Annual Report 2019

Shaping the Future of Entertainment

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STRONG PERFORMANCE – AND BREAKING NEW GROUND

 

It’s impossible to reflect on 2019 without first commenting on the split of MTG into two companies in March – Nordic Entertainment and new MTG. This was the conclusion of a transformative journey that MTG began several years ago to ensure a competitive entertainment group that could accommodate two strong and relevant equity stories in a fast-changing entertainment landscape. It was also a commit- ment to focus on what we strongly believe will be the entertainment of tomorrow – esport and gaming.

Our first year as the new MTG has been extremely exciting and rewarding. Through- out 2019, we have continued to develop our business verticals esport and gaming with an emphasis on becoming even more commercially professional. As a result, we have seen both increased sales, through a transformation from ad hoc to more sustainable revenue streams, as well as a continued improvement of our business profit. And from a strategic perspective, several important milestones have been achieved: We have launched the ESL Pro Tour format attracting the best teams in the world, landed new publisher relationships including a multi-year agree- ment with Blizzard, and entered a very promising strategic alliance with Nielsen – the leading source of truth for esport sponsor- ship valuation and media measurement.

An important decision we took during the year was to launch a strategic review of our gaming vertical, to evaluate possible routes to create shareholder value.

Looking ahead, I believe we have more hard work ahead of us, and the promise of a very bright future.

Today, we are the world’s leading esport company with our investments in ESL and DreamHack, which offer best-in-class national and international events, leagues and festivals. Esport is one of the most viewed and fastest growing sports in the world. ESL and DreamHack are already global brands and the preferred choices for viewers, players, partners and publishers.

“THE VIDEO GAMING MARKET IS TODAY WORTH WELL OVER USD 100 BILLION, WHICH IS MORE THAN THE MOVIE AND MUSIC BUSINESSES COMBINED.”

We are in a very strong position with key investments in InnoGames and Kongregate. InnoGames runs a portfolio of seven successful free-to-play games that are played on PC and mobile devices, including titles such as ‘Forge of Empires’ and ‘Elvenar’. Kongregate is firmly established as a leading publisher of casual and hyper casual mobile and PC games.

Esport – the future of entertainment

To build and develop a new sport is a journey, especially when it comes to creating a highly engaged fandom around it. Many sports will never move beyond being entertainment for the few rather than for the masses, and hence not become a commercially viable product capable of attracting a meaningful number of eyeballs.

However, esport is different. The number of gamers worldwide is expected to grow to 2.9 billion in 2022, up from 2.4 billion in 2018 – and the global esport audience is expected to grow to 645 million by 2022, up from 395 million in 2018. Games – whether played at home on a computer, on the go, or in an esport arena by an esport professional

– represent a major commercial opportunity. Esport fans have unique characteristics com- pared with other sports. They are young, well-educated with higher than average income than other sport fans and are infa- mous for being difficult to reach through marketing (70% use ad-blockers). This makes them a relevant target group for any company wanting to rejuvenate its brand and expand its business beyond its traditional base by getting exposure to these interesting target groups.

This is one reason why we continue to be thrilled about the future prospects of esport as an entertainment product. And throughout 2019, we have introduced structural measures to realize the full commercial value of esport, including a new league structure named ESL Pro Tour providing certainty and longevity, a strategic partnership with Nielsen to gather trustworthy statistics from events, and expanded our publisher relationships to include even more exciting triple A games. We are also pleased with the agreement with Blizzard around their acclaimed titles StarCraft® II and Warcraft® III: ReforgedTM. With these measures in place, I feel we are in a good spot in the industry to become a strong alternative and competitor to traditional sports for media and brands.

Gaming – a highly exciting industry at a crossroads

InnoGames achieved good growth in 2019 with strong development of its existing games portfolio, especially Forge of Empires. Improved customer lifetime value throughout the year has provided us with an opportunity to invest in marketing for future growth. During 2019, InnoGames has been working on both newly released games such as Warlords and new games. The result is four new exciting games to be released during 2020 – all of them mobile first and built on our expertise in game development.

Kongregate had a tougher start to the year and we made the necessary changes to its operational model, focusing more on direct publisher relationships, rolling-up success- ful IPs that we have had a publisher relation- ship with and tightening up the total scope of the games portfolio. In the second half of the year, the turnaround was clear and Kongregate ended the year on a high note with a strong momentum going into 2020.

We are proud owners of two very strong and relevant companies within our gaming vertical. The majority stake in InnoGames has created significant value, and Kongregate has made impressive progress in 2019. At the same time, I believe the gaming industry is at a crossroads. Looking into 2020 and beyond, it will require much more to stay relevant and competitive. More resources are required to make the necessary investments in our existing businesses. Deeper pockets are needed to capture new opportunities to broaden our portfolio. During 2019 and since the split, we have been approached by financial and industrial investors with various alternatives to make us even more competitive going for- ward. We want to always act in the best interest of our shareholders, and that is why we launched our strategic review in 2019.

The strategic review – crystalizing hidden value

The purpose of the strategic review is to evaluate the best ways to create and crystalize value for shareholders. The Board of Directors and management team continue to believe that a separation of the gaming and esport verticals, which would allow them to adopt their own financial structures and independent strategic objectives, is the best way of accomplishing shareholder value.

In pole position with a bright future ahead

In the beginning of 2020 the global society and economy was significantly impacted by the new corona virus pandemic. Equally impacted was MTG’s esport vertical which is built around large live events with media rights, brand partnerships and many attending fans who purchase tickets and merchandise. However, as esport is digital by design it has the potential to offset some of the negative impact as MTG and its portfolio companies continue to deliver great entertainment by moving to online competitions and thereby creating new business opportunities. In this difficult period it has been crucial that all decisions by MTG and its group companies are taken with the well-being of colleagues, fans, teams and customers in mind.

As many times before in the history of MTG, we are venturing into new commercial territories. Our belief in tomorrow’s entertainment – esport and gaming – is strong. Success in creating value will only come through relevant products, creativity and innovation. We are in pole position with an opportunity to establish MTG as a global leader in the esport industry and we will accelerate value creation by further drawing on synergies from our ownership of the two strongest esport brands globally, aided by our solid financial position and commercial operational expertise.

Breaking new ground, we will rely on our heritage and approach to always focus on commercial innovation and products which resonates with our customers. This will enable us to continue to be strongly committed to bringing the best possible entertainment to all esport and gaming fans around the globe.

Jørgen Madsen Lindemann
President & Chief Executive Officer

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