Baltic Business Quarterly Autumn 2019

A U T U M N 2019

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GAME ON 14 | COV E R S TO RY 12 | My office Where does CEO of TransferWise work?

38 | Success Story Veriff - ambition to be a truly global company 64 | Shooting Star Fixing a problem in the food industry

The game industry in the Baltics is thriving, and it holds much promise for the future.

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Taking part of the pie

Autumn 2019

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by ALE X ANDER WEL SCHER

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ZR SDGGOHV DQG DbVTXDUH EDOO that had to be hit back and IRUWK RQ DbEODFN DQG ZKLWH VFUHHQ WKH GDZQ RI DbQHZ IRUP of entertainment began not with DbEDQJ EXW ZLWK 3RQJ È¡ DbVLPSOH WZR dimensional graphical-representation RI DbWHQQLV OLNH JDPH 5HOHDVHG LQ E\ $WDU,bRQ FRLQ RSHUDWHG arcade machines, Pong was one of the earliest video games ever FUHDWHG È¡ DQG EHFDPH DQ LQVWDQW hit. Not least because for the first time, people could control what WKH\ VDZ RQ Db79 GLVSOD\ DQG JHW part of the action on the screen.

Being the first commercially successful video game, Pong paved the way for the modern video game industry. Almost 40 years and hundreds of thousands of releases

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later, games are ubiquitous and the big question most often raised is what device to play them on.

In 2018, the video game market generated $131 billion, with mobile gaming outpacing revenue made by computer and console JDPLQJ ,W FRXOG EHFRPH Db billion industry by 2025, according WR DbUHSRUW IURP *OREDO 'DWD $bVLPLODU WUDMHFWRU\ RI JURZWK LV projected in the 2019 Global Games Market Report from Newzoo.

ILOP DQG PXVLF LQGXVWULHV E\ DbZLGH margin. Games are not just for geeks or nerds anymore, they are bigger than Hollywood. The internet has led to geographic barriers falling DZD\ DQG FRPSHWLWLYH JDPLQJ È¡ DOVR NQRZQ DV H6SRUWV È¡ KDV JURZQ LQWR DbELOOLRQ GROODU LQGXVWU\ 7KLV WUHQG is likely to intensify as advances in technology offer players more realistic gaming environments, supported by the increasing maturity of streaming and cloud services.

'HVSLWH KDYLQJ DbUHSXWDWLRQ LQ WKH PHGLDbDQG LQ SRSXODU culture as being on the fringes, these numbers clearly show that JDPLQJ LV QRZ DbWUXO\ PDLQVWUHDP phenomenon. It has grown into one of the most dominant forms of entertainment, eclipsing the

Unsurprisingly, the largest gaming PDUNHWV DUH WKH 86$bDQG &KLQD Over the years, however, the Nordic FRXQWULHV KDYH DOVR HDUQHG DbWRS VSRW in game development and produced DbUDQJH RI LQFUHGLEO\ VXFFHVVIXO WLWOHV While global hits like Minecraft and &DQG\ &UXVK 6DJDbZHUH FUHDWHG E\

franchises. In 2018, the company that employs around 90 employees in Tallinn and 40 in St. Petersburg in 5XVVLDbHDUQHG Čľ PLOOLRQ LQ UHYHQXH While Estonian numbers still fall way short of those of the highly successful 1RUGLF JDPH LQGXVWU\ DbYLEUDQW sector has emerged in recent years.

It especially gained traction after the success of Creative Mobile and, VLQFH KDV JURZQ H[SRQHQWLDOO\ ȥ with several other successful gaming studios earning millions of euros in revenues and healthy profits. The VLWXDWLRQ LV VLPLODU LQ /LWKXDQLD which welcomed in the last couple RI \HDUV PRUH WKDQ DbGR]HQ JDPH development studios from Russia, Belarus and Ukraine that relocated to the biggest and most southern Baltic country, according to the government’s investment promotion DJHQF\ ,QYHVW /LWKXDQLD /DWYLDbVWLOO has to catch up to reach the level of its neighbours, but it is also home WR DbJDPH GHYHORSLQJ FRPPXQLW\ comprising locally founded companies, small novice studios and

Swedish developers, Finnish studios gained worldwide fame with Angry Birds and Clash of Clans. In per FDSLWDbWHUPV )LQODQG DQG 6ZHGHQ now have some of the largest gaming industries worldwide and are the two most export-oriented gaming industries in the world, DFFRUGLQJ WR 9LQQRYD 6ZHGHQȤV government agency for innovation.

“Gaming could be our next Skype�

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Further south on the other shore of WKH %DOWLF 6HD (VWRQLD /DWYLDbDQG /LWKXDQLDbKRSH WR HPXODWH WKH success of their northern neighbours. “Gaming could be our next Skype, but we have to work very hard to make it KDSSHQȧ DUJXHV 0DULDQQDb.UMDNYLQD head of the Estonian branch of the

The shift within the game industry towards digital distribution and the rise of mobile gaming have been especially beneficial to Baltic game developers International Game Development Association (IGDA), with both confidence and optimism in the Estonian GameDev magazine. .UMDNYLQDbNQRZV H[DFWO\ ZKDW VKH LV talking about. Being passionate about games since her early childhood, she joined an ambitious start-up in 2010 called Creative Mobile that has now become Estonia’s biggest and most successful mobile games producer. It is best known for the Drag Racing and Nitro Nation game

subsidiaries of foreign companies. %HLQJ DbIDLUO\ \RXQJ DQG HPHUJLQJ sector, there are still no detailed statistics available on the gaming LQGXVWU\ LQ WKH %DOWLFV 'DWDbIURP the Baltic Game Industry project, which aims to strengthen the games LQGXVWU\ LQ WKH %DOWLF 6HDb5HJLRQ indicates that game studios in Estonia, /DWYLDbDQG /LWKXDQLDbDUH JURZLQJ quickly. Employment, turnover DQG SURILW KDYH VKRZQ DbSRVLWLYH development in recent years.

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Association. The office will employ between 50 and 60 people, mainly game developers from CIS and Nordic countries, although local specialists will also be sought.

KEY FIGURES Baltic gaming industry 2017 EE Number of game industry enterprises in total 70 per 1 mn inhabitants 53 Contribution to employment Number of employees 500 per 1 mn inhabitants 370 Average size of employees per firm 7 Company revenues total in mn EUR 16.7 average per firm in mn EUR 0.24

LV

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42 21

60 21

207 103 5

500 176 8

16 *

100 1.67

Source: Regional game industry profiles of the Baltic *DPHV LQGXVWU\ SURMHFW EDVHG RQ GDWDbSURYLGHG E\ WKH QDWLRQDO JDPH GHYHORSPHQW DVVRFLDWLRQV * no data

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New investments and market players Despite gaining some international success, most of the companies still struggle to scale up. In all three countries, the game industry so far FRQVLVWV RI DbIHZ ODUJH VWXGLRV DQG DbPXFK ODUJHU QXPEHU RI TXLWH VPDOO FRPSDQLHV 7KHUH DUH QR $$$bJDPHV developers in the Baltic states yet. $$$bDUH EORFNEXVWHU JDPHV WKDW JHQHUDWH DbORW RI YLVLELOLW\ VLQFH WKH\ are promoted by large publishers such as EA, Sony and Microsoft, and backed by substantial marketing campaigns. But things are about to change: “We just welcomed tinyBuild DV DbQHZ LQYHVWRU LQ /DWYLDbČĄ LW ZLOO be the biggest game development RIILFH LQ 5LJDȧ VD\V (OYLVV 6WUD]GLĂšÄ?

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Similar considerations have also brought other investors to the UHJLRQ WRJHWKHU ZLWK DbWDOHQWHG DQG engaged community of developers who are agile when it comes to QHZ WHFKQRORJLHV Ȍ/LWKXDQLDbKDV excellent developers�, commends +DOO,b%MRUQVVRQ &(2 DW /RFNZRRG Publishing. The British game developer opened its first office RXWVLGH WKH 8. LQ LQ 9LOQLXV ZKHUH DbGR]HQ HPSOR\HHV DUH responsible for backend operations IRU $YDNLQ /LIH WKH FRPSDQ\ȤV signature free-to-play 3D mobile

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The shift within the game industry towards digital distribution and the rise of mobile gaming have been especially beneficial to Baltic game developers. Both allowed for much easier access to getting games to the players and overcoming the limitation of their domestic PDUNHWV ČĄ VPDOO LQGHSHQGHQW companies from the region were thus able to sell their creations on an international market. Gone too are the days when an enormous WHDP ZDV QHHGHG WR SURGXFH DbJDPH 1RZDGD\V MXVW DbIHZ SHRSOH FDQ

create an amazing game played by millions. This applies in particular to so-called casual games that dominate smartphones. All that is needed is imagination, time and passion for video games. And there is plenty of LW LQ WKH %DOWLFV ČĄ HYHQ WKRXJK VRPH preconceptions prevail and one can still meet negative attitudes towards games, mainly due to the lack of overall knowledge of the sector.

)RXQGHG LQ E\ LWV /DWYLD ERUQ CEO Alex Nichiporchik, tinyBuild LV DbJDPH GHYHORSHU DQG SXEOLVKHU that started in the Netherlands.

The company eventually moved to Seattle with its headquarters, which now exists alongside DbPDLQ (XURSHDQ RIILFH ORFDWHG LQ $PVWHUGDP 7KH 5LJDbRIILFH WKDW should be fully operational at the end of the year will be the third location of the “notably weird indie video game publisher� (technology news site GeekWire), known for games like No Time to Explain and Hello Neighbor. “We did experiment with creating studios in Seattle or Amsterdam, and it was way too expensive, with too much risk. %XW LQ (DVWHUQ (XURSH DbJDPH FDQ completely flop but it will still PDNH DbSURILW WKURXJK GHDOV RU through the fact that the team got experience working on something that will help them with the next game�, Nichiporchik said in an interview with gamesIndustry. biz. “We can make four or five games on the same budget that would get us one game in Seattle, San Francisco, or Amsterdam.�

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virtual community. But it is not always easy to fill the positions ČĄ WKHUH LV DbKLJK GHPDQG IRU skilled programmers and also game designers are needed to make the games. Companies like WLQ\%XLOG DQG /RFNZRRG 3XEOLVKLQJ therefore rely not only on talent from the Baltics but also from 5XVVLDbDQG RWKHU FRXQWULHV LQ the Baltic region. Nichiporchik mentioned the multi-linguistic environment as the main reason for the decision to open an office LQ 5LJD DFFRUGLQJ WR WKH /DWYLDQ Game Developers Association.

Ecosphere and public interest is growing Still not yet quite as mature as their Nordic counterparts, the Baltic game developers already share similar characteristics in terms of DbFXOWXUH RI VKDULQJ DQG QHWZRUNLQJ 7KHUH LV DbJRRG HFRVSKHUH WR IRVWHU new game developers. In all three

countries, national associations have been established that hold meetups, conferences and workshops for local game developers, as well DV *DPH-DP HYHQWV ČĄ KDFNDWKRQV for video games. Flagship events are the GameDev Days in Estonia, +\SHU7RZQ LQ /DWYLDbDQG *DPH2Q LQ /LWKXDQLDbČĄ DQQXDO WHFKQRORJ\ festivals and conferences for the game industry with hundreds of attendees from the Baltics and abroad. Enhancing the game development education, university and business schools have also added game-related programmes and courses to their curricula.

Given the increasing contribution to the economy, the governments in 7DOOLQQ 5LJDbDQG 9LOQLXV DUH VORZO\ but surely starting to understand the power of the industry and VKRZ DbQRWLFHDEOH LQWHUHVW LQ LW “The gaming industry is by no means mere entertainment. This LV DbUDSLGO\ HYROYLQJ ILHOG LQ WKH

The gaming industry is by no means more entertainment.

This is a rapidly evolving field in the creative industries sector

creative industries sectorâ€?, Estonia’s then culture minister Indrek Saar was quoted by the online magazine Estonian World to have said at the opening of GameDev 'D\V LQ 7DOOLQQ /LWKXDQLDȤV 0LQLVWHU RI WKH (FRQRP\ 9LUJLQLMXV 6LQNHYLĂ?LXV KROGV DbVLPLODU YLHZ ČŚ,W LV DbUHODWLYHO\ VPDOO FRPPXQLW\ WKDW FUHDWHV DbORW RI DGGHG YDOXHȧ he said about the game industry in his country. “Any new foreign FRPSDQ\ VHWWLQJ XS LQ /LWKXDQLDbLV DbVWURQJ LPSHWXV ERWK IRU WKH JDPH dev industry and the economy.â€?

Still, for game developers it is rather difficult to search for public funding in the Baltic states. Many companies are having difficulties finding sufficient capital to finance the development phase, and also in terms of sales and marketing activities it is hard to compete with bigger players in the market.

Nowadays, it is no longer about winning the hearts and wallets of teenage boys and young men who were the industry’s typical FXVWRPHUV IRU DbORQJ WLPH *DPH developers need to be serious about designing products that will appeal to wider audiences outside traditional markets.

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Based on the experiences of Finland and Sweden, Baltic game industry representatives call for more targeted support measures to be able to capitalize on the opportunities SURYLGHG E\ DbVHFWRU WKDW KDV FRPH DbORQJ ZD\ IURP DbFRXSOH RI SDGGOHV DQG DbVTXDUH EDOO 2YHU WKH years, games have become more accessible both for players and developers, but not everything has changed. Be it on computer, home or hand-held consoles, smartphones RU WDEOHWV ČĄ IRU PDQ\ SHRSOH modern games just bring the same excitement and immersive joy of play that already drew the masses to Pong almost four decades ago.

Autumn 2019