BusinessDay 21 Sep 2017

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24 BUSINESS DAY Thursday 21 September 2017 Harvard Business Review Global Business Perspectives CONNECTING THE WORLD ONE BUSINESS AT A TIME Angry birds spreads its wings on Wall Street CHAD BRAY The digital world is littered with one-hit wonders — companies that tried to turn a single successful brand into a big-time business, only to be eclipsed by changing technology and consumer tastes. Zynga, which once paraded sheep in Times Square to celebrate a spinoff of its highly addictive Farmville, is worth far less than it was when it went public in 2011. King Digital Entertainment tried to build an entire Candy Crush empire, but sold out to a traditional game-maker two years ago. The maker of Angry Birds, Rovio Entertainment, hopes to defy that trend. Rovio found success in a smartphone game that pitted a brightly colored feathered flock against an army of green pigs, spawning a series of sequels, a feature film and lines of toys and clothing. Now the Finnish company is planning an initial public offering that could value the company at roughly $2 billion, in a test of whether investors will find favor in a single franchise and whether the business can evolve. Rovio helped usher in the rise of smartphone games, building a juggernaut around the Angry Birds brand. In the game, released in 2009, users fling birds at elaborate structures built by pigs that have stolen their eggs. The game’s idiosyncratic concept now has several spinoffs that rank among the most downloaded apps on smartphones and tablets. Rovio’s titles have been downloaded 3.7 billion times, the company said. Rovio has ridden the wave of a rapidly expanding mobile-gaming market. The industry’s worldwide revenue was about $16 billion in 2012 and is forecast to top more than $50 billion this year, according to data from Superdata Research, a data provider on the games industry. A screenshot from the “Angry Birds 2,” game. (CREDIT: Rovio) Now, however, the company needs to prove that it can profit beyond the success of Angry Birds. Its games business, which includes the original Angry Birds and more than a dozen spinoff titles, accounted for 79% of its revenue in the 12 months through June. “They need to find a way to diversify their brand portfolio in the future,” said Atte Riikola, a research analyst at Inderes in Helsinki. “They have had problems in their history when trying to diversify, so it won’t be an easy task to do.” The company has done a good job creating offshoots of its flagship game, including Bad Piggies and Angry Birds Match. It also has introduced several non-Angry Birds titles in recent years, including a puzzle game called Fruit Nibblers and a game tied to the pop singer Shakira. “The hardest part in the app market is to find the users, to get people to download your game,” said Tero Kuittinen, chief strategist at Kuuhubb, a Finnish company focused on lifestyle and mobile video-game applications. “If you have a well-known intellectual property — you have something that is instantly recognizable, James Bond, ‘The Wizard of Oz,’ any kind of property like that — it helps you a lot. Why wouldn’t they leverage Angry Birds?” It is still unclear, however, whether Rovio has the framework or model to fuel innovation and expand beyond its main brand. The mobile-gaming environment is especially competitive. “At a certain stage you will need a formula for more efficient innovation success,” said Mark DiMassimo, C.E.O. and chief creative officer at the advertising agency DiMassimo Goldstein. “You’re going to need to get to winners faster than other folks, more efficiently than other folks. If you don’t, you’re going to be on the losing end of the category.” The announcement of the public offering marks a turnaround for Rovio, which struggled financially in the years after the initial release of Angry Birds. The company, which started out by selling its games, was caught flat-footed as consumers gravitated to games offered through a so-called “freemium” model, in which players download the game for free and pay for additional features. Since then Rovio has switched from paid apps to free downloads of its games. Mikael Hed, a co-founder, stepped down as its C.E.O. in 2014, and the company announced plans to cut nearly 40% of its work force the next year. Hed is still executive chairman of Rovio Animation, which helped bring “The Angry Birds Movie” (2016) to the big screen. Rovio returned to a profit in 2016 and reported revenue of about $228 million last year. The company is the latest game-maker to turn to the public markets after becoming a cultural phenomenon, following in the footsteps of Zynga and King Digital. Zynga, the company behind not only Farmville but also Words with Friends, was valued at $7 billion when it went public in 2011. Its shares are now trading at a third of the initial price. The company rose to fame with social games played on Facebook, but it was slow to recognize the move to mobile gaming. While it has shifted its focus, the company has not been able to repeat its earlier success. King Digital, the Swedish maker of Candy Crush, went public in 2014, but a year later was sold for about $5.9 billion to Activision Blizzard. It sold at a discount to its initial listing price, as it struggled to replicate the success of its biggest hit. The founder of Supercell, the Finnish rival behind the hit Clash of Clans, opted not to pursue an I.P.O., instead selling a 51% stake to the Japanese telecommunications giant Softbank in 2013 for about $1.5 billion. Last year the Chinese internet giant Tencent paid $8.6 billion for a controlling stake in Supercell. Rovio said that the aim of the I.P.O. was to help it carry out a growth strategy, and that it would use its shares for possible acquisitions and as rewards to its employees. The company has said that the I.P.O. will consist of the sale of stock by its main shareholder, Trema International Holdings, and other shareholders. The company also is seeking to issue additional shares, worth about $36 million, in the offering. “That’s really the question for the market around this IPO,’ said Will McInnes, chief marketing officer at Brandwatch, which monitors social-media trends. “To what extent do we believe the company can exploit its existing intellectual property, and to what extent can it go again and deliver another big hit?” (Chad Bray is a business reporter for The New York Times.) 2017 Harvard Business School Publishing Corp. Distributed by The New York Times Syndicate
BUSINESS DAY 25 Thursday 21 September 2017 BDLegalBusiness C002D5556 Research Intelligence Practice Management Industry Report Partnerships INSIDE Obaseki, Irukera join Conversation on Consumer Protection in Benin City Pg 26 Mahmoud describes 2016/2017 Legal Year as a year of ‘undiluted pleasure’ Pg 26 Mediation seen as future for dispute resolution in Nigeria for dispute resolution Taxability of voluntary pension contributions in Nigeria: Appraising the public notices issued by the Lagos State Internal Revenue Service and The Joint Tax Board Pg 28 Pg 27 Evaluating the regulation of real estate in Lagos state; the clock is ticking The city of Lagos, popularly referred to as “Las Gidi” by its young and vibrant inhabitants, is known as one of Africa’s most vivacious and culturally diverse cities. Many residents of the city who pride themselves as “Lagosians” may not understand why this is so. Perhaps, those who appreciate its commercial history, will understand why although, the smallest state in the country in terms of land mass, Lagos will potentially remain industrious, highly populated and the preferred city for multinationals and locals alike to do business in Nigeria. Due to its coastal nature, and resultant ease of travel, Lagos in the pre-colonial era, attracted individuals from various tribes within Nigeria who were interested in fishing and other economic activities. In addition, Lagos served as a center of trans-atlantic slave trade for the Portuguese and other European countries in West Africa. During the colonial era, its potential to drive income for the British colony was quickly identified. By creating ports, duties and administrative levies were charged on imported and exported goods. Courts were established not only to resolve disputes but also to generate revenue for the colony. As economic activities increased, markets were built, financial institutions were established and roads were constructed to continue the facilitation of trade. This in summary is how Lagos became and remains the economic capital of Nigeria. Across the world, urban development is recognised as a major contributor to economic development. In other words, real estate is fundamental to financial advancement. Lagos as a fast growing city, is not left out in identifying this fact. It is for this reason that the past and present governments of the State have aspired to develop Lagos into a mega city. To achieve this however, availability of housing, healthcare, effective sewage, drainage and waste management systems, hotels, education and recreational amenities is crucial. Local and Foreign Investment by the private sector is also paramount in developing these facilities. According to the Central Bank of Nigeria, Lagos State’s real estate sector is valued at about $45.6 Billion. Specifically, due to the exponential growth of its ever increasing population, and its increasing need for infrastructure, the state government in 2003, signed into law, the Public Private Partnership law to encourage private participation in infrastructural development to enable the state meet its housing and basic infrastructure demands. To promote investment in the real estate sector, one notable regulatory development in Nigeria is that REITs have now been granted pioneer status, effective August 2017. In effect, companies registered as REITs and listed on the Nigerian Stock exchange will be granted tax holidays for a period of 3 to 5 years. Challenges Similar to other emerging economies however, investment in real estate is not without drawbacks. Some will argue that Lagos is closer to becoming one of the biggest slums in the world than it is to becoming a mega city. This observation arises due to the impact of urbanization on major cities across the world. Ownership For every law student and commercial lawyer in Nigeria, one issue remains mind-boggling. The Land Use Act which is the federal law governing interest in land in Nigeria, vests title in land in the state to be held in trust for its citizens. This therefore, is not peculiar to Lagos State, as the law is applicable to Nigeria’s 36 states. Following that position of the law after its promulgation in 1979, every person who acquires interest in land is granted a Certificate of Occupancy for a period not exceeding 99 years. In essence under the law, there is no freehold interest in land and any acquisition or transfer in title to a third party only grants interest for the remainder years from the date of the Certificate of Occupancy. The questions therefore arise- Does the allocation automatically renew after 99 years? Is the holder of legal title required to pay huge sums of money to retain possession after 99years? In any case, what happens to developments on the land where renewal is not achievable? These are pertinent questions that remain unanswered and create uncertainties for both local and foreign investors. Hopefully, the government will recognise the need for a clear policy direction on this issue. Construction According to the media, in 2016, Lagos recorded the highest number of incidents of building collapses in the past 10 years. Many will recall the incident involving a six-storey building popularly known as “The Synagogue” which left over 100 people dead and scores injured. Many will also recall the more recent tragedy which occurred within an estate known as The Lekki Gardens which left about 35 workers dead. According to reports, orders of the Lagos State Building Control Agency, prohibiting further construction of the building were flouted. Generally, building collapses have been identified to be caused by failure to abide by building codes, using substandard materials, improper piling, foundational faults, amongst others. To control indiscriminate construction in Lagos State, the previous administration passed into law, the Urban and Regional Planning and Development Law (2010). Under this law, the Lagos State Building and Control Agency is conferred with the primary responsibility of enforcing construction regulations and issuing building permits. The same law also creates a number of other agencies responsible for ensuring quality control, inspection and testing of building materials, and issuing certificates verifying that buildings are safe and fit for purpose. It is due to non-compliance with this law, that structures, for which no permits/approvals were obtained are demolished from time to time. The demolition exercises are however criticized by many and labelled as being targeted at the more vulnerable population without providing them with alternative homes or business locations. The reality however remains that, majority of the agencies do not give effect to the purpose for which they were established. It is not uncommon in Lagos Island for example to see evidently illegal developments for which permits could not have been lawfully issued or obtained due to their location and structure. It is ADERONKE ALEX-ADEDIPE STRACHAN PARTNERS Continues on page 27
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BusinessDay 21 Sep 2017

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