Sweden’s gaming startup boom following success of Minecraft and Candy Crush

Swedish game development startups are popping up like mushrooms after summer rains. This growth suggests that the next global hit from the country that gave the world Minecraft and Candy Crush may be out there for investors to discover.

The industry added 40 new companies in 2015 in an explosive expansion that shows no signs of abating, according to an association that represents Swedish game developers. Their next figures are due in September.

“We see no indications of anything but that the development will continue,” Per Stromback, a spokesman for the Swedish Games Industry, said by phone. “One sign of that is the employment needs. Most of our members report vacancies, and a small survey shows that some plan to hire at least 500 people in the next 12 months.”

Swedish gaming has gained a global reputation through some attention-grabbing M&A - most notably Activision Blizzard $5.9bn acquisition of Swedish-founded Candy Crush developer King Digital Entertainment. That 2016 deal followed Microsoft’s $2.5bn purchase of Minecraft creator Mojang AB in 2014. The transactions underscore the rewards that could be reaped from savvy investment in Swedish gaming companies, said Mr Stromback.

“The well-known acquisitions of Mojang AB and King have led to something that we’ve pointed out for a long time: that Swedish investors and pension savers are missing out on a lot of value, as they’re not participating in these journeys, entering early and exiting to high values,” he said.

Artists with passion

Turnover among Swedish game companies almost doubled between 2013 and 2015, increasing by 39 per cent to about €1.3bn (£1.1bn) in 2015 alone and closing in on the value of Sweden’s truck exports, which were about $1.5bn that year, according to the Swedish Game Developer Index 2016.

Globally, 2016 was the first time when revenue from computer games exceeded $100bn in a single year, a report published by the London-based venture capital firm Atomico shows. Last year also saw China overtaking the US as the “gamer capital of the world” in terms of market size.

In addition to developing original titles, Star Wars, Mad Max, The Walking Dead, Vampire: The Masquerade and Tom Clancy are among entertainment brands that Swedish companies have reinvented as games. The country’s prosperity and early widespread internet penetration probably played a role in the development of a strong gaming industry, said Lars-Ola Hellstrom, an analyst at Pareto Securities in Oslo.

“Many of the game developers do what they do because it’s a passion, not to earn money,” Mr Hellstrom said by phone. “That, I believe, makes a huge difference. The game developers are artists, and in that way it’s very similar to the music industry, where Sweden has been very successful.”

Earnings from trademarked games and developing products licensed by film studios are helping Swedish developers expand, Mr Stromback said. Ubisoft reported in March 2016 that Tom Clancy’s The Division made by its Malmo-based Massive Entertainment unit was the fastest-selling brand yet. “And now they’ve got Avatar,” Mr Stromback said. Massive said in February that it would be producing a game based on the James Cameron film. There is no release date yet.

Sweden’s relatively small domestic market has pushed gaming companies to make their products good enough to win over enthusiasts abroad, Mr Stromback said. Other factors driving its success are as basic as the Nordic weather, which leaves Swedes looking for indoor entertainment. And, says Mr Stromback, possibly even an industriousness driven by the Protestant work ethic.

“It’s been hammered into us that we’re not good enough, that we need to work harder, and that the reward lies somewhere in the distant future,” he said. “Making a computer game isn’t entirely different from moving stones in some woodland to grow the soil.”

Bloomberg