Sumo Group’s annual results were a little delayed this year. Nothing to worry about of course, just a nationwide request by the Financial Conduct Authority due to the pandemic.
In fact, results were up across the board, and ahead of expectations, with profits (EBITDA) up 37.5 per cent to £14.1m. Within that, there was strong growth in revenue from its own IP, up from 10 to 33 per cent year-on-year – which we’ll come back to later.
And that two week delay was actually beneficial for the company, Sumo Group CEO Carl Cavers tells MCV/DEVELOP, allowing Sumo’s now ten studios to better address what would otherwise have been “an elephant in the room” in the form of COVID-19.
“We’ve used the extra time to explain where we are, because we’ve been working at home now for five weeks. We’ve been using data points to really dig into how we’re looking at the impact on the year and I’m really encouraged by the performance that we’ve got from working from home. It’s been nothing short of a stupendous effort by everybody at Sumo,” Cavers tells us.
“Obviously, there are some efficiency impacts on what we’re doing. And we are forecasting a three and-a-half percent productivity hit by working from home across the group,” he informs us, although that hit isn’t equally distributed across all projects he adds.
Sumo has released a graph as part of its results showing the varying impacts on differing sized projects – in total the group currently has 21 projects across 12 clients.
“It shows our productivity levels before COVID, where our productivity has dropped as we moved to working from home, and how it’s picked back up again since. We’ve got three examples in there:
“One’s a fairly large scale project but early in development where things are fairly stable in terms of what we know we need to do and productivity has picked back up.
“We’ve got one in the early phase of pre-production, where in fact, productivity has increased since working from home, and talking to the guys, it seems that they just have less distractions, at a point where they need to iterate very quickly, and so productivity has gone up.
“And then we’ve got a large scale project, that’s towards the back end of its life in development. And that’s taken a little bit longer to get back up to the same productivity levels. And you’d expect that, on large projects, that it takes a little bit longer to get things nailed down and organised.
“But fortunately, the management systems that we’ve got, in terms of the control processes, still give us all the same data, we’ve had to adjust some of the reporting elements as we’ve gone along, just to reflect where we are, on a working from home basis, but ultimately every decision we make is based on data that we get from from our production teams. So we’re quite happy with where we are with that.”
All this means that development, for Sumo and presumably many others, does not look to be the key cause for any corona-related delays in getting projects to market.
“Development is largely on track from our point of view, and we’re not seeing any impact on change of release dates, based on delivery,” confirms Cavers. “It will be interesting to see how things get marketed, though, because obviously it is a different world at the moment.”
So while Sumo’s processes look to have robustly survived the shift to working from home – as have MCV/DEVELOP’s, bar the regular intervention of small children looking for sustenance – increasing the size of its own brood is proving more difficult.
“The biggest challenge from COVID that we’re seeing, and we’ve had to trim our expectation, is with headcount growth. At the end of last year we got the headcount up to 766, and we had a really strong year. We actually exceeded our internal targets for headcount growth, and the start of the year looked really good.
“And now obviously everything’s fallen off a cliff. And it’s because, generally, people aren’t looking to move. We normally target bringing on a new person every single working day within the group. And we’ve cut that back to a new person every five days.”
Cavers agrees that in the current climate people are staying put, with the idea that their current job is more secure than any move. Of course there’s an upside to that in terms of churn, but that’s not enough if you’re looking to grow.
“Yes, we’re expecting our attrition levels to drop dramatically,” Cavers agrees. “But to be honest, our attrition was less than 10 per cent last year. So it’s not exactly high anyway. It does mean we’re not battling retention at the same time as we’re trying to hire, which is obviously got to be a good thing.”
With that said, there is one other possible silver lining for a company such as Sumo, and other companies that are looking to grow: “I think there may be some acquisition opportunities for us, smaller organisations feel the sensitivity of big changes outside of their control and therefore they’re going to look for the security of being part of something larger as well,” he suggests.
And with Sumo Group looking to further increase its capabilities, both in the UK and in other regions, that could prove the answer to delivering continued growth this year when organic growth via recruitment is unlikely to deliver as usual.
Sumo already consists of ten studios now, with recent acquisitions including indie-darlings The Chinese Room in 2018 and work-for-hire veterans Red Kite Games in 2019. Showing that it has broad interests when it comes to potential targets.
“We’re looking at bolt-on accelerators, which could be small indies, which would come in and supplement the activity we already do within the Sumo group. But then we’re also looking at opportunities that give us different potential as well in terms of either the genres we offer, or the territory that we’d be based in, so we’re looking globally at larger acquisitions at the same time.”
Speaking of other territories, we inquire whether Tencent’s ten per cent of Sumo – in a deal from late last year – gave the group a better strategic vision into the asian market.
“Not particularly,” Cavers begins. “Tencent have invested and it’s very flattering to think they believe we’re a great business and they wanted to do to share in the opportunity that we have. Strategically we do talk to them about what’s happening in China, but I don’t think our conversations are different to conversations they would have with pretty much anybody else, when I see the level of data that they do share at events like GDC. So we’re not leveraging them for anything.
“Ultimately our relationship is an investor-based relationship and we don’t get anything special, other than the underlying sign that Tencent thinks we’re a good business.
Although Cavers does agree that the name can help smooth the path in the region. “I think you’re absolutely right. Also, a lot of investors use it as an indicator – that if somebody within the industry as successful as Tencent is prepared to invest, then there must be something to us, essentially.”
And that “something” now includes a lot more than simply the work-for-hire powerhouse that the developer is well-known as. With revenues from own-IP projects hitting 33 per cent last year.
That own-IP push really started with Snake Pass back in 2017, but more recently we’ve seen Spyder on Apple Arcade, which is soon to be followed onto the service by the still-mysterious Little Orpheus.
And Cavers is keen to set the record straight on creativity at Sumo: “I think one of the things that we recognised over the last couple years, since coming to market in 2017, is that we probably underrepresent ourselves in terms of our creative offering and I think there’s a misconception in the market, and the industry to some extent, that we just provide capacity to make games and in fact that’s not really what we do.
“We actually conceive ideas for our partners as well and often we’ll conceive an idea within Sumo and end up selling that idea as part of the development to one of our clients, who then finance bringing it to market, but it was originally conceived at Sumo.
“So what we’ve sought to do is breakout and demonstrate the level of creativity and depth that we have at Sumo, because we are really doing things from cradle to grave the majority of the time,” he explains.
“Apple is a good example with Little Orpheus and Spyder. Spyder came originally through a game jam process, we talked about self funding that and bringing it to market. But it was a much better opportunity to partner with Apple.
“They funded the development to bring that to market. We still retain the IP but they’ve got a period of exclusivity on that. So it’s a great example whereby again, we’re being very creative, but in the past you wouldn’t have seen the creativity coming from Sumo.”
He is clear though that IP ownership isn’t now the be-all and end-all of Sumo’s strategy: “Now what we’re not committing to is to increasing that [33 per cent figure] or it staying the same, because it would depend on what the best commercial opportunity is,” he notes pragmatically.
“We work on some great IPs for our partners. One of the biggest challenges we’ve always faced and will continue to face is confidentiality. We’ve talked about having 21 projects at present, but I can only talk about five of them. So I always feel that I’m not able to share the best things with you at any given point. But we have some great things in development and we wouldn’t want to walk away from partnering with great clients and great IPs.”
And any own-IP products will remain relatively small projects or those that can be co-funded with others? “Absolutely, we are not going to suddenly start taking a large principal risk on bringing a product to market. That’s not what we do.
“Snake Pass cost us a million pounds to develop and bring to market. We can afford to do that, we’re not risking the farm… we’re not talking about spending, you know, $20 million on the next big thing!”
In short there’s plenty to like in Sumo’s 2019 results and 2020 outlook. And that’s a much-needed ray of sunshine at present, we hope that with Sumo having successfully coped with COVID-19, the rest of the industry is faring similarly.