A videogame maker not making any games!

Or so the youtubers claim. Today we dig into the Playway group, a Polish videogame giant.

We all love a good heist story. And in this little world of finance, we specially love frauds and big blow ups. Enron, WeWork, half of the crypto world... all have filled pages (and tweets). I think the discussion about Musk is always so alive because half of Twitter seems to think he is a con-man on some level or other. A bunch of them are outraged, but many want to see him succeed. Some say it is because of the environment, some say it is because of Mars. I just think we love to see someone breaking the rules and getting away with it.

And that's why when I heard about a videogame developer that didn't make videogames and used fake gameplay videos to gauge interest on a very, very wide range of themes, I had to check it out.

A lot of videos, not so many games

The first time I heard about Playway was in this video (and I think If you speak Spanish and you like strategy games, hugothester is a must) about a city builder called Builders of Egypt and if it was going to happen or not. As it seemed to be the spiritual successor of Pharaoh, there was interest among the gamers... but there wasn't a clear release date, and after a lackluster demo, news were not forthcoming. In the video, Hugo explained with examples how the company seemed to have dozens of announce videogames, all with trailers that seemed gameplay on a cursory look, but were just animations done for that purpose... and very, very few of them actually came to be.

Well, this was almost two years ago, and Builders of Egypt still has no release date, so he wasn't exactly wrong.

But the company is still thriving, and when you look at the financials, they do make more and more revenue each year (2,3 times 2019 revenue in 2022, with 257 PLN M), and a healthy profit too. And that revenue comes from... selling videogames, apparently?

In 2021, Playway and related companies announced at least 181 games with trailers and promotinal images. Of those, only 60 have been published to date, 15 more have a demo or prologue and 26 show some progress through development updates and the like. The other 80... well, no news whatsoever, except in a very few cases where we know they have been cancelled. To be fair, most of them probably did not even start the development process.

And that is, actually, a core characteristic of Playway, and something that keeps happening. At the time of writing this Playway has published promotional materials of 17 games in the last month, of which 9 are entirely new announcements. To match this rhythm Playway would have to publish a game every 3 days, give or take. And while they certainly launch a lot (3 or 4 games a month is not uncommon) they are far from that pace.

Why, then, do they announce so many? Well, to gauge the interest of players of course! Playway doesn't have a lot of established properties, and while big, it is far from any of the videogame giants. At less than 700 USD M of market cap, it pales compared to the likes of EA, Activision, NIntendo, Take-Two... even the smaller Sega or CD Projekt have several times their market cap and name recognition. So what they do is open the game page in steam, publish a couple videos of what the video game might look like as if it was already in development, and gauge the reaction. If it is good, they either assign one of their teams to it, or hire another development studio.

Publisher, developer or unfathomable network?

In the video-game industry, you can find publishers and developers, as described in this EA deep dive and, as they say there, most big players in the industry are both things. They have several development studios for their main properties and some new experiments, and then they also publish the games of other studios. Publishing means, essentially, distribution and promotion. Playway seems to fit that mould... more or less.

When you look at a Playway's annual report, you might think you are looking at a Japanese conglomerate at some points. A total of 94 companies show up in Playway's last quarterly report as either subsidiaries (55) or associates (39), and they also have minor stakes in other companies (4). In 2022, 5 companies were added and 6 left the annual report list through divestments and liquidations, but that is a rarity. Number of companies have been increasing with time, from 29 in 2017 to the current numbers (although I expect it to be more stable from now on). So what the hell has happened here?

Well, usually publishers either own the studio completely, or are mostly unrelated to it. Also, usually studios are more than 3 or 4 people, barring very small indie ones. Playway's strategy seems a bit different, and is related to how they decide what games to develop. There seems to be 2 branches to that strategy: coming up with random concepts and seeing what sticks to the wall (in terms of Steam wishlist, generally), and looking for small independent teams that are looking into developing a game, financing them a little in exchange for equity and then through loans, and taking care of the promotion side. Then, when a concept clearly works, even before release, they exploit it either by putting more teams in similar games, or by doing sequels. Let's have a quick look at a couple of examples to see how this works.

Football man... Football Coach: the game

If you are the most famous football (soccer for the Americans out there) player in your country, you tend to get strange offers. Offers like "would you like 20% of my videogame company to slap your picture in a game?". This seems to be what happened to Robert Lewandowski back in 2020.

Back in the 90s Rafał Cymerman was in a very famous videogame, Liga Polska Manager 95. Well, famous in Poland anyway, and part of a host of other similar local titles at the time (Many people in Spain still remembers PC Futbol). But overtime only Championship Manager -the British contestant in this pageant- survived (and turned into Football Manager, after Eidos and Sports Interactive parted ways). Football management games fell somewhat out of style, and only that one really survived (and survived well, selling a few hundred thousand copies every year).

And so, Cymerman decided there was an opportunity, and got Lewandowski on board, and Playway to finance the development of the game. Playway put a bit of money initially (around 50k PLN is my best guess) and then proceeded to finance the company with around 300k PLN in loans.

Sadly the effort didn't pan out. If there was progress in the development of the game, it was never made public and what is a biggest offense in Playway's playbook, there was no interest. Only a few hundred people had noticed the game on steam, despite the marketing materials. So Playway pulled the plug on further financing, and everything was written down (as seen both in the communications sent by Playway and in this article).

Overall, Playway lost around 350k PLN in this adventure... which is a small hit, but nothing to worry about really for a company that makes north of 250 PLN M, and tiny compared to the opportunity (I mean, FM makes more than 60 PLN M every year).

Builders of Egypt

Builders of Egypt started its life as a single person project back in 2016, and it was called Hard Ancient Life back then. And boy, has this game's road been hard... Jacek Turek, the only person behind this project, had no prior video-game development experience, and as far as I know majored in architecture. But somehow the game got some traction with the images and updates he was publishing. Partly, I guess, because those updates were overly optimistic. In this interview, for example, Jacek said that the game was expected to enter early access in 2019.

4 years later, that still has not happened (and actually the current plan is to skip early access altogether).

Playway got involved in 2019, investing 200,000 PLN in Strategy Labs, the company Jacek founded to do the game, in exchange for 69% of the company. Coincidentally, a few months before the name changed to the current one, Builders of Egypt, in what I suspect might have been the first intervention of the marketing department.

Promotion efforts wore fruit, and the number of people waiting for the game multiplied, hitting 15k in followers before the end of 2019 and 30k in 2021, amongst constant announcements of the full game being just around the corner. Currently, it is the 80th game in the steam wishlist classification, which is an impressive achievement. That was helped in no small way by a demo (Builders of Egypt: Prologue) released on March 2020... but then the problems started to become more and more apparent. From a hard date in Q1 2022, the game was moved to Q2, and then postponed indefinitely. And then, a year without any devlogs or updates. Recently, pace of updates has picked up again, but the community no longer trusts the updates much (and well, who can blame them). The gap was explained as a period where there was not a lot of clarity, and negotiations were ongoing with the backers of the game (that is, Playway)

Behind the scenes, what Playway has been doing is providing additional financing for the game in the form of loans to Strategy Labs (a total of 548,000 PLN, or 140k USD, give or take), which tells us that, unless Jacek has pulled resources from some unknown place, resources dedicated to this game are still somewhat meagre. Not only that, Playway's continued support has been there only because there is a clear desire for this type of game... and they have not stopped trying to capitalise on it.

While this was going on, a bunch of other "Builders of..." games started to pop up, with Builders of Greece and Builders of China popping up in the Steam store in 2020, and Persian Empire Builders in 2021... each of them under a different developer, and each of the developers part of the Playway empire. The first two, and specially Builders of Greece, gathered significant interest, and as it happens is the only one where you can see some progress in devlogs and the like. Development of Builders of China is also ongoing, as Live Motion Games received around 200,000 PLN from Playway on payments concerning this game last year.

What this means when we put it together is that Playway has invested a minimum of 1.2 M PLN, and we can think about 3 M PLN if we add external tasks not reflected in the reports, and pending expenses.

If this plays out really well, they have a new full series to exploit along House Flipper, Car Mechanic Simulator and Thief Simulator.

If some of the games come out and sell somewhat well, they will most likely recover all their investment (they would need around 50,000 copies between all of them? Pharaoh: A new Era sold north of that alone, and this was a remaster of a 1999 game with a similar follower count to Builders of Egypt).

And if it fails completely... well, it is still around 1% of the annual revenue of the group.

Playway's business approach

What do these examples tell us about Playway? First, that they are pretty ruthless on two fronts. One is cost, and the other is the interest their games generate. If they are not able to produce a game cheaply they don't. If they are not able to generate interest on a game, they either don't start development, or they don't throw good money after bad.

And this is an approach they follow with internal games too! And is closely related with publishing so many promotional materials for games that might never be made. They throw random concepts around, and if something sticks they invest. If there is enough interest, they will invest (a reasonable amount of money) even if there was no team allocated initially or the initial team did not deliver.

Take for example Security Guard or Cowboy Life Simulator. In both cases, after initial announcement there were no comms. But Security Guard got some traction during 2021, and now some updates started to show up. For Cowboy, the response was more gradual, but they eventually found a company to take care of the game, as it had been seemingly de-prioritized in Rockgame (another company in the group), probably because initially they had better prospects. The case of Orc Warchief is similar, in that initial development seems to have gone badly despite the interest, and so the developer was changed (apparently in late 2022, although updates are only coming through now, when you look at the steam history).

This approach has some drawbacks. Long lead times after announcement, and some reputational damage. Articles, videos or tweets talking about how Playway does never develop videogames, or develops a very small proportion of them are quite abundant (and one of them pointed me to the company actually!). But that is not true. Playway actually develops a lot of games, maybe more than any other group at their scale. Maybe more than any other group, period. But with very small teams and very early announcements, long lead times are a given. And with relatively new and small teams, the potential for things to go sideways is difficult to deny. That said, to tarnish a reputation you first have to have one, and I don't think Playway really does. The company hasn't really had a real global hit, and no studio has cult status. They do many acceptable games at very low cost, and some of them have moderate success. Very different playbook.

And talking about cost, their discipline is almost difficult to believe. There are a few games were we actually know the budget because the company or their subsidiaries have communicated it. With a few outliers, it is usually below 2 PLN M (500,000 USD), with many coming below that. And the approach has worked out well for them, with operating margins well above 60% since 2018.

The key here, I think, is their corporate structure. Those 104 companies are not in their annual report by chance. Playway manages to keep their standards up because they make their different development teams share on the risks, and frequently get their subsidiaries to be in the stock market, mostly in NewConnect. That way, what they end up getting is an army of owner operators with very constrained resources. And Playway wins through both a revenue share onevenue share on publishing the games and a share in the profits of their subsidiaries, which they push to pay dividends when possible, so the parent company can allocate capital as it sees fit.

Capital allocation is also a bit of an oddity in this company. It is not often that you see videogames and dividends go together, or at least not at relevant yields. Playway currently yields a bit less than 5%, but it has been paying a significant amount of its profits in dividends since 2018. In that period, they have also multiplied revenues by 4 (well, almost). To many, this might show either a lack of investment opportunities or a lacklustre allocation. And if there is a lack of investment opportunities, then that puts into question the future growth of the company. To me, what it shows is an extremely rare restraint, where a company is deciding to keep similar constraints on its investment policies now that it has grown. They can assume a limited number of projects, and those projects require a limited amount of money... and growing faster than they are would not be efficient. But the question of growth still remains.

The House Flipper & Car Mechanic Simulator addiction

Playway owes a big part of their financial success to House Flipper and Car Mechanic Simulator franchises. Together, they represented 52% of revenue in 2022 (taking into account DLCs and the like), and a much bigger part of the profits. That is always going to be the case in a company like this, with a few games paying for the whole effort. I haven't found the numbers for previous years, but I suspect they are actually worse.

This is, I think, the elephant in the room. The group as a whole uses a strategy that emphasizes developing a host of games in a hit & miss manner, and only has a few properties that had delivered. Many cover their (admittedly tiny) budgets, but the money is in those that sell way beyond that.

And other than these two, there are not many. Cooking Simulator, Mr. Prepper, Gold Rush, Thief Simulator and Uboat are probably the biggest ones (with Contraband Police as a new and welcome addition this half, with the 3rd best premiere of any Playway game so far in terms of revenue, behind... well, House Flipper and CMS21).

What worries me about these two games being so big for the group is that, while they have a sizable following, they are not household names or games with a huge community. While this is obviously not a Call of Duty, there are other games that are inmensely rich and rack a huge amount of hours among their players, being almost their only game. I was talking about Football Manager before. Well, Sports Interactive only really has that game, and that has been the case for many years, other than their brief foray in ice hockey. But FM19 had around 60-70k concurrent players at peak... and it had those until FM20 came out. FM20 had around 80k... and the story repeats year after year. The latest edition is consistently reaching peaks above 70k, 10 to 20% below its maximum 7 months after its release. And it will continue to do so until the next one comes. Average playing time is above 300 hours. Other games that consistently achieve this are Paradox Interactive games. When you have such a solid fanbase, even if it is on the small side (for a videogame), you can really trust it is recurrent.

In contrast, HF & CMS18 are around 20 & 30 hours, respectively (couldn't find data on CMS21). Good numbers, and the company keeps doing well with DLCs selling well, and the upcoming HF2 garning a lot of interest from players. But really far from topping the charts or becoming essentially a hobby on its own.

Can they keep growing?

Playway is cheap. Not in terms of price to sales (about 10x), but in terms of operating profit it is about 16x, and a PE of 25 in a year with a couple of non-cash items outside the regular business. That, for a company that has grown revenues 4x in 5 years, is extremely cheap. Which means the market believes that is not going to be the case going forward.

And there are some reasons to believe that. The dependency on HF and CMS is huge and worrying for the reasons listed above. So... what is the Playway group doing to try to guarantee its growth?

Well, first of all, investing on the games they already know sell well. Currently they are investing in a number of sequels coming up that look really good.

• House Flipper 2 (2023, but no date)

• Thief Simulator 2 (4th of october)

• Cooking Simulator 2 (Q4, but no date)

• And most likely new DLCs incoming for CMS 21 (last one was launched in June)

• Continued work on Uboat to get it out of Early Access

What might be in doubt here is the ability to generate new successes. But there are a number of games that I find promising.

• The builders series: Builders of Greece is supposed to drop during Q3 (although I suspect some delay). Builders of China and Builders of Egypt still have no dates. They seem to have decent interest from gamers, but the long time to get Builders of Egypt out has left many disappointed. What interests me of this series is not their potential as top sellers, but their potential to be a regular series (as historical city builders were for Sierra back in the day, with the whole Impressions city builders series).

• Infection free zone: While it still doesn't have a release date, currently it sits in number 33 of the most wishlisted games on steam, and going up quite quickly. While this is a Games Operators game (Playway owns 36%), I think it is still worth mentioning

• The pack: Aside from these two and the sequels and DLCs, there are a few titles that right now look like they are going to be successful. These include SWAT, Holstin & Sherwood Builders.

Add to that the whole host of games Playway publishes every year. Some of those are profitable (looks like that is going to be the case for Gunsmith Simulator, and it was the case for Bum Simulator or Mr. Prepper) and others are complete flops (Music Store Manager, Offroad Mechanic, Frigato, Cruise Ship Manager, Forest Ranger Simulator, Coal Mining Simulator...), and it is difficult to know which ones will fall where, but my impression is that, as a group, they more or less pay for themselves leaving the real successes to leave all their profits to the company.

In short, there is a lot of potentially very profitable games in the coming months, and a very large pipeline, and that makes me very optimistic regarding Playway's future.

But wait, why didn't that happen already? Well, my answer is that it has, but at a much reduced scale. Contraband Police, Mr. Prepper, Bum Simulator, Simrail (still in early access), Urbek, WW2 rebuilder... are all examples of profitable games, some more successful than others. But of course, of those, only Contraband Police has really been significant enough for the group to get close to the main ones, and that has happened recently...

My view is that investments take time, and Playway had not been investing strongly in new games until 2020-2021. Until 2018 (with the releases of HF and CMS18) they couldn't actually invest more. And then, it took time to adapt to the new reality and have enough projects to reinvest in. Capitalized work-in-progress has been on the raise every year and it is now more than 4 times what it was in 2017. But the bulk of the investment seems to have kicked in after 2019. And that means that we are starting to see the results (both good and bad) now.

And that is the main reason I am pretty optimistic about Playway's prospects. What they have achieved so far, has been in a very frugal manner, allowing for very high margins in games that didn't really sell that much. They seem to have kept that frugal nature, with games budgets still under tight control, and a seemingly prudent scaling up of the investments... and now it is time to start reaping the rewards of increased investment levels.

Wrap-up

Well, Playway does indeed publish games. 85 since 2021 according to their CEO, and a few are missing there (Espresso Tycoon and their latest releases after that tweet at a minimum) and that is how they make money. A bit of a dissappointment after the initial premise, but a very interesting company nonetheless. Headed by an owner-operator (CEO owns 41% of the shares), keeping the same decentralized and austere mentality that brought them where they are, and a bit shady with their research tactics, it is a big part of my portfolio.

There are also a few resources you can use to know more about this company

- @mariolterm, on Twitter (well, X) is probably the most knowledgeable person on this company. He publishes in Polish, but I always make sure to check his feed from time to time.

- @kriswawa, the CEO of the company, frequently talks there too, and you can actually ask him quite a bit (although, again, mostly in Polish)

While I think this is a good introduction, there are a few areas where there is more to be said (the myriad of studios and publishers they partly own, all the loans to subsidiaries and how that plays into early access games, the role of Games Incubator in the group...), so please, let me know in your comments if there is anything in particular you want to know about.

And in the meantime, let's keep digging for more loot!