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Investment

How to invest in gaming #1: Paradox Interactive

While researching investment opportunities within the gaming industry, I decided it would be fun to create a series of articles with my notes. This is the first article, and dives into one of my favorite gaming companies – Paradox Interactive.

Paradox Interactive (PDX – Sweden)

Stock price as of this writing: 239.80 SEK
Company valued at: 3 057 680 000 USD (25.8 mrd SEK)

This swedish game developer and publisher became my most lucrative investment last year, with a 114% ROI. Paradox are primarily focused on the grand strategy genre, where they are a big player with games like Europa Universalis, Stellaris, Cities: Skylines, Hearts of Iron, Crusader Kings, Age of Wonders and Magicka. They also acquired the popular title Prison Architect last year, and are a successfull publisher for a variety of great titles: Steel Division, Tyranny, Surviving the Aftermath, Empire of Sin and Pillars of Eternity to mention some.

Game Studios

Paradox currently owns several different development studios in addition to their original Paradox Development Studio and its siblings:

Harebrained Schemes: Battletech, Necropolis, Shadowrun series, Golem Arcana, Strikefleet Omega, Crimson: Steam Pirates

Iceflake Studios: Surviving the Aftermath, Ice Lakes, Race Arcade, Premium Pool Arena, Target Horizon, Pirates don’t run

Triumph Studios: Age Of Wonders

Playrion Game Studio: Airlines Manager

Strengths and opportunities

Replayability & DLCs
One of the biggest strengths of Paradox is their ability to deliver deep, complex games with hundreds or thousands of hours of replayability, and then churn out DLCs. One of their main titles, Europa Universalis IV, currently have 33 DLCs, costing about 290$ combined. That means that a loyal fan of the game may leave about 320$ for the entirety of the DLCs plus the base game. This would be the closest thing you can come to a subscription based model without actually being one.

Churning out regular DLCs also ensures the games feel fresh and updated, and makes sure that players stick around for several years.

It’s not unusual to see Steam reviews from players with thousands of hours on Paradox titles

Focus
One of Paradox’s strength is that they have a overall theme: Strategy games. While a lot of the biggest companies dabbles in pretty much every genre, Paradox focuses mainly on strategy games, particularly grand strategy. This gives them the ability to be focused both in development, acquisition and talent.

Mobile and consoles
Grand strategy games involves a lot of clicking and reading, working best on desktop. That said, there’s obviously a big potential if they manage to successfully enter these platforms. Titles like Stellaris has already been ported to Xbox, and the acquisition of mobile game developer Playrion seems to signal that they want to take this seriously in the future.

New games
Crusader Kings III was released this autumn, 8 years after the second installment in the series. Being a very similar series with the latest game released one year after Crusader Kings II, Europa Universalis V will probably not be too far away. Having hit the mark with Crusader Kings III (93% positive Steam reviews as of this writing and 1 million copies sold), it’s a promising foundation to build on for Paradox. Both Cities: Skylines (2015) and Stellaris (2016) will also eventually get a new addition.

In addition to having a bunch of great titles to upgrade regurarly, hopefully they’ll be able to conjure up some brand new stuff as well. The acquisition of Prison Architect is also interesting to expand upon, with different kinds of architect games being a logical expansion.

Another kind of game that would be very exciting to see would be some kind of a strategy MMO. Although the DLC model makes each title very lucrative, it does have a maximum limit for what a player is able to spend on each game, unlike MMOs or games that heavy utilizes micro transactions like FIFA or Counter Strike.

Board games
Paradox has also announced that they are going to develop several of their digital games into board games, which could be another nice revenue stream. Crusader Kings and Magicka Mayhem are first out.

Weaknesses & threats

Niche
Grand strategy games are certainly not for everyone. One of the downsides of deep and complex games is that they have a big and sometimes unforgiving learning curve. This may throw a lot of potential customers off, especially those new to the genre. I believe the probability of Paradox launching an insane worldwide bestseller like Counter Strike, PUBG or Fortnite is pretty low.

Perhaps not as crazy as the learning curve of EVE Online, but Paradox titles are not for the casual gamer.

Games as platforms
To sell 30+ DLCs for 300$ for a game, you need players who really, really enjoyes the game. While a lot of games can sell big on hype and call it a day, Paradox is in it for the long term. A big hit can become a very big hit, but a big miss may be a very big miss.

Mobile and console
While being an opportunity, focusing on mobile and console games may simply be a dead end, at least for most of Paradox’s titles. Grand strategy games are best played on desktop, period.