2000 words Write-up about Managerial Decision Making

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JEFFREY F. RAYPORT

D A V I D E SOLA

FEDERICA GABRIELi

ELENA CORSI

HARVARD BUSINESS

King Digital Entertainment The player cornes first in even;thing ·we do. Player is King.

SCHOOL

9-817-117 REV: J A N U A R Y 17, 2019

- King Digital Entertainment, IPO Prospectus

In mid-2015, Riccardo Zacconi, C E O 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 g r o u n d - 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 compellin g, 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

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 permi s sion to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, M A 02163, or go to w w w .hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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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 imrnersive 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 g a m e s - i n particular, free-to-play g a m e s - 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 wit!, traditional video game publishers like Activision Blizzard and Electronic Arts, whose portfolios included console games in addition to casual offerings (see Exhibit7).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 C E O 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 Tedmology 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 rnid-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. A t 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 Fam1 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 rnid-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 i m m e d i a t e l y - a n d 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, " W e 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, " W e 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. " W e 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, " A t 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, 1 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 £or 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 llmaintain 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. O f 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. Knutssonsaid, "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 multi player 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 n1agic 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 " g r een 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 gan1e. 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 gan1es 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 tearn focused on developing new features, creating live ops, and improving the game experience. Game tean1S 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 ten1plates 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. Cnndy Crush' s group has about SO 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 n1arketing 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 Cnndy Crush Saga or Bubble Witch Saga or Farm Heroes Sagn. 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. 16 As 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 Ad Words? 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 Lnstagram to Facebook, and those that sold just in time, such as Myspace to News Corporation or Tumblr to Yahoo! At its co.re, 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 Gan1es Categories

Video Games

Video Games Video Games Hardware Software

Video Games Video Games Static Consoles - Software Software

(Physical) (Digital)

Hand-held Consoles - Computer Computer Games - Games

(Physical) {DiRltal) Gaming - Console Console Accessories

Games - Games {Physical) {Digital) - Toys-to-Ufe

Mobile Games - AR/YR - Headsets

Online - - Other Gaming

Accessories

Source: Adapted by casewriters from "Toys a.nd Games: Global Trends, Developments and Prospects," Passport Report, August 2016, Euromonitor lntemational, accessed December 2016.

b) Overview of the Video Games Lndustry, 2001-2015 (in$ millions)

120000

100000

80000

60000

40000

20000

- ----- ... __________ , _ - -

.,,. _ ...... ______ _

- -- --

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

- - • T o t a l Hardware - - Software

Source: Compiled by casewriters based on data from P,1ssport GMID, Euromonitor International, accessed December 2016.

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

35 35%

0 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)

0 Asia Pacific

North America

Western Europe

Eastern Europe

Latin Middle East America and Africa

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

Exhibit 3 Electronic Games Sales and In-Gan1e Purchases

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

, 0

I 100

"' eo 2

2 .., § :>O

,. Source: "Toys and Games in 2016: Market Overview, Trends and What's New in Pas, port," 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 Platfom1, 2015-2020

100

Moe• e Garnes

10 O r f i r e Ga-1""6

.,. 5 0 ◄O

3 0 Cotrlpu1:t1 G3r-:es

10 C,,nso G4mes

0 201s :!016 :NIii 2018 2019 2L.":I

Source: Adapted by casewrite.rs from "Toys and Games: Global Trends, Developments and Prospects," Passport Report, August 2016, Euromonitor lnte.mational, accessed December 2016.

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

l!0

3 0

10 .1 0 2015 2020

■ e o n . . . . . G a m 0 $ • C c , n p u l e r O - • O t w n e G . - . m n • M o b o l t o . n -

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)

300

250

200

150

100

Asia Pacific North Middle East Latin America and Africa America

Western Europe

Eastern Europe

Source; Adapted by casewrlters based on data from Statista Portal, https;/ / w w w .statista.com/, accessed December 2016.

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

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

1,600. 1,423.9

1,400.

1,200.

1,000.

800.

600.

400.

200.

0. 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)

100.

80.

60.

40.

20.

48.62

2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Adapll'<I by casewrite,rs based on data from Statista Portal, https:/ /www.statlsta.com/, accessed Dece,mber 2016.

817-117

Year

2007 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2011 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2015 2015

SoW'Ce:

King Digital Entertainment

Selected Releases of Smartphones, Tablet Devices, and G a m i n g Consoles, 2007-2015

Product

iPhone iPhone 3G Nintendo DSi iPhone 3GS Nintendo DSi XL PlayStation Portable (PSP) Go PlayStation 3 Slim iPhone 4 Samsung Nexus S Samsung Galaxy S LG Optimus One HTC Desire iPad Galaxy Tab 7.0 iPhone 4s Lumia 800 Samsung Galaxy S2 Nintendo 3DS PlayStation Vita iPad 2 Galaxy Tab 8.9 iPhone 5 Samsung Galaxy S3 Nokia Lumia 920 HTC One S Nintendo 3DS XL WiiU New iPad and iPad Mini Microsoft Surface Nexus 7 iPhone 5s and iPhone Sc Samsung Galaxy S4 HTC One (M7) Google Nexus 5 Nintendo 2DS Xbox One PlayStation 4 (PS4) iPad Air and iPad Mini 2 Samsung Galaxy Tab 3 iPhone 6 and iPhone 6 plus Samsung Galaxy S5 Nokia Lumla 930 Sony Xperia 23 New Nintendo 3DS and 3DS XL iPad Air 2 and iPad Mini 3 Samsung Galaxy Tab S iPhone 6s and iPhone 6s Plus Samsung Galaxy S6

Manufacturer Category

Apple Smartphone Apple Smartphone Nintendo Hand-held console Apple Smartphone Nintendo Hand-held console Sony Hand-held console Sony Home console Apple Smartphone Google and Samsung Smartphone Samsung Smartphone LG Smartphone HTC Smartphone Apple Tablet Samsung Tablet Apple Smartphone Nokia Smartphone Samsung Smartphone Nintendo Hand-held console Sony Hand-held console Apple Tablet Samsung Tablet Apple Smartphone Samsung Smartphone Microsoft Smartphone HTC Smartphone Nintendo Hand-held console Nintendo Home console Apple Tablet Microsoft Tablet Google and Asus Tablet Apple Smartphone Samsung Smartphone HTC Smartphone Google and LG Smartphone Nintendo Hand-held console Microsoft Home console Sony Home console Apple Tablet Samsung Tablet Apple Smartphone Samsung Smartphone Microsoft Smartphone Sony Smartphone Nintendo Hand-held console Apple Tablet Samsung Tablet Apple Smartphone Samsung Smartphone

Compiled by casewriters based on Jeff Desjardins, "The History and Evolution or the Video Games Market,# Vis11a/ Capitalist, January 11, 2017, hUp:/ /www.vlsuakapitalist.com/history-video-games-market/; Al Sacco, "iPhone Evolution, Release Tlmellne and Memorable Moments," C/0 from IDG, September 11, 2013,

King Digital Entertainment 817-117

http:/ /www.cio.com/artlcJe/2369744/apple-phone/apple-phone-119363-iphone-evolution-limeline-and- not-able-moments.hlml#slidel; Ross Miller, "From Game Boy lo the New 3 0 5 XL, TI,is is the Full History of Nintendo's Handheld Dominance," TT,e Verge, August 29, 2004, http://www.theverge.com/2014/8 / 2 9 / 6082561 / nintendo-game-boy-3ds-xl-ti meline; "Tim el ine of Computer History-Graphics & Games," available al http:/ /www.compulerhistory.org/tirneline/graphics-games/; Jacob Kastrenakes, "The iPad's 5th Anniversary: a Timeline of Apple's Category-Defining Tablet," TT,e Verge, April 3, 2015, http://www.thevergc.com/2015/ 4/3/8339599/ apple-ipad-five-years-old-limeline-photos- videos; Philip Elmer-DeWill, "Where are the smartphones of yesteryear?," Fort11ne, August 12, 2001, http:/ /tech.fortune.cnn.com/2011/08/12/where-are-the-smartphones-of-yesteryear/; Mall Brian, "The 6 Best Smart phones O f 2012," TT1e Next Web, December 23, 2012, http://u,enextweb.com/ mobile/2012/12/23 / the-6- besl-smartphones-<if-2012/; Matthew Miller, "Top 10 smartphones of 2013: TI1ere's One that's best," ZDNet, December 11, 2013, http://www.zdnet.com/article/top-10-smartphones-of-2013-theres-one-thats-be!-t/; Ben Woods, "11 of the best smartphones thal launched in 2014," n,e Next Web, December 30, 2004, http://thenextweb.com/ gadgets/2014 / 1 2 / 30/11-best--smarlphones-launched-2014 / , accessed January 2017.

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

Company Name

Microsoft Corporation Sony Corporation Tencent Holdings Limited BANDAI NAMCO Holdings Inc. Activision Blizzard Inc. Nintendo Co. Ltd. Electronic Arts Inc. Supercell Oy King Digital Entertainment pie. Ubisoft Entertainment SA GunHo Online Entertainment Inc. DeNA Co. Ltd. GREE Inc. Zynga Inc.

Headquarters

Redmond, WA, U.S. Tokyo, Japan Shenzhen, China Tokyo, Japan Santa Monica, CA, U.S. Kyoto, Japan Redwood City, CA, U.S. Helsinki, Finland Dublin, Ireland Montreuil, France Tokyo, Japan Tokyo, Japan Tokyo, Japan San Francisco, CA, U.S.

Revenue

93.6 72.1 15.8

5.1 4.7 4.5 4.4 2.2

2 1.6 1.3 1.3 0.8 0.8

Source: Compiled by casewriters based on dat.a 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 N A M C O Holdings Inc.; Ubisoft Entertainment SA; DeNA Co. Ltd. Fiscal year ended December 31, 2015, for Tencent Holding Ltd.; Activision Blizzard Inc.; King Digital Entertainment pie; Gun Ho Onli.ne Entertainment Inc.; Zynga Inc. Fiscal year ended June 30, 2015, for Microsoft Corpo,ation; GREE Inc. Fiscal year ended December 1, 2015, for Supercell Oy.

817-117 King Digital Entertainment

Exhibit 8 Biographies of King's Senior Management

Name and Title

Riccardo Zacconi, Co-Founder and Chief Executive Officer

Sebastian Knutsson, Co-Founder and Chief Creative Officer

Thomas Hartwig, Co-Founder and Chief Technology Officer

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

Palrik Stymne, Co-Founder and Chief System Architect

Stephane Kurgan, Chief Operating Officer

Biography

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 uDale.com Lid., and was involved in driving market penetration and partnerships until the company was acquired by lnterAclive Corporation in 2002. From 2001 to 2002, Zacconi served as entrepreneur In residence al 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, ltaly. 17

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, Knulsson 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. Knulsson held a B.A. in Cost Analysis and Finance from Stockholm School of Economics, Sweden. u;

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 lhal, he was a system developer at Razorfish Inc. and Seema Group. Hartwig studied Computer Science at Lund University, Sweden. 19

Markgren was one of King's founders and served since 2004 as Managing Director at Midasplayer AB, King's Candy Crush Studio. From 1998 lo 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

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

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 Lid., a data center management software company, and as senior vice president and managing director of Enba pie, a company which provided financial services via the Internet. Kurgan held various sales and product management roles at the business information publisher Bureau van Dljk Electronic Publishing BV and was a consultant with the management consulting firm McKinsey & Company. Kurgan holds a B.A. in Economics from the

King Digital Entertainment 817-117

Tjodolf Sommestad, Senior Vice President for the Candy Crush franchise

Alex Dale, Chief Marketing Officer

Robert Miller, Chief Legal Officer

Hope Cochran, Chief Financial Officer

Universite 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

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 g;:ime!: from June 2003 to June 2005. Somme!:t;:id hold!: ;:i M;:i!:ter of Scienc:e in Computer from the KTH Royal Institute of Technology, Sweden. 23

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

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 pie. 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

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.

817-117 King Digital Entertainment

E x h i b i t 9 Selective O v e r v i e w of K i n g Digital Entertainment's Games

Game Title

Bubble Witch Saga

Pyramid Solitaire Saga

Candy Crush Saga

Pet Rescue Saga

Papa Pear Saga

Farm Heroes Saga

Pepper Panic Saga

Diamond Digger Saga

Launch Year

Tournament: Q4 2010 Facebook: Q3 2011 Mobile: Q3 2012 Tournament: NA Facebook: Q2 2012 Mobile: Q3 2014 Tournament: Q1 2011 Facebook: Q2 2012 Mobile: Q4 2012 Tournament: Q3 2009 Facebook: Q4 2012 Mobile: Q2 2013

Tournament: Q2 2012 Facebook: Q2 2013 Mobile: Q4 2013 Tournament: Q4 2010 Facebook: Q2 2013 Mobile: Q1 2014

Tournament: Q3 2012 Facebook: Q4 2013 Mobile: NA Tournament: NA Facebook: Q2 2014

Description

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.

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. 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. 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 ston floor. 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.

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. 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.

Diamond Digger Saga is a dicker 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

King Digital Entertainment

Bubble Witch 2 Saga

Candy Crush Soda Saga

Alpha Betty Saga

Paradise Bay

Blossom Blast Saga

Mobile: 0 3 2014 Tournament: NA Facebook: 0 2 2014 Mobile: 0 2 2014 Tournament: NA Facebook: 0 4 2014 Mobile: 0 4 2014 Tournament: NA

Facebook: NA Mobile: 0 2 2015

Tournament NA Facebook: NA Mobile: 0 3 2015

Tournament: NA Facebook: NA Mobile: 0 4 2015

Source: Company data.

817-117

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

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. 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. 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. 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 lo 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.

817-117 King Digital Entertai11ment

Exhibit 10 Overview of Selected Game Types

Game Definition Genre

Casual

Match- three

Switcher

Clicker

Shooter

Card

Strategy

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.

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.

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.

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

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

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

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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King Digital Entertainment 817-117

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

400

350

300

250

200

150

100

so 0

Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015

■ Avg MUUs

Source: Compiled by casewriters based on company data.

Avg MUPs

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.

817-117 King Digital Entertainment

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

I ,!

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

Exhibit14 Non-Candy Crush Saga Gross Bookings

400

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Q4 2013 Q l 2014 Q2 2014 Q3 2014 Q4 2014 Q l 2015

70%

60% "' C

50% 0 0

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- Non-Candy Crush Bookings - % of Gross Bookings

Source: Compiled by casewriters ba.sed on company data.

.f , I

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

King Digital !inlertainmenl

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

Company Worm.ation

817-117

Activision Blizzard Inc. was a developer and publisher of onllne, 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 Duly®, 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 Warcrafl ™ 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 201.3 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 Em12lo ees 7,600 7,300 6,700 6,790 6,690 7,190

Source: Compiled by casewrilers 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 C o m p a n y - A bou l us," hllp:/ /www.activisionblizz.ard.com/aboul-ul>, accessed September 2016; and Activision Blizzard, 2015 Annual Report, htlp:/ /files.shareholder.com/downloods/ ACTl/2846409547x0x887600/BE853918-329D-4E90- ABDC-E669E90097B9/ Activision,_Blizzard,..20l5_An"ual_Rcport.pdf, accessed December 2016.

817-117 King Digital Entertainment

Exhibit16 Selected Examples of Acquisitions

a} selected Exarn_eles, 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 lnstagram 1.00 Completed 37.00 2013 Yahoo! Tumblr 1.10 Completed 0.35 2013 Facebook Snaechat 3.00 Rejected 19.00

Source: Compiled by casewrlters based on Nicholas Carlson and Harrison Jacobs, "The 10 Companies That Tried to Buy Facebookt B11si11ess l11sider Fronce, April 12, 2014, http://www.businessinsider.fr/us/the-l ompanies-that-tried-to- buy-focebook-2014-3/; Michael Arrington, "Google Closes YouTube Acquisition," Teci1Cr1111rl1, November 13, 2006, https://techcrunch.com/2006/11/13/google-closes-youlube-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-sa ys-you tube-is-worth-more- than-85-percent-of-companies-in-lhe-s-p-500; Maya Kosoff, "Here's how Two Analysts Think lnstagram Could Be Worth Up to $37 Billion," 811siness l11sider Fm,rce, March 16, 2015, http://www.businessinsiderJr/us/instagram- valuation-2015-3/; Andrew Nusca, "Myspace Acquired by Time Inc, Fortune's Publisher," Fortune, February 11, 2016, http://fortune.com/2016/02/ll/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 Tmrds, July 18, 2016, http://www.digitaltrends.com/soci,1l-media/tumblr-yahoo-devaluation/; "Yahoo! has Tumbled the Market Valuation of Tumblr to One Third," Dazei1rfa, July 19, 2016, https://dazein!o.com/2016/07 /19/yahoo-revenue-q2- 2016-tumblr-valuation/; Andrew Nusca, "Why Snapchat is worth 519 billion (or more)," Fortune, April 25, 2015, http://fortune.com/2015/02/19 / snapchat-worth-19-bilUon-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.

King Digital Entertainment 817-ll7

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 resulls. 35

Google and YouTube

In October 2006, the multinational technology company Google announced that ii would buy the video-sharing website You Tube for $1.65 billion. 36 Founded in 2005, at the lime of the acquisition You Tube had been defined as "one of the world's fastest-growing websites," 37 with an estimated 50 million users worldwide. 38 However, You Tube 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 You Tube's financials, it was estimated that You Tube'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 You Tube'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 lnstagram 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, lnstagram 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 lnstagram users kept growing, until reaching 1 O million in September 2011. 51 On April 9, 2012, Facebook announced that it had reached an agreement to acquire lnstagram for approximately $1 billion.52 Reversing its tradition of "talent acquisitions," Facebook stated to be "committed to building and growing lnstagram independently." 53 After the acquisition, lnstagram 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, lnstagram 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, lnstagram introduced paid advertising, a monetization approach in line with the one of the parent company Facebook. Given lnstagram'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 lnstagram's financials. According to market analysts, lnstagram was a $37 billion business in 2015. 56

Source: Compiled by casewriters based on public sources.

817-117 King Digital Entertainment

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 / l<lng-digital ntertainment-quarterly-mau/, accessed December 2016.

2 Larry Frum, "Five Yea.rs On, Millions Still Dig 'Farm Ville,"' C N N , July 31, 2014, http://edition.cnn.com/ 2014/07/31 /tech/gaming-gadgets/ farmville-fifth-annive.rsary / , 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, E'.uromonitor 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 fllsider Fronce, April 30, 2016, http://www.businessinsider.fr/ us/the-mobile-gaming-report-market-size-the-[ree-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 O N E 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," l11Jor111ilo, 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 kelandic." 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, avaflable at https:/ / en.oxforddictionaries.com/ definition/ saga, accessed November 2016.)

lO Roberto A. Ferdman, " H o w 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 [PO Does Not Crush I t Shares Open at $20.50, Down Nearly 9%, G o s e at $19," Ted1Cnmc/1, March 26, 2014, https://techcrunch.com/2014/03/26/king-ipo-2/, accessed September 2016.

12 Juliette Garside, "Candy Crush Creator's Sha re Price Dives on First Day of Trading," TI, 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, "!PO Prospectus," February 18, 2014, available at U.S. Securities and Exchange Commission ( S E q , https:/ /ww\'>1.sec.gov / Archives/ edgar/ data/1580732/0001193U514056089/d564433dfl.htm, accessed December 2016.

15 King Digital Entertainment, "TPO Prospectus."

16 "Activision Blizzard Inc. in Toys and Games (World)," Passport Report, November 2015, Euromonitor International, accessed September 2016; and Keith Stuart, "Activision C E O Bobby Kotick on the King deal: 'We Have an Audience of 500 Million,"' Tite G11nrdim1, 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 U s - O u r 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 U s - O u r Team"; "Company Report of King Digital Entertainment Limited," Amadeus Database; and Sebastian Knutsson's Llnkedln Profile, available at https:/ /1vww.linkedin.com/, accessed September 2016.

19 King Digital Entertainment," About U s - O u r Team"; and Thomas Hartwig's Linkedln Profile, available at https:/ /www.linkedin.com/, accessed September 2016.

King Digital Entertainment 817-117

20 Lars Markgren's Linkedln Profile, available at https://•vww.linkedin.com/, accessed September 2016.

21 Patrik Stymne's Linkedln Pro£ile, available at https:/ /www.linkedin.com/, accessed September 2016.

" K i n g Digital Entertainment," About U s - O u r Team."

23 TjodolJ Sommestad's Linkedln Profile, available at https://www.linkedln.com/, accessed September 2016.

24 King Digital Entertainment," About U s - O u r Team"; and Alex Dale's Linkedln Profile, available at https:/ /www.linkedin.com/, accessed September 2016.

25 King Digital Entertainment," About U s - O u r Team"; and Robert Miller's Linkedln Profile, available at https:/ /www.linkedin.com/, accessed September 2016.

26 "Company Report of King Digital Ent.ertainm.ent Limited," Amadeus Database; and Hope Cochran's Linkedln Profile, available at http.://www.llnkedin.com/, accessed September 2016.

27 Brian Solomon, "Yahoo Sells to Verizon in Saddest $5 Billion Deal in Tech History," Forbes, July 25, 2016, h t i p : / / www .forbes.corn/ si tes/briansolomon/2016/ 07 / 25 / yahoo-sel ls-to-verizon-for-5-bill lon-rn.1 rissa- mayer/#40dfcab471 b4, accessed December 2016.

28 Lauren John.,;on, "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-time! ine-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 Mlllion," Tech Worm, July 26, 2016, http://www.techworm.net/2016/07 /time-yahoo-refused-buy-google-1-million.html, accessed December 2016.

3o Gaurav Mokhasi, "Is It True that Yahoo! Turned down an Offer to Buy Google for around $1 Million in 1998?," Q11ora, June 3, 2013, https:/ / w w w .q uora.cum/ ts-i t-true-that-Yahoo-tumed-down-a n-offer-to-bu y-Google-for-around-1-mi I Lion-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 rublic 11 Years ago Today," For/11112, August 19, 2015, http:/ /fortune.com/2015/08/19/ google-public-ipo-11-years/, accessed December 2016.

33 Jonathan Chew, "Google Went rublic 11 Years ago Today."

34 Ari Levy, Yahoo's Business now Worth less than Nothlng," CNBC, October 21, 2015, http://ww,v.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 Pion.eer"; and Matt Rosoff, "Yahoo has Signed a Deal with Google to Provide Search Ads," 811si11ess lnsider Fra11ce, October 20, 2015, http:/ /www.businessinsider.fr/us/yahoo- just-signed-a-<leal-with-google-to-provide-search-ads-2015-10/, accessed December 2016.

36 Andrew Ros. Sorkin and Jeremy W. Peters, "Google to Acquire You Tube for $1.65 Billion," New York Times, October 9, 2006, http://www.nytimes.corn/2006/10/09/business/09cnd-dea1.htm1, accessed December 2016.

37 Victor Luckerson, " A Decade Ago, Google BoughtYouTube - and It Was the Best Tech Deal Ever," 77,e Ri11ger, October IO, 2016, https:/ / theringer.com/ google-youtube-acq uisition-10-years-tech-deals-69fdbe1 c8a06#.j7ag3pr5m, accessed December 2016.

38 Andrew Ros. Sorkin and Jeremy W. Peters, "Google to Acquire You Tube for $1.65 Billion."

39 "Google and Y o u T u b e - T w o Kings Get together," 77,e Economist, October 12, 2006, http://www.econontist.com/node/8031159, ac ssed December 2016.

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