Remedy Issues Statement Regarding Control Earnings Reported by Digital Bros S.p.A. (505 Games)
This afternoon, Remedy Entertainment issued a statement via press release regarding the speculation that went rampant after Digital Bros S.p.A. (the holding company behind publisher 505 Games) revealed the earnings they got from Control during their quarterly report, which was published yesterday.
According to the report, Control contributed to about €17.7 million in revenue for the publisher. At first glance, this didn't exactly seem to bode very well for the game, whose development costs were somewhere between $20 and 30 million as previously stated by Remedy.
However, the Finnish studio wanted to clarify that it would be wrong to make such inferences from that earning report. They also added the company is still expected to grow revenue and profit over the remainder of the fiscal year.
On Wednesday 13th November 2019, Digital Bros S.p.A. – the publishing partner of Remedy Entertainment Plc – released their first quarterly report of the financial year that started in July 2019. The report also covered the revenue recognition regarding sales of the Remedy-developed game Control, which was released on 27th August 2019. Digital Bros S.p.A. disclosed €17.7M of Control game sales recognition during 1.7.–30.9.2019. Also prior to this, Digital Bros S.p.A. had reported a revenue recognition of €9.5M during the financial year 1.7.2018–30.6.2019 based on the exclusive agreement regarding the distribution of Control’s PC version on Epic Games Store.
On May 3rd 2017, Remedy announced the signing of a publishing agreement with Digital Bros S.p.A. regarding the Control game, and disclosed Remedy to receive 45% of game sales net revenue. The revenue share is calculated from net sales, which takes into account deductions such as retail and marketing costs of the game. Once the game starts to sell and before paying the game developer, the publisher is typically allowed to deduct upfront specific costs, such as manufacturing and distribution costs of physical game copies as well as marketing costs.
Additionally, revenue recognition practices differ between Remedy and Digital Bros S.p.A., as Remedy reports based on FAS and Digital Bros S.p.A. reports based on IFRS. Therefore, the figures reported by the companies are not comparable. Based on the aforementioned reasons and especially during the early phases of the game’s sales, Control’s revenue recognition to Remedy takes place with a delay and no direct conclusions can be drawn as to the recognition of net sales share based on the figures reported by Digital Bros S.p.A.
Remedy is commenting this matter with a company announcement as publicly available reports regarding the estimates of Control game sales revenue recognition do not – for the reasons described above – reflect the actual amount or timing of the 45 % net sales revenue to be recognised by Remedy.
Remedy’s outlook remains unchanged as the company expects its revenue and profit to grow during 2019, as mentioned in the half-year report released on August 13th 2019.
It is good news indeed, as Control is a great action/adventure game.