Covid-19 and Video Game Industry (Zynga Mobile Game Research Paper)

Covid-19 and Video Game Industry (Zynga Mobile Game Research Paper)

Covid-19 has shaken up the world around us and the industry of video gaming is no exception.  Zynga has seen increases in our mobile game downloads.  This increase in our downloads of our games is an exciting opportunity for us to grow in the future.  This pandemic is going to have long lasting effects on the video game industry and we want to position ourselves to be one of the companies that comes out stronger after the pandemic is over.  During this pandemic apple has announced that their game downloads are up 30% overall. We as an Human Resource function are going to put ourselves in a position to maximize the amount of growth that we can hold onto in a post-pandemic world. 

We want to take advantage of the human capital we have and propel us into a post-pandemic world.  We have decided that shifting and retraining some of our talent who used to manage the Facebook platforms into newer roles since we no longer rely on Facebook would be a more effective use of their talents.  We want to retain our talent and put them into new roles where they can thrive because under the influence of Covid-19 it is hard to hire new talents.  We want to position ourselves for growth in the future through these retraining programs to develop our current talent. 

Our proposal is one that will put us into an extremely competitive position amongst other competition that is not investing in resources now to keep them under their company influence and growth. This proposal will be pulling away from the older Facebook platform where we began and begin pushing directly into the Apple App Store and Google Play Store with this talent. In this older model, we were using our human capital to promote within Facebook and generate them web traffic and revenue due to the popularity of our games. Some games played on Facebook generated up to 87 million monthly users such as CityVille.  This is an important group of players that are being supported by Zynga Facebook developers and with a transition over to work directly for Zynga and app publications into different app stores, we will see higher revenue on our current games than before, as well as a faster rate of creating new apps for users on the app store. In the Q3 of 2020 alone, there were around 26.3 billion app downloads on the Google Play Store and over 8.2 billion downloads in the Apple App Store concurrently. Games take the majority of the share in terms of use on people’s devices which means that Zynga will be repositioning themselves for a great entry away from Facebook. 
Our proposal will involve investing in new equipment for our talent as well as training for them to be ready for a strong transition and production period of 4 years to generate a new game.

We compared Zynga with its competitors-- Glu Mobile and Double Down interactive because both of them have been committed to the mobile games area for a long time. Glu Mobile is a leading organization of video games for mobile phones and tablet computers including Covet Fashion, Deer Hunter and Design Home. Similarly, Double Down Interactive's main business scope is also in the mobile game area with famous representatives like DoubleDown Casino, DoubleDown Fort Knox, DoubleDown Classic Slots, and Ellen’s Road to Riches Slots. Different from the two competitors, Zynga used to focus on social platform games and Glu Mobile and Double Down interactive developed their own apps earlier to establish contact with consumers in a more direct way. Previously, Zynga's games relied more on social platforms such as Facebook or Twitter. However, with the decline of social platform traffic or the close connection between the two, Zynga game’s volume of  consumers will be negatively affected.

Compared with Glu Mobile and Double Down interactive, Zynga has lower Gross Margin rate and ROE rate. In terms of Net profit/employees, Double Down interactive is significantly higher than two others. From the comparison of the three companies, we think it can give two inspirations to the industry. First of all, it is necessary to improve the "ROI" of each employee. There is a big gap between the three companies in terms of personnel size (Zynga:1799; Glu Mobile: 849; Double Down interactive:280), which is why the profit/employees ratio of double down interactive is higher than that of the other two companies. Therefore, it is very important for each individual to develop their potential. When the external environment changes or the company's business focus changes, it is important not to recruit "suitable" people blindly, but to let the existing employees who meet the company's values keep learning and realize their self-worth to maximize company’s profits. That is the way to increase the profit and maintain stable costs. Secondly, mobile game enterprises need to establish more direct contact with consumers. If you rely too much on the third-party platform, when the exposure and popularity of the platform decline, the enterprise will also be negatively affected. Even if we continue to invest money, the rate of return is still very low.

This project may run into hurdles throughout the time of the proposal being in action. Therefore, we are now going to provide the optimistic and pessimistic views of the proposal throughout its lifecycle and what that will mean for Zynga’s investment in terms of revenue:

We can see that our expected revenue is about 26% lower than our optimistic view, but is around 35% higher than our pessimistic view. Our proposal will be able to last in either an optimistic or pessimistic situation but ideally, we will be able to guide the proposal into a mix of expected and optimistic results by year 4 and onward to keep pace with/ideally lead the competition in the coming years.

From our calculations this adjustment of our staff will have great impacts on us financially.   We will have to retrain staff to be able to program these video games and we expect that training to last one year.  This is one of the most crucial steps to this program working so we wanted to ensure that they would have plenty of time to be trained and do an exceptional job developing this game.  During that time, we will have to still be paying those workers for their time and that will cost an estimated $4,406,400 in labor cost This includes base salary, benefits, and insurance. We estimate that the equipment costs during this training period will be $625,000 this includes the costs of new high-performance PC’s Peripheral (keyboard, mouse, monitor), and a new training lab.

Finally, the estimated cost of training cost to be $103,245 including the salary of the instructor and curriculum development.  

Our initial investment on fixed assets would be $728,245 and we expect over the life of the project that these will depreciate to a value of $0.00.  Each year we estimate that they will depreciate by $182,061.25 or 25% of their value.  We have calculated that it will take approximately 4 years for us to complete our game development with our new team. In those four years of development we will have Estimated expenses of $4,774,645 in year one, $4,131,374 in year two, $4,218,133 in year 3, $4,306,714 in year 4.   

In this project we do not expect to make any money until year 4. This is very common in the video gaming industry because we cannot make any profit on an unfinished video game.  In year four however, we anticipate the completion of the video game and over the lifetime of the video game we expect to make $50,000,000.  In all the years prior to year four we expect to have a negative pretax profit and after those years we expect to have $45,511,224 total.

Overall, this project is very safe and has a lot of room for the investment to return value to Zynga. The employees that are part of this process and those around them will realize that Zynga cares about them and wants to continually develop their internal talent rather than hire prospects to work for the company. The new equipment and high quality training that will be provided to these employees will allow them to have a fresh start in their new developments for Zynga and overall will create a very competitive team that can generate millions in revenue at the end of our investment period. Other considerations that Zynga should account for would be if their training program is not being followed by employees and they begin to resist this process. Zynga’s HR team will need to be ready to fully explain and accommodate questions and provide their employees with exceptional service in order to keep the investment alive for Zynga. If the employees cannot be trained, that will be an extreme cost burden and Zynga will need to pivot quickly to avoid excessive turnover costs. But, this process should be well received due to the fact Zynga is showing its employees they are ready to take them to the next level in their roles with not only new training, but with state of the art PCs and equipment that they have not had access to before.