In April 2022, Wargaming announced that it was leaving the Russian and Belarusian markets. The editor of AIN.Capital asked the CFO of the company Andrew Tinney about the reasons and consequences of this decision, as well as about what is happening in the world of game development in general.
Many global businesses exited the Russian market, but many didn’t, what was your company’s stance on that? When have you decided that you would be leaving the Russian market?
Ukrainian Persha Studiia (Wargaming Kyiv) reports up to me, so I frequently visited Ukraine. The last visit was in October 2021 and had two purposes: to look at the game projects in development and to assess the situation on the ground. Before I left I agreed with Serhii Shumyhora (Executive Director of Wargaming Kyiv) that we should begin preparing for the worst.
So the weekend before the invasion, we opened a site in Truskavets with a capacity of 200 people with infrastructure and networks ready for work. Within 4 hours of the first Russian troops crossing the border, we had buses ready to transfer our people to a safer place. I was contacting Serhii and the team regularly to make sure they had everything they needed.
Immediately after that, I began to work with our chief executive team to put together the options around what we should do next. By the first or second week in March, I concluded that the right decision for the company was to exit Russia and Belarus completely. You can imagine how huge a deal that was.
So how did you organise it?
We did some preliminary work and it all culminated in what we called a work week. We didn’t want to have lots of people speculating about what we were discussing, so it was a kind of nondescript way of talking about it. We gathered all the senior executives together for a week in a head office and by Wednesday (30th of March) we had made the decision to exit Russia and Belarus. We didn’t want our games seized by the state and used for propaganda purposes.
We had a board meeting on the 31st of March to confirm or reject the decision. Some questions were asked like: should we have the ability to buy it back? But my position was: there’s no going back, no hidden clauses. So the board voted for it.
So legally on the 31st of March, the Lesta Studio ceased to be part of Wargaming (it was acquired by Wargaming 10 years earlier — editorial note).
Amusingly enough we decided against publishing a press release about it on the 1st of April, to avoid people thinking about it as a joke. So we made the media announcement on the 4th of April. All of our Russian operations have been withdrawn since then.
As you announced your exit from the Russian market in April, could it be safely said that Wargaming has not received any dollar of revenue from Russia since then?
From the 31st of March, no money has gone in or come out of the Russian market for us. We’ve been very clear about that.
The business was disposed of to local management at 0 cost, debt free, cash free, with no consideration to take it back. We went through the formalities of registering the sale in Russia and completed the registration 8 days before Russia passed all the laws preventing international businesses from exiting its market.
Was the Russian market one of the key markets for Wargaming? How much money did the company lose due to leaving Russia? What were your estimates and did they prove to be realistic?
The estimates were almost precise, within 3% of the revenue for our fiscal year that ended March 23. We lost $250 million of revenue due to that decision. However, we managed to stabilize the losses and operations through asset disposals, some exits, and so on. And by August 2022 we brought ourselves back to breakeven.
In terms of staff, 2/3 of our employees were in Russia, Belarus, or Ukraine before the invasion. Around 3400 people out of 5400 were in those three countries. The vast majority of the Russian employees stayed in Russia at Lesta Studio. So our headcount shrank to 2800 but till September 2022 bounced back to over 3000.
How many players have you had in Russia and Belarus? Did you get any sort of hate commentaries from your Russian user base concerning this decision?
The user base we lost was about 5 mln. These were significant markets to us and significant player numbers.
When you make a really difficult decision like that, there will be hostile people. But we believed what we were doing was right for our company and for Ukraine.
Could you say anything about the Ukrainian office’s performance during the full-scale war?
I haven’t visited the Ukrainian office since the full-scale war started but I talk to them regularly. There’s an English expression: they’ve barely missed a beat. That’s about sums it up. The team has been incredible.
Some were already working remotely, and some made their own arrangements when the war started, but the core of our teams have not missed a beat. They provided all of last Halloween’s events in World of Tanks. Our Central Art team in Kyiv has worked at full capacity and full utilization.
We obviously have done everything we can to support them. And as I said before we were not going to lay off people. In fact, we’re we’re planning potentially to grow a little bit there and in Ukraine.
How many people are you going to hire in Ukraine?
For example, if we are talking about our Central Art Team, there will be growth in headcount numbers. It is not finalized yet, but we think our Central Art Team will grow around 40% and much of that will be in Ukraine.
Many people here worry about the winter and potential Russian attacks that will bring lasting blackouts. Is the company ready to support its Kyiv office?
The unequivocal answer is yes. In Kyiv, we have backup generators, sheltering capabilities, additional supplies for water, and other facilities.
If we are talking about the state of the global gaming landscape and the company’s place in it, Covid seemed to give some sort of a boost to gamedev with everyone staying home and playing games, what changed since then for gamedev companies?
First of all, we take great pride in being able to support a lot of people through the time of COVID. Games were one of the very few forms of entertainment available to most people. You either watched Netflix or played games. We’re very proud of the contribution we made to people’s mental health.
In our company, there was no question that remote working affected productivity. What we found is certain types of activities and certain types of processes actually work better remotely. It’s often leaders and managers, who struggle to run a remote team integrated with an in-office team. But we all got better at managing during Covid.
Now the majority of our colleagues attend the workplace almost full time, or at least three days a week. But there also are teams who continue to operate in whatever mode their leaders and managers feel best.
Are there any specific challenges for them now, financially speaking, especially with some sort of crisis going on in global IT?
All of us expect a decline the next year, certainly on the mobile side. But there are a lot of other forces and decisions at work here. For example, Apple’s decisions on privacy have severely impacted mobile game publishing. If you have an existing franchise as we do, the impact is not so visible. But we feel deeply sorry for people trying to bring a new mobile game to market. To launch a new mobile title now you’ll probably need $100 million of launch marketing.
It is raising the cost of user acquisition, it’s hurting the economics of the games and it’s playing into the hands, to be honest, of big players like EA, Activision Blizzard, Microsoft, and so on.
As for the decline in mobile gaming, unfortunately, I think we’ll continue to see this trend next year. Those who will be trying to break into the market will find it to be more challenging.
Speaking about independent studios, you most definitely saw the recent conflict between Unity and its new business model and indie developers…
It’s fair to say I was surprised with their decision to pivot and become an engine/platform. It is more recession-proof to own an infrastructure that the industry runs on. So I think I understand their strategy. But I also think they have to find ways to support and help small players who might suffer from that.
And that brings us to the rest of your question. From my personal point of view (not the company’s CFO), the economy’s now looking quite challenging for those small developers.
In 2019-2020, and even 2021 globally we had incredibly low interest rates, and investors with huge amounts of liquidity they wanted to put to use. So then anybody who could spell ‘video game’ was getting funding just fine, whether the idea was good or bad. But lots of those games are running out of that funding. There are even huge titles that simply ran out of cash.
What you see is now an industry-wide reduction. At the same time, we are seeing great talents becoming available that weren’t available earlier.
People still believe that if they fund the right game, they’ll make x10, x30, but the reality is that one on maybe 100 games becomes a hit. If I had to summarize it, I’d say the market is correcting to become more normal.
I’d say we see some of the same trends we saw in Hollywood, where a shrinking number of studios and huge franchises pumping out similar stuff. Every now and then you could get a ‘Blair Witch’ project or a ‘Squid Game’ from an independent studio of course. And I think gaming is moving in that direction.
The ability to develop a successful game for someone is still there, but it’s getting tougher and the availability of funding is going down. But I’d still encourage those startups to keep going. The breakthroughs in gaming are worth it and the immense pleasure they give gamers is worth it as well.
