on their games in different countries as much as publishers from other countries. The only exception is that the players’ average check in Ukraine is slightly lower. But this indicator can be neglected, because there are not that many active players in our country.

The ARPU of mobile games in Eastern Europe is practically the lowest in the world – only US $1.27, according to studies conducted by Applift and Newzoo. It is lower only in Africa. Ukrainian developers and publishers of games make most of their money in the U.S. (ARPU US $3.87) and Western Europe (US $4.4 per user).

Ukraine does not count

Given that only every third player actually pays for the games, one million users will bring the game up to a few millions of monthly gross income in Western Europe and the U.S. Even if half of it goes to the platform, such business conditions help make very quick returns on investments and start developing new games by hiring more designers, software engineers and marketers. Such prospects attract even Ukrainian oligarchs to this business. Perhaps, this is why last year Continuum SC, associated with Ihor Yeremeyev, invested in the development of Nravo in Lviv.

The growth rates of successful projects are striking. For example, according to Chief Communications Manager of the U.S. company Noosphere (it owns the gaming publisher Renatus) Tetyana Snopko, over the period Q3 2013–Q3 2014, the total number of users of its games increased from 10 mn to 50 mn and its profit increased by 3.5 times. Yet, the company does not disclose any absolute numbers. By the way, most of the company’s active players are using Facebook (88%).

Obviously, the aggregate turnover of all games created in Ukraine amounts to hundreds of millions of dollars. However, the market players do not give even rough estimates. At the same time, the Ukrainian domestic market is very small and companies practically do not take this into account. “Some sources say that the Ukrainian gaming market is 2.5 times larger than that in Belarus, but 7 times smaller than the market in Russia. But I would not be so sure about the accuracy of such figures,” says Tabachyn. According to the latest data published by Superdata Research, this year the entire market of digital games in Ukraine will be only US $68 mn, while the Russian market will reach the level of US $1.1 bn. The market of Eastern Europe is US $2.2 bn. This year Ukrainians will spend US $16 mn on social games, according to the study.

Who are the giants?

Once again, due to the fact that there is no official data on Ukraine’s place in the world of mobile and social games, the largest deals on the sale of our developers go unnoticed in our country. For example, Playtika, which appears in media all over the world as Israeli’s most successful startup in 2010, was sold a few years ago to the U.S. company working in the entertainment studio Caesars Interactive Entertainment for US $80 mn. In Ukraine Playtika has an office of 200 developers in Vinnytsya alone. Another example of a large and “secret” deal: Vinnytsia social games development studio Orneon was bought in 2012 for US $15 mn by one of Europe’s largest digital entertainment companies Bwin.party.

Perhaps the biggest game project “growing on Ukrainian yeast” is the Israeli company Plarium (its founders are Israeli immigrants from Georgia). Its representative said that in Ukrainian game studios the company had approximately 800 employees, while in Israel – only 150. The Israeli economic publication Calcalist recently reported that the market value of the company at year-end could exceed US $1 bn. The company’s turnover has reached US $100 mn, according to Wired.

Even if companies grow into giants in Ukraine and have Ukrainian founders, there is a high probability that they will still open central sales offices abroad. “In 2006–2012 we had offices only in Ukraine. In 2012, we opened one abroad – in Hamburg. That is our marketing department. We also have representative offices in some European countries and the U.S., which are engaged in marketing and sales,” says PR Manager at iLogos Yevhenia Prytula. The company was founded by Ukrainian Maksym Slobodyayunk in 2006. He is currently working on a new Ukrainian project Nika Entertainment based on AAA Games purchased in 2013. Over a year, 40 million users played Nika’s games.

Stakes on mobile games

In the future, more Ukrainian developers will focus on games for mobile software. All present-day multiplatform games are developed taking the handsets into account. “Now we can clearly see that more players prefer portable gadgets – smartphones and tablets. All iconic games are redeveloped for mobile devices. Statistics show that gadget users spend more than 60% of their time in the Internet on social networks, including games developed for them,” said representative of Nravo Roman Dzyhovskiy. “By the end of 2014, we plan to release three new games, as well as mobile versions for several games, which have already shown good results on Facebook,” confirms Snopko.