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Earlier this year we covered Paradox Interactive's (FRA:ETA) strong first quarter. The quarter in question was driven by the success of the company's long-tail strategy of continual support of their games with a host of DLC packs.
This strategy has proven successful for the company and has led to an even bigger second quarter. For the three months ending June 30th, revenues of 289.4 Million SEK were revealed. This is a year on year revenue growth of 23.2%. Profits also grew 14.1% year on year, reaching 162.3m SEK.
Paradox and the Long Tail Strategy
Frederik Wester, CEO of Paradox Interactive, mentioned some of the long running myths of the games industry in the interim report. These myths dictate that the success or failure of a game is determined by first-week sales and that only full-priced games contribute towards revenue. This is from the by-gone era of primarily physical sales from retail stores.
The reason this is mentioned is because of how Paradox have moved away from this line of thinking. Paradox count on a long tail of sales to generate a large amount of their revenue. This long tail is fuelled by later purchases of titles, sometimes at a discounted price, and DLC for their releases. New releases do, of course, contribute greatly to this revenue stream.
Nothing exemplifies this more than the company's second quarter. One new title was released during the quarter, Steel Division: Normandy 44. Developed by Eugen Systems, Paradox joined the project late into development and took co-publishing responsibilities. What was revealed is that pre-orders of Steel Division surpassed all expectations and has led to the title taking a prominent position in their portfolio.
Working with this long tail strategy is the fact that Paradox don't plan on at least one release being a mammoth hit. They count on longer sales and DLC support to fuel steady growth. A significant number of expansions were released for a variety of titles during the quarter. Mandate of Heaven and Third Rome were both released for Europa Universalis IV. Hearts of Iron IV saw the release of Death or Dishonor. Stellaris also saw the release of the Utopia expansion, which has become the company's best-selling expansion to date.
Planning for the Future
What should be noted is that while the company does focus on a longer strategy, they always put plans in place if a game does happen to be a breakout success. This is highlighted best by Cities: Skylines. In addition to seeing a number of DLC released for the title, it was also released on the Xbox One this quarter. Furthermore, plans are for a PS4 release.
As well as Cities: Skylines, consoles will also see the release of Pillars of Eternity: Complete Edition for both the Xbox One and PS4 this quarter. The current quarter will, however, see no other large named releases.
What was revealed towards the end of the quarter was the purchase of Triumph Studios. What should be noted is that the purchase itself occurred during the current quarter. Triumph, the developers of titles like Age of Wonders and Overlord are similar in ways to Paradox. They focus on what are considered niche areas, but have a dedicated following. What was also announced is that the company has projects in the making and that all of them will remain in development.
Paradox themselves also revealed a few titles. BattleTech. Developed by Harebrained Schemes, was announced and was planned for release sometime within 2017. This, however, has seen itself delayed until 2018. Surviving Mars, developed by Haemimont Games, will also find itself released sometime in 2018.
Last quarter I predicted that Q2 would be a strong one for the company, with increased movement by the company. This has turned out to be true in more ways than I imagined. The purchase of Triumph Studios has added greatly to the company's already strong portfolio and a number of expansions and new releases has boosted the company.
The current quarter will likely see a small downtick compared to Q2 as a result of limited releases. While this may look negative, it isn't. Paradox are a company that highlight just how a game over a year old can generate significant revenue and support future growth. What you will likely see are announcements for the near future in both expansions and full-fledged titles, as well as a strong year overall.