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Earnings Call Analysis
Q4-2023 Analysis
Remedy Entertainment Oyj
Remedy Entertainment has presented a summary of their financial year 2023, where they noted both accomplishments and challenges. The company's CEO, Tero Virtala, and CFO, Terhi Kauppi, led the presentation, focusing on the financial aspects, the status of development projects, and strategic directions for the future.
In 2023, Remedy saw its revenue decline by 22% to EUR 10.3 million compared to the previous year, with an operating profit of minus EUR 12.8 million and EBITDA of minus EUR 3.9 million. This decline was largely due to heavy investments and resulted in steep losses. Cash flow in Q4 was slightly positive. A highlight of the year was the launch of Alan Wake 2, which started well and sold over 1 million copies by the end of Q4. Additionally, the game sold 50% more copies overall and three times more digital copies in its first two months than their previous AAA game, Control, did in its first four months.
Remedy is focusing on its flagship franchises, Alan Wake and Control, with sequels planned to expand their audience. A connected universe across games has been introduced, resonating well with audiences. The company is preparing for future staffing needs and has aligned its projects with strategic business areas to bolster focus on their key strengths.
Remedy has strategically acquired all rights to the Control franchise from 505 Games, with the maximum purchase price being approximately EUR 17 million, a move that paves the way for significant expansion and growth opportunities for the franchise.
Looking forward, Remedy expects revenue growth and operating profit improvements from the preceding year. However, these are contingent on strategic decisions regarding self-publishing and partnerships for upcoming games like Condor and Control 2, which will be specified further in the outlook for 2024.
Hello, everyone, and thank you for joining Remedy entertainment webinar. My name is Veli-Pekka Puolakanaho, and I manage the Investor Relations at Remedy. Today we go through Remedy's financial statements report for January, December 2023. With me are Tero Virtala, Remedy, CEO; and Terhi Kauppi Remedy CFO. We will have a Q&A session after the presentation. Tero, the floor is yours.
Thank you. Welcome, everyone, also on my behalf. So let's first go through. This year, shortly, there will then go for the financials. And as a lot has happened, I will then get back and we will have a bit more in-depth view on what our status is and future direction. But the last quarter of '23, our revenue was EUR 10.3 million EBITDA minus EUR 3.9 million, operating profit, minus EUR 12.8 million. Cash flow of the last quarter was slightly positive. And of course, the biggest event was that Alan launched on October 27. And during the latter part of the year, we came on several awards, including better respected awards at the game awards. We also announced that Gold name Bancard got the fresh start under a new code name Castrol. Based on that, we made an evaluation and also recognized an impairment charge of EUR 7.2 million, which impacted our fiscal year '23. Also, as a key development internally, Markus Mäki assumed a new role in our core management team, Chief Product Officer; and Mika Vehkala was appointed as a new Chief Technology Officer. The full 23 million, then we ended it by having a revenue decrease of 22% compared to 22% revenue being EUR 33.9 million EBITDA, minus EUR 17 million and operating profit, minus EUR 28.7 million -- so overall, last year was the year on heavy investments, but also heavy losses. As said, Alan Wake 2 was launched, has won several awards. And based on all of that, the Board of Directors proposes that no dividends will be paid for the year '23. A few words on last year in relation to Alan Wake 3, its development and 2 loans. Alan Wake 3, of course, was a major focus for us last year. During the games development, we all the time knew that we had a credit game in our hands. But being able to finalize and polish it to create final product is never easy. Alan Wake has been the largest and most ambitious project we have so far undertaken. These are big and complex projects far to succeed has been pricing over the year and AAA gamers expect great quality from day 1. It's often said that the last 10% of the game development is the hardest part. That was the case also for us, but our team did create work throughout the year and eventually successful launch ported. Making a great quality Alan Wake 2 was a priority for us and required more personnel during the year than we had originally planned. In '23, we were able to meaningfully also advance the other projects, but there were also some delays in them. As the other projects did not receive all the people, they were not able to proceed as fast to next development stages that we originally had planned. On the other hand, these projects were preparing themselves and now have been really prepared to take on the people that have been coming from Alan wake 2, and they have been able to advance with a really good velocity. We see that keeping people longer in Alan wake 2 was the right soys. With great quality of the game, we can, of course, now expect good long-term sales for the game. And with the growing fan base, the future possibilities are also growing. The seal of quality affects us also in other fronts, our people, the recruitments and the perception from our partners. For example, at the moment, we are evaluating different publishing models for Condor and control 2 and potential future partners for those. Our recent AAA games now are Control and Alan Wake 2, and of course, gains in this quality support these partner discussions as well. I'd also like to mention that Epic Game Publishing together with our own publishing unit did our biggest and very well-executed marketing campaign for Alan wake 2. This then all led into a successful launch. Game was praised by critics and players, Metacritic score of 83% places Alan wake 2 among the very best game launches of the whole 2023 within the top 2% of all the more vice reviewed games. And it's good to bear in mind that this is just those selected games that are even sozen to be more widely reviewed. So among the viral gaming market, this high-quality reception that Alan wake 2 got is an even rarer case. It was also good to see that Alan wake 2 was placed on so many fronts on its store world, atmosphere of the game, the visuals gameplay technical part. Origin Alan wake 2 long time ago, impressed people in some fronts, but let players to hold a bit more on some other areas. Alan wake 2 clearly was a major step forward. And now at the moment, the industrial award season still continues, but we can already see that Alan wake 2 has been one of the big ones in these award considerations. We have already won over 200 awards, which we highly appreciate. In practical terms, this also gives good additional visibility and is something that benefits longer time our marketing and sales efforts as well. The sales of Alan wake 2 started well. despite of the very competitive launch window and overall, so many great games that have been launching throughout the year. Alan wake 2 I was digital-only release and sold over 1 million units by the end of fourth quarter of '23, which makes it the fastest-selling for medical. End of the year was the holiday period, highest sales season of the year. Normally, the pace following that early part of the year from January to March is the most silent sales period of the year. But Alan wake 2 continue to sell well also in January, selling 300,000 more copies by the early February. If we compare that to our recent AAA game launch control, which launched in 2019, August, Alan wake 2 sold in 2 months over 50% more copies overall and over 3x more digital copies in its first 2 months than control did in its first 4 months. So we are in a clearly higher early sales trend than Control was. Since its release in 2019, Control has sold over 4 million units, generating net revenue of approximately EUR 100 million. It's, of course, a different game, but shows that great games can generate strong long-date sales. We expect this to be the case also with Alan wake 2 and are working systematically with our publishing partner Epic, to make sure that, that happens. Individual point, positive point is that the price point has so far remained at the high level and the game has already feed a significant part of the development and marketing expenses that our partner, Epic has invested into it. We are overall expecting that Alan will be a meaningful revenue and profitability of fiber for Remedy this year. Now to set a bit more light why we see that Alan wake 2 has good long-term sales opportunities. These topics that I'm now going to discuss in this slide are some of the high-level learnings on control audience and their buying behavior. The early phase of Alan wake 2 sales are in line with that. So overall, Alan wake 2 is, of course, in the very early phases of sales. We have so far has treated part of the fan base and not yet the larger audiences. And based on the control learnings, there is a lot of sales potential still ahead of us. We see that on high level, placed on when players buy our games and what is the audience for our AAA games. This has fallen. This has put gamers into 5 main segments. We call them or fan base, extended fan base, Sara enthusiast and tryouts. In a bit more detail, or fans for Alan wake 2, they are the fans who preorder the game before its launch. The fan base consists of fires of the gain at full price either at the loans or very early in the life cycle of the games. These are the 2 groups that we have so far reached. The bigger the underlying franchises and the more of the good sequels franchise has already gotten, typically the bigger the fan base, these 2 segments are. So we could sequesthese segments will automatically grow. And with PR marketing sales efforts, the size can be grown even more. Control was a new IP back in the day, and it had no existing fan base. Also, its marketing budget in 2019 was much smaller. So still at launch till these 2 segments were really small for control. In Alan Wake 2, they have been bigger, but we need to bear in mind that Alan Wake 2 is not a normal set well, it came 13 years after the first game, way too long time to build and maintain an audience. In many ways, we see that we have now with Alana Wake 2 started to rebuild that fan base. Then when we look at what is the segment that we are now targeting. That's the extended fan base. Extended fanbase consists of buyers who have high interest for the game, but they typically start to activate later, especially when the light discount campaign start. The bigger audiences that we have are Sandra enthusiast and tryouts. Sandra enthusiasts, we see, based on the older buying habit, they are the fans of the gaming Samrat. They are not necessarily fans of an individual game, but they like the safe and they buy good games, but they mainly buy them later in the life cycle at discounts. Santos, they are anyone interested overall in good games and interested also in trying different Sandra if they have interesting enough games. And they typically get games much later in the life cycle with exceptional offers or nowadays for free in these different subscription services. These 2 last ones, they are the biggest audiences in long term for any game. Now if the game isn't of good quality, these 2 large big segments cannot even be freezed. But if the quality is good, these segments are major ones for the longer-term sales, we haven't yet even tapped into those. We are, at the moment, still kind of like tapping into the extended fan base and reaching those players. We now have 2 franchises in our hands called Hall and Alan wake. When we take these franchises further, including more regular sequels, the overall size of the whole audience is growing. But very importantly with Sequel, the size of the early segments, the core fan-based extended plan base grows even more. And all this is going to be further supported by the Remedy connected universe. Our game worlds are based in the same wire universe with certain connections and cross-pollination. This seems to be resonating quite well with our audience. We now, for the first time, with the launch of Alan Wake 2 have 2 bigger newer games in this universe, and the early signs are showing that this increases players' interest for all of our games. As I said, this is still very, very early phase, but DanFi,we see that thematic connected universe is an additional way to deepen our worlds and stories and give more to our players and also support the sales of each game growing their fan base. Then if we have a look at our current project portfolio, these are the games that we have been working on. Of course, Alan Wake 2, we continue working on the DLC, supporting the game, supporting the sales of the game. We are working on Condor, the co-op game codename Condor, the co-op game in the world of control and SQL 4 control, control 2. Maxpainfremake naturally a game in development. Guest it's good to highlight that it isn't yet a full project in our portfolio. With Tencent, we decided to stop the development of Vanguard in '23. And after evaluation early this year gave the project the fresh start to seek for a multiplayer game that is more closely aligned with our strengths and synergies. Kespro currently has 15 people in conception base, and it's a very early phase. But now let's have a bit closer look at the projects that are further along in their development cycle, Max Payne, Condor and Control 2. So Max Payne 1 and 2 remake. We are reviving one of the game industries, iconic franchises with Rockstar game, a game originally created by us. It's a big and significant game for us. The development budget is in the same range as we had with Alan Wake 2 we see great potential with this one. The development overall has progressed according to our plans, and the project is expected to move into full production now in the second quarter of this year. Condor is the good multiplayer game in the world of control. The game is already playable with proven core game play for around which the rest of the game is being built. Plates that we are having, so positive response for the fun and engaging gameplay as well for the collaborative aspect of the game. Pool production is actually starting already in this quarter, so basically within the next 2 weeks' time. And Condor, it's a new type of game for us. but we are really happy that now in preproduction, the game has -- the team has nailed down a lot of open questions that we have had to sort out and development velocity has been now improving rapidly. Then Control 2 big, big ambitious equal for control. It's our next step also towards longating single-player direction. The game is currently playable. We have reached significant proof-of-concept calls, which include combat word, game play visual site. -- internal and also external play test have been very positive for a game that is still in preproduction. The project is moving into production readiness in the second quarter of this year. And also good to highlight that control, we say has just been now successfully established with its world game play, it offers significant expansion and growth opportunities. And our aim is the systematically grow control into a major gaming franchise. This action and the actions required were not any more aligned with our partners' interest and abilities to support us in making that happen. So as a result, with good negotiations and collaboration with 505 games, we acquired all publishing distribution, marketing and other sites for the control franchise, including cold name Condor Control 2 and all future control products back to Remedy, the maximum purchase price for this transition is approximately EUR 17 million, which equals the amount of 505 has paid for the development of code name Condor and Control 2 to date and includes a minor premium. This deal overhaul allows us now to decide from this point forward, what is the best way to continue. And we believe that it opens major growth opportunities in the mid and long term. Overall, I can say that this is an exceptionally good deal for us. I'll end my part here. There he will now talk more on the financial side. And after that, I'll continue and give a wider view on our current status and future direction. Terhi, please.
Thank you Tero. So good afternoon also on my behalf. And now, first, let's look at the quarterly figures more in detail. So our quarter 4 revenue was a bit more than EUR 10 million, and it was 24% lower than in the comparison period. And out of our total revenue, the development fees were 74% and royalties 26. Our development fees decreased by 40% due to less development fees from Alan Wake 2 to as the project completed now in October. Royalties grew year-on-year by almost EUR 2 million to close to EUR 3 million, and that was due to Alana Wake Remastered, which filled the recoup earlier in the autumn and started to generate royalties for us. Historically, there has been and will be quarterly variation in revenues. And we can see also from here that a source for meaningful royalties has been lacking for a while. We are in investment phase and that is reflected in the profitability. For quarter 3, the EBIT was negative by almost EUR 13 million, resulting also to very bad profit margin. EUR 7 million of negative EBIT was caused by the onetime write-off of project Vanguard capitalizations. The rest of the decrease in profitability was due to lower development fee revenue and higher expenses overall, but especially from outsourcing. Also now in quarter 4, we had Alan Wake remastered games depreciations amounting to EUR 1 million. And then full year numbers. Our revenue decreased by 22%, ending up to a level of about EUR 34 million. Our royalties increased by 21%, while development fees decreased by 27%. As Alan Wake got completed, the development fee revenue from the project was significantly lower than in '22. During '23, all but one of our ongoing projects at co-funding elements, decreasing the revenue generated during the development phase, but increasing the future royalty revenue potential. Our royalty revenue was almost EUR 1 million higher than in '22 as Alan Make remaster started to generate realities to us. For full year, the EBIT was negative by close to EUR 29 million, and that means minus 84% profit margin. Also, the full year profitability was impacted by this EUR 7 million onetime write-off for Vanguard. The rest of the decrease in full year profitability was due to a lower level of development fee revenue, but also due to higher expenses, especially outsourcing. And for transparency, we also present here on net debt amounts of expenses. External work, so outsourcing performed was on a higher level than in comparison period. EUR 6 million versus EUR 4 million. In IFRS format, the net debt amounts are EUR 5 million and EUR 3 million. The difference is due to capitalizations of external development. Then about the personnel expenses, we had about 10% increase due to the increase of about 7% in our employees to 352 people from EUR 334 million. And then there is some difference also due to the increase in the site costs, especially in Sweden and accrual of the holiday. Capitalizations were on 44% lower level than in comparison period due to project condos, lower level of external work and no more capitalizations than for project Bancard in quarter 4. Operating cash flow in the last quarter, EUR 23 million was EUR 0.1 million, adding comparison period about minus EUR 4 million. The reason for this change was that we had higher level of incoming payments from partners now. And also, as in profitability in cash flow, we have by quarterly variation. Our total cash level was about EUR 30 million, including EUR 10 million in investments. The current interest rate environment gave us possibility gain on investments. We had a solid cash position to invest in our projects. And as we have done so, it is visible in the cash position development. So our current profitability level is highly impacted by increased own investments to product development. But this is to ensure our top line growth and improved profitability in the Lora. We have a balanced portfolio of projects. We have a subcontracting type agreement with Rockstar Games from Axpin remake. We have an agreement with Epic, where Remedy as the IP, Epic mostly funded the development and now we share the KL profits. We have a co-publishing deal with Remedy owned IP Kestrel. And now for Condor and Control 2, the model is open after we bought the publishing rights from 545. We're thinking about the future business models, balancing the risk and reward is the key. The higher we move up in the picture, the more there are models where the profitability of a game project is depending on the game sales rather than development fees received from Motors in part. If you look at the pluses and minuses related to development phase, you see that in partner IP subcontracting, we usually have a margin already during the development phase on other models not. So there is a significant timing factor related to the risk level. Also, it is worth reminding now as Alan Wake is out and has been for a while that we need to first wait for the game to recoup its development fees and marketing paid by partner before we start to see any of the royalties in remedies end. And now as we have the publishing models open for Conda and Control 2, it is good to show an illustrative number example of some of the different models we can choose. All of these cases, 5 of these use the basis same development budget of 30 and marketing budget of 5. They also assume same game net sales, sales that are after all reductions shareable with publisher, and these sales is assumed to the level of 100 over the game lifetime. These cases illustrate how development costs can be shared with partner during the game development and how marketing spend is split. In these scenarios, the degree of development costs covered by partner, Barisan 100% to 0%, i.e., self-publishing. Marketing is normally paid 100% by a partner, but there can also be different models like in Scenario 2, partner only pays 50% of marketing. Typically, both development fees and marketing are recouped back before there is a royalty share. It is essential to understand that the recouping means from a business case point of view, plus minus 0 effect. If something is first paid and then recoup the effect on ROI, return on investment is 0. Of course, recouping only happens if the game sells so well that recouping can happen. So it evens the risk level. And please note that in case 3 and 4 steroid is at the same level, although its Kanary 3 partner based 100% of development and in Scenario 4 only 50, but there is no recoup or development fees in case for Developer royalty share varies in these can areas from 20% to 100%. And this element is a key driver for return on investment. And as seen here, the return on investment from self-publishing is significantly higher. But timewise, we would need to invest ourselves fully first. So this model imposes clearly more risks. However, being able to do self-publishing and boost company profits to the next level. And now back to Tero.
Thank you, Terhi. All right. So as a base of this, as said, the dividend proposal, the Board of Directors proposes that no dividend will be paid for the year '23. On the outlook, we expect revenue to increase from the previous year and operating profit to improve. It's good to still emphasize that the revenue growth rate and EBIT improvement. They are dependent on the choice now between self-publishing and/or choosing a new publishing partner or cotenancondor and control 2. When the decisions for the business model, whether it's self publishing publishing by partner has been chosen and the potential partner and agreements have been made, we will then specify further the outlook for '24. Now I'll continue still with a bit wider context and giving a status update because definitely, a lot has happened on '23 and especially in the past 6 months' time. We have had key events like the successful launch of Alana Wake 2. We have also made big decisions affecting our game portfolio, not continuing with Vanguard and buying back all the commercial rights for control. In the light of all that, I'll now give an overview of our past development and on a high level, the future disection where we are aiming at. So as a context for the past 7 years, we have very systematically followed selected key underlying strategic guidelines. These guidelines have guided where we aim at and how we should develop and change as a company. The aim has been to develop longer engaging games on top of our proven strengths, create an own growing game plans, which we can do at the same time, operationally, build a scalable multi-project organization and when we do that, step-by-step, strengthen our position in the value chain. Now as one view on that, building a well-functioning multi-project organization and model has been a key operational aim. Building this model has traditionally been hard to do in our industry. But early on at Remedy, we saw that not doing this would significantly limit our long-term growth opportunities and also cause significant risks. And on the other hand, doing it successfully would open major opportunities. And over the years, our multi-project capabilities have steadily been growing. We have great people now almost 400 per plus talent. We have been keeping the bar high all the time, as an example, last year, only approximately 1% of all the applicants who apply for a job at Remedy were accepted. We have done a lot of developments to enable and strengthen our multi-project model from transforming and developing the organization, the recruitment to having a strong focus on building stronger teams, expanding the Stockholm and continuously developing the ways of working and what our culture is. We have also, along these years had learnings. Thinking back in the past, we have had a bit too many projects in relation to the ambition levels we have with our games and what our production capabilities have been at each point of time. We have still been able to progress all the projects. Eventually, quality of our games has been good. But having a bit too much on our plate has meant some delayed schedules and additional packet needs along the years. For years, we steadily, as can be seen from this graph, we increased the number of projects to 2 to 3 to 4 to 5. A while back, we took a decision not to do any more at new ones, at least not as often, but rather start looking for ways to get more focus on what we do. There is still a lot to be improved in our multi-project model and we keep on doing that. But now we are 400 talents. We have much better working game teams. We have many supporting things in much better shape than we have had in the before, and we don't anymore have 5 big projects. We actually, at the moment, have 3 actual bigger projects. Max payne remake Condor control 2, then we have Alan Wake, TLC development, and Kestrel isn't yet a full project. It's a small conception team working in the very early phases of the project. We are overall in relation to multiproject capabilities in much better shape to succeed with our project than we have been in the past. And the state of the project, their velocity tells the same. Even though I say that we have learnings and we have a bit too much on our plate over the years, we have still managed to launch 4 games in 4 years' time. None of them has yet been a major commercial hit we aim for, but overall, they have been good quality games. Control has sold over 4 million units, a really good Metacritic score, high quality. Alan Wake remastered has now passed 1.5 million sold units, a good quality game. Crossfire was a profitable work for higher. It was a mixed player reception for family story campaigns, but mostly they were like. Some say that it wasn't a good quality, but we need to bear in mind that what was evaluated was the bio-multi-project part, CrossFireX, which had a lot of technical issues. We were not focused on that. We were focused on our story campaigns that are part of the viroxperience. And then, of course, Alan wake 2 the sales by February, 1.3 million units with the really high Metacritic score. All this a good start for the longer-term future and base pay building also paces for next games to come. Then if that was something on the wider picture on the past years, a bit more still on the year '23. We started last year with focus on 5 projects. Alana Wake 2 team, as I said, they went through a tough year in '23 and came out with an amazing game and successful launch. Max Payne, despite of some missing staff last year that were still in Alan Wake, it's been very good progress. Condor, it's definitely a new game to us, co-op multiplayer, Back in 2022, we actually also used much more external development in code name Honor to build the basis for the game. But in early '23, we made a decision to start taking much more of the development work in-house. That was a really good development and sales. And as we have progressed throughout the '23, it's been with increasing speed and the game is in good state now. Control 2, as I said, an ambitious game but looking very promising. In Condor and Control 2 in 2023, we also had uncertainties with our partner 505 and considering our aim and determination to make control the big success, future success and 505s possibilities to support that, it did create some question marks during last year. We eventually we bought back all the fights with a very good deal for us, and this will be an additional boost, not just business-wise, but also for the development of Condor and control 2. In Vanguard, the project was canceled. Kestrel is a fresh start with a small team. It's still in conception, not yet an actual bigger project for us. And while this was a good decision, just for Vanguard and Kestrel, it's also good to highlight that for our Vito portfolio, this gave our other projects, some needed developers and also more focus to us as a company. In addition to our current needs, we, of course, all the time to long-term planning, and we have been preparing for 2025, '26 and '27 staffing needs as one part of that. Now when we have removed Vanguard from that picture and the big need is that the big free-to-play game would have, it definitely gives us more focus and supports our other projects. And now what we can say that the 4 larger projects that are now continuing in '24, they took major steps forward in last year, and we are now in a much stronger position than we were last year. We now also have 2 established franchises in our hand, control and Alan wake. -- control, of course, now still being built and established by one game control. Alan Wai 2. Yes, it's been 13 years after the launch of Original way, but the Alan Wake remastered also started to revitalize that fan base. It's also good to say that -- these brands overall, they are all very quite well known among the gamers. We don't have all the telemetry or analytics date going back into the history, but we know that we have so far with Control and Alan Wake altogether already freed over 40 million players. So players who have played the game who have downloaded the game, they are not necessarily unique players, but it's still a big audience that we have treated, and it's something that we continue to build as we go into the future. Then on top of these, of course, many important developments have happened again in '23 under the hood. These developments have made us stronger and support all of our projects. In addition to Alan Wake 2 we and our other projects, we have had clarifications to gain portfolio. There have been significant developments in the way how we manage our portfolio and projects, longer-term planning, staffing and development of our staff, how we manage the cross-project dependencies, decision-making, communication across the company. And in North Lightside, there have been significant developments, both in the technology tools in the ways we work and on the team side, and it's not just development, but these have now been taken into use, and many of them already now tested also in Alan Wake 2. We have had some changes that support us better in the core management team. Our publishing capabilities have been strengthened. We now have 40 people in our internal publishing unit, and the publishing unit has been all the time working hand-in-hand with 505 games inflation to publishing and commercial matters for control and also now with EpicGames publishing team in launching marketing, doing the PR work, Sales work or Alan big 2. And then, of course, the acquisition of control rights was a big development. We have now also been preparing, we will tell more than later the next phase in our multi-project organization that we call the craft organization. And overall, we have stronger teams, personal retention at the same time has never been on this good level that we now have. So that was the background. Alan Wake 2 we to successfully out. We have 2 franchises control and and wake in our hands with recent control developments, buying back to fights, we have the full freedom now to decide how to grow these franchises into much bigger and more successful ones. Now especially infulation to future publishing motor for Condor and control 2, not all our future plans are yet clear and set in stores. There are big strategic decisions ahead of us until this year. So what I'm now going to talk is not a strategic update, but the direction on where we are going as a company. Certain key principles, even though the strategy has not yet been put in place, certain key principles for our future direction are clear. These are the 4 principles that we know will guide us when we go into the future. We will have even more emphasis on having increased focus as a company and increase focus on utilizing synergies that we can have. We continue developing great games on top of our strengths, but one of the guiding principles already in the early phases is that we aim for games that at minimum earn back double the money that we invest into them. Someone could say a return on investment minimum 100%. Growing these franchises into much bigger ones that they can become is going to be one principle, and we will continue to strengthen our position in the industry. We are now reviewing the different options, but the aim is definitely to have a strong position which we can quote these franchises into the major ones they can become. We can benefit in a big way as a company from that. And at the same time, we had the fight way to manage the financial risk as well. In a bit more detail, what we mean with this direction, increased focus on synergies. So overall, I'd say that we have always had quite a lot of synergy focus in the viral gaming market. We focus on the big screen devices, species, consoles, we focus more on the corporate core gamers and another casual gamers. Now that market is overall now expanding with new marketplaces, new subscription services. And even within that big screen games for gamers segment, we have certain innovate themes that we have been following action games, focus on the world building character stores, the visual style that we have. So overall, I'd say that as a starting point, we have always had already certain focus, and that's what we have been systematically following. Now when we look at our development in the recent years in the multi-project model, we see that our project portfolio grew quite rapidly bit too wide. When we move forward, we will focus to ensure that step-by-step, the franchises that we have, the games we are developing can become larger successes. And when we do, we have even more capabilities to continuously build, utilize and benefit from synergies across our game portfolio. The synergy part is highly important to us. Danie, this allows to truly build bigger franchises step-by-step with great games and sequels that come out more regularly. Games that can build on high-quality components already proven in our other games. And on top of that, we can put extra effort and innovation per game to areas where it matters the most. This also will allow us to utilize remedy connected universe better gives efficiency and really helps us the bonds beyond our wage. So when we develop games, one part of the already early phase consideration is that what do we already have, not just based on the past game, but across our gaming portfolio in terms of people and know-how Norlite technology and tools, shareable assets and content pipelines that we are using. And then, of course, also connecting games to each other and serving resources and knowledge between our game teams. Now in our return on planning, we, of course, have return on investment targets for our games. What they exactly are, it's always slightly varies between the game, but nowadays, the minimum expectation for return on investment is 100%, meaning that in the early planning phase, the game share plant and later development supported with the mindset that at least they have to earn back double the money we invest money invested overall into them. And that was actually then already said. So just to highlight, this is the minimum target for every future game. And our people also -- they are behind this. We all understand that when we earn Park at least double the money invested, we, first of all, we get back the money invested in to a game, but we also generate profits to pay the development and marketing of the next game. And this is the way to enable real full freedom to always be able to choose the best way forward with our franchisees and games. We see that we have all the means to do it, good successful games overall in this industry, generate much more. And reaching this target, the actions that we are doing as a company is that definitely we continue developing great games. But it's important that gradually, when we do the early preproduction, we are able to then also make decisions that can meaningfully expand the audience and sell more games eventually. We are putting effort both by ourselves and with our partners that we have successful marketing, sales and community management. We are putting a lot of effort into the portfolio and project management and leadership side so that we have well-managed productions where creative ambitions, technology ambitions, our capabilities development-wise, budgets and schedules are aligned. And then, of course, now, as an example, a big decision that for each game, we need to make sure that we have the right publishing model and partnerships for playing in place that then support us to feed the success that our games can reach. Then an important topic, of course, how do we call these franchises. When we look at ourselves now where we have developed as a company, we have 2 key business areas that support each other. On one hand, we have our own franchises where we have Control and Alan Wake, connected by the Remedy Connected Universe, and then we have partner franchises work for hire. When we look at the objective with the partner franchise, it's very clear. Max Payne, even though it's not owned by us, we feel that in many ways, it's ours. We have high passion for the game. It's a game that was originally created by us. The team loves to work on the game. We will make an excellent commercially successful Maxpayne-1 and IV make with Rockstar Games. At the same time, what we are doing as a company is that we are building ourselves a strong family action game. When we reach these objectives, it will give us significant strategic options for the longer-term future to freely decide whether we will continue working on potential partner franchises or with our own franchises, be they control Alan Wake or at some point in the future to start creating a third new bigger own franchise. With our own franchises, we see that when we go forward by 2 iterations, by 2030, the aim is clear, we will grow control and Alan Wake from the current established franchises to super franchises. In more detail, what we mean with that, we see that Control and Alan Wake have now been established. It's control based on one game and we based on 2 games, but basically no regular sequels yet in these games. We see that these franchises, they are highly appreciated and well known, but only by a subset of core players. The players have limited reason currently to stay with the game or the wider franchise, but they are established. The revenues are approximately in the range of EUR 100 million to EUR 200 million in the 3-year time window per franchise. The step within the next 6, 7 years that we aim to make is that these franchises will be based on 3 to 4 games, and we have the capability to introduce regular sequels. These franchises will be highly appreciated among core players and well known by the biolayer audience overall. Players will have reasons to engage with the games and franchises for a longer time, and the revenues have grown to EUR 500 million per 3-year win per France size. And this is definitely know very doable. We look at the gaming market, the AAA games. We know approximately how much they are selling. There are so many gaming franchises that make much, much more -- and overall, when we then look at our franchises, we see that they can go step by step. They offer also potential for new experiences and audiences. What we have unique at Remedy is the capability to develop high-quality distinctive games, but also the ability to create immersive berths, interesting characters, stories around these characters. These are typically the building blocks of not just individual brands, but franchises that can go and expand into new experiences and audiences. We see that at the heart of what we do in our franchises are going to be AAA equals that step-by-step, grow bigger, more successful and reach also new audiences. But this world, we see can also expand into new Spinnoff and Condor is an example how we are now aiming to expand Controfranchise also into a multiplayer game. Partly, we see that these games can tap into the same margins, but the big objective is also that they should, step-by-step, expand the audience into a new direction. Then when we go longer term in the future, we don't yet have concretely anything go on, going on here, but we see that there other potential future expansion opportunities. Many franchises already do. We have that opportunity to do supportive transmedia, which typically deepens the experience for the existing fan base via books, Comix something that is still fairly kind of like straightforward to do, but provides value for the existing gamers. TV and film, we have seen that franchises that have immersive worlds provide that opportunity. And in the recent years, we already see some franchises that have successfully done it meaningfully significantly expanded the audience, and it has been a direct benefit for the games they have. Then the fourth principle that we have, which is guiding is that, yes, we continue on the path. We have started it for a long, long time ago to strengthen our position in the value side. We are now aiming to make sure that also going into the future, we have a strong position with which we can maximize the franchise potential and then also the benefits that it brings to us. And of course, as has been said a number of times, this is a very unique situation. The future of both Alan Wake and control is fully in our hands. We are now carefully evaluating the next step. And it's good to highlight how unique this situation is. Normally, when gaming companies get an internal external publisher, the finance project, it almost always includes sabot profiles. So in fealty companies are not free to choose the next partner for the next game. Now Alan Wake is free. We have had excellent collaboration with Epic games and it can well be that we continue with the Epic Games. But it's now in our own hands to decide whether we do that or not. Ontroingbackto bids returned all the rights to us. This is now the first time at least in the last 20 years when Remedy has been in this situation that we have existing game and a proven franchise and it's fully in our hands to decide what we do. This actually then tells the same store in bit more detail. So as a backbone of our business, we have, for a long time, we have had a partner franchise, a subcontracting business that we are working on. Currently, that project is Maxpayne 1 and we make an absolutely perfect fit for us, our team, our skills. We love working on that game. Then we have had 2 models, how we have been pricing up in the value chain. We started it first with control. In 2017, we made a publishing partnership deal with 505 Games, but also in order to get that deal, it was the best deal definitely in 2017 that we could get. But then the partner also in order to get that deal to us, they received long-term sequels for the control franchise. Then as the next step in our development in 2020, we made a publishing agreement with Epic Games on Alan Wake 2 and Alana Free master -- it was -- it's been a great collaboration. We are really happy on what Epic has been doing with us. And as I said, it's fully possible that we continue working with Epic also in our future games. But the situation is that on that deal, the partner has no sequali, -- so it's fully in our hands to decide whatever we will do one day in the future, a bit Alan Wake. Then with Tencent, we closed the deal with Vanguard -- and again, as normal quite a normal part of the publishing agreement, Tencent has and received certain selected future pipes. And then with 505, we made the copublishing deals during the past couple of years. And again, a really good step up to us in the value chain, but the partner again, received long-term seaborice for these cases. And now the situation is that we are free to choose what we do, both with Alan Wake and with control. We already know that the original control came from early '25 will return to us. So we have an additional back-catalog game that we are self-focusing. And we are currently now really carefully choosing what's the best future model for Condor and Control 2. It's basically going to be a choice between publishing by partner, co-publishing or self-publishing. If we go the hood of publishing by partner, of course, the partner would most likely provide major financing, leadocommercial actions, partner, Butenrecoup their investments and the revenues would be shared. It would be a lower risk for us, constant revenue also during development and with the right partner, the games can then sell more. However, if the game becomes a big success, it's also quite expensive money because partner is recouping their investments, and then we are sharing the revenues plus quite often this may tie us to that one partner for a longer term. On copublishing it would be a shared financing, a bigger commercial role for us, most likely direct community management, as an example. Both parties would recoup their investments, after which revenues would be shared. It's more risk for us. It's some revenue during the development. It's higher revenue and cash after the launch, especially if we would be a direct publisher either uncertain of geographies or certain platforms. But this also typically ties us long term to a selected partner. Self-publishing would be, as Terhi explained, fully funded by us, we would lead all the operations, both in development and the commercial side. It's definitely higher fees, but also higher upside, and we would have the full franchise control. When considering these options, it's not just the consideration of the publishing options, but we need can also evaluate different financing options, whether it's a project funding, do we consider convertible bond in a financial investment for years, there has been interest for strategic investments. Nowadays, there is a possibility to make business-to-business deals on the subscription services. So the good thing is that there are different options to evaluate because we know we have great games in our hands, and Remedy is a lucrative partner for many industry players. In any case, I think what we will have during this year is that we will have a model, and we will have deals for Condor and Control 2 that are better for our future compared to what we had. So shortly, just to summarize, we see that we now have 2 established on franchises control and Alan Awake with major growth potential going in the future. And we also have the unique situation. We are free to decide the best way forward. We also have Max Payne, excellent fit to us, important game, which provides both short and long-term benefits for the company. We have great games now in development. They have good potential, and our capabilities to make these games bigger successes are better than they have ever been. So this is the high-level direction. Thank you all for listening to me a bit longer time now than normally. And once we get more clarity on the model for Condor control to the strategies set in place, we will give an update. But on the presentation part, that's it.
Thank you, Tera. Now we go to the Q&A.[Operator's Instructions]
What kind of expectations do you have for Alan Wake remaster royalties going forward?
Well, we don't guide how do we see the specific project royalties going forward. But as we have seen, there is a long-term sales potential for the franchise overall and that came being high quality, well received. And also having the possible sales synergies with Alan Wake 2, I think we have like a realistic but good expectations.
External development costs going forward, should we expect a similar run rate as we had seen in Q4?
Well, we cannot compare the quarter-to-quarter in any of our not revenues and cash flow, not expenses because they all relate to the different projects we have in hand and the stage in which our projects are and, for example, now having the Max Payne remix ongoing and really be getting into the full production. I would say that we'd rather have more outsourcing than less because then outsourcing, external development is the main means for scalability for us.
What about the balance sheet? How do you view the current balance sheet status? If a new partner deal is delayed for Control 2 or Condor would an equity issue or bank debt we needed until we need to reach a profitability.
Well, like Tero just explained, if something is sort of a delayed or if we choose to go for self-partnering nontheless, then, of course, we would need to look for the financing side. And there are several options like also project funding P2P deals, strategical investments, et cetera, et cetera. So surely, we keep an eye on that.
Yes. Yes. Yes. And I can add into that, that of course, we can keep the in a way, invest the market also in mind that the market situation is not the best one to do additional capital raises. But as we discussed, we don't want to speculate too much, but we are in a fortunate situation that there are a number of different options that we can consider.
Getting back to Condor and Control 2, what do we look for in a new partner or both or either one of these games?
Well, of course, the driving force is our strategy where we are aiming at and what we want to be as a company. As I just presented, one of the key parts is that we now have to establish franchises in our hand. And typically, these are the biggest value generators in the entertainment industry in the long term. How can we now have a model and a partner with which we can build these franchises into the super ones, major ones that they have potential to become what can -- what could a partner bring on table there? How in a way, long-term commitments would we need to do? What type of terms can we get so that the success also build significant success to Remedy. These are, as an example, that -- and then, of course, of course, we are evaluating as was as that to build this into long-term successful franchises, they do require investment. So there is the risk part also in consideration that what does the partner premium the table.
Do you believe that the total project return on investment for Control 2 and Condor will be higher or similar or lower now that we have acquired the publishing rights and are free to look for a new partner.
Well, as I presented just a moment ago that the minimum target for any of our games is 100%. And we now think that Control has been very well received when control launched, it didn't have any fan base at start. Now we definitely have been able to build a certain plan base. The starting point for the next game is stronger, and we definitely have means to create bigger successes all the time, step-by-step as we go into the future.
With 2 large projects nearing full production control Condor and Max Payne and one being in the production readiness stage. Will Remedy have the operational capabilities to handle this and to release 1 game per year during '26-'27.
Yes. And it's a good observation that, that is now happening. But again, as was presented, we have now gone to 400 people, the external development capabilities have improved. And one key that we have improved, and that has been also the learning from our way to is that when a project phase is challenges in the production phase, which is a highly important phase and also the most costly one. Typically, the reasons originate in the preproduction phase, that is the preproduction phase where we still have a smaller team where we are still designing the game, we are moving everything. We are building the pipeline, making sure that we know exactly what should be done in the production. Is that preproduction phase done well enough and are we demanding enough before we let the projects to proceed in the next phase. In the past, we haven't been. But it's been a long learning process, and now we have definitely used that for the current projects that are moving further. We also now have 400 internal people, better capabilities than we have ever had in the past. And we are not adding new projects at the moment. So Max Payne is now moving in the production. It's a big one. But then the second one that is moving, we need to be mine Condor, it's about 50 people. It doesn't go much bigger than that slightly with some new people, but also because it's a multiplayer game. They are people with slightly different profile than we would need for the other game. So overall, I would say that we are in a good position now to take these ones further, and we keep on improving all the time. And definitely, I have no doubt that we can release games in that schedule that was asked.
Does remedy have strong enough marketing and publishing in to self-publish condo or control 2?
We have a good basis to build on. Now as I -- again, as I mentioned, we have 14 people in our internal publishing unit. And that publishing unit has also been working with publishing. So in Control, it was our IP for years, we have been hand-in-hand collaborating with 505 games, doing certain parts, learning on certain other things. So we know that how they have done the marketing of the control. We have now also done the same with Alan Wake 2 with Epic game publishing. We have seen how they have done. Would we now immediately have all the required personnel, especially for a big AAA game? No, we wouldn't, but we know what is needed and it would be again a kind of like development path that we would need to take to make that happen. -- but work to be done in a way, not an easy one. I think something that we could take if the other parts of the financing side would align.
What about the Remedy Stockholm office? What projects have they been working? And how would you review the market of the study since launch? And has it been a good investment, good move to tetration there.
It's been supporting all our projects. We we expanded to Stock during the time demic with the idea that we saw. Well, overall, as a background, the bar for new ferias has always been high. We look for the best talent in the industry -- we started to see that in a way, Stockholm actually has a lot of PCPs consulting developers that are interested in working with Remedy. When we just announced back in the day, the plan to open an office on day in Stockholm, it increased the number of really high-profile, high-quality developers. And from that point on board, it's been a major talent for us. We haven't yet had any individual projects being led fully by the Stockholm office. There are certain competence centers around certain disciplines and crafts where we see that we can attract the talent, especially from Stockholm. There are certain sub-teams that are a bit bigger for specific teams that we have in Stockholm. But it's been a great support for our projects. And we are a gaming company. So nothing else in that sense as important.
After the key events and uncertainty in the market for past months, what should remedy entertainment shareholders expect for the future development in line with the long-term objectives.
Well, so definitely, what you should expect is that Alan wake 2 now continues to sell well. The time to start receiving royalties should not be too far away because we have said that it should be a revenue and profit driver for us this year. And then definitely, in our industry, you should look if our projects are proceeding according to the schedules and are aiming for the more regular game launches that we have said we need to reach.
Good. Then returning to the finance side of things. You have said that the cash flow effect from controlled transaction will be clearly less than the purchase price of EUR 17 million approximately. What does clear mean? Generally speaking, our development payments in coal publishing contracts based on milestones or actual development costs. In other words, is there equal or more risk sharing in development, risk/cost compared to traditional publishing contracts.
They are almost always tight in the milestones as the basis is that, yes, there would be a -- could be a possibility just to tie it into realized cost. But then at the same time, the partner never has full control on our projects. We have the creative freedom. We are the party who is deciding how we staff our projects with what type of plans we are proceeding with the -- and in many ways, the only concrete way which our partners can often follow the projects are with the milestone deals that they had and comparing the milestone deliveries to the plans that we have had. So typically, there are certain models in a way how they can be put so that whether it's a monthly milestone 2 months, whether it's 4x per year. But typically always, it's tied to certain type of milestones.
Does it seem that the initial development budgets for Condor and Control 2 are still holding?
Well, what we internally always consider that we have internal targets that we set for the team. And then we also know that as the preproduction is done, we evaluate that and there is a certain window within which we operate. And we are within that window.
There's a question on a physical version of Alan Wake too. So a physical copy of the game. Is this something that is in the making? And can it impact meaningfully our profits and sales?
The game has been launched as a digital only, and we haven't or Epic our publishing partner hasn't yet communicated anything else. So I'm not speculating that here.
Good. Thank you. I think that was all the questions for today. Thank you, Tero, thank you Terhi and thanks all the participants in the call and all your questions will be back with the next earnings webinar. That is our business review, January, March 2024 on April 29. That's all for now, and have a great rest of the week.