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505 Games, publisher of ‘Control’ and ‘Death Stranding,’ wants to build its own empire

(Washington Post illustration; 505 Games)

You may have seen 505 Games on the publishing credits of titles like “Death Stranding,” “Terraria,” “Control,” “Don’t Starve,” “Dead by Daylight” and more. Its portfolio ricochets across genres, from farming simulators to horror survival games.

For most of its existence, 505 made the bulk of its revenue publishing existing games to new platforms, such as bringing “Stardew Valley” to PlayStation 4 and Xbox One within a year of the game’s initial launch on PC. Founded in 2006 by Italy-based company Digital Bros, 505 passed its 15th anniversary this month and is transitioning to acquire more studios.

The goal is to own the games it publishes rather than making a few cents per dollar off games owned by other developers like Kojima Productions and Remedy Entertainment, among others. The change increases 505′s profit margins and is aimed at impressing shareholders.

In 2018, 505 Games made over half its revenue from publishing agreements with games, including “Stardew Valley.” In this year’s financial forecast, 505 expects its reliance on publishing agreements to drop to around 30 percent of total revenue and to fall to single digits in the future as the company transitions into fully owning more games, according to Neil Ralley, president of 505.

“We’re not actively going out for those relationships as aggressively as we were,” said Ralley. “A key objective for our future is to build upon our own internal development, and build up our own internal [intellectual property] and publish those and make good success out of those.”

Owning the rights to the games also opens up additional profitable opportunities outside of gaming, something that becomes increasingly relevant when looking at how merchandise and Hollywood spin-offs of games grow media empires.

“Whether we want to go to merchandise, whether we want to go to film or TV, there’s a huge amount of opportunities in the industry right now where you can widen the reach of your game … to all of these areas. And if you don’t have control over that IP, you’re limited in terms of what you can do,” said Ralley.

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As part of its expansion, 505 acquired puzzle game studio Infinity Plus Two in January for $4.5 million. Initially, Infinity Plus Two had a typical publisher-developer relationship with 505 Games: 505 contracted the developer to make the free-to-play title “Gems of War” before acquiring the studio outright. The publisher had approached Steve Fawkner, the CEO of Infinity Plus Two, with an acquisition offer a few years earlier, but he declined at the time.

Fawkner remembered receiving another call in 2020 while he was staying up until 3 a.m. working on a game. He had resisted multiple acquisition proposals, but said the timing and terms of the deal finally lined up last year.

“I was up doing some work because I quite like that quiet time between midnight and three,” said Fawkner. “[My agent] rang me up and said, ‘Hey, I’ve just been talking with the guys at 505 and they want to talk about acquisition again. This one ticks all the boxes for you, so how are you feeling about it?’ And I said, listen, I feel pretty good at the moment.”

505′s strategy for free-to-play games is to develop more titles that continuously generate revenue for years, like “Gems of War,” said Clive Robert, head of free to play at 505, who joined the publisher in 2015 to build out its free games portfolio. Robert said the business model of a game should be embedded into its creation, and titles where developers aren’t sure whether it should be free or premium don’t work.

“That, for me, is the instant death knell of that title. A free-to-play game has to be free-to-play from the absolute outset. The concept must be free-to-play,” said Robert. “The way a free-to-play game is built is all about those core loops, those compulsion loops that make the player want to complete a cycle and come back for more. You’re competing to keep that player’s eyes engaged with your game, because he can walk away and uninstall it at any point. He’s not financially invested in it. And that makes the design and creation of a free-to-play game absolutely critical from day one.”

Robert said that battle royale games like “PlayerUnknown’s Battlegrounds” and “Fortnite” require maintaining such a large amount of players of varying skill levels that it would be hard to manage and still turn a profit. He declined to say if 505 is investing in making massively multiplayer online role-playing games similar to “Runescape” or “World of Warcraft.”

“We don’t have a specific genre that we shoot for. For our number of genres, we’re pretty open-minded. We’re open-minded to the platforms as well. We’re open-minded whether it’s a premium game or a free-to-play game,” said Ralley, 505′s president. “Anything that comes to our greenlight process … it always surprises me.”

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It’s easier to describe what games 505 doesn’t invest in rather than listing out all the genres that it has made bets on. Ralley said the company generally avoids licensed sports and movie games. Ralley, who worked at 2K Games managing titles from the WWE 2K, Mafia and NBA 2K franchises, said that licensed sports and film titles would be too costly for 505 to pursue, and those categories are too dominated by popular existing franchises like “FIFA.”

The company just passed its 15th anniversary on Sept. 2, and executives said the firm was able to stay afloat over the years during chaotic market conditions largely due to making the right bets and greenlighting or canceling games depending on market demand.

For instance, parent company Digital Bros signed a 2015 deal for Starbreeze Studios AB to develop and publish a “Walking Dead” game for $10 million, but PC sales for the game when it launched in 2018 “were lower than expected,” according to a public report. At that point, 505 had already paid $4.8 million of the total contract, and it broke off the rest of the deal to produce a console version of the game.

“We’re very considered in what we ultimately do, and we don’t make any significant bets that, if they go wrong, could jeopardize the future of the company. We have absolutely survived through some fantastic decisions and fantastic fiscal management,” said Ralley.

Ralley also spoke to the games industry as a whole and specifically the reckoning it faces amid waves of sexual misconduct and harassment lawsuits and people coming forward with their stories:

“I think it’s a shame that headlines like these potentially turn off new people coming into the industry. … I absolutely do feel that we’ve got to be, as an industry, more inclusive and more diverse. But I think generally, the industry is a wonderful place to be.”

505 still has publisher agreements with some studios, and it may let certain contracts expire if the game is not relevant anymore or the demand is no longer there for it. Its deals with developers have different terms that can vary widely, said Ralley.

For developers acquired by 505, working with the company on specific terms and striving for profitability on a global scale can sometimes be at odds with just making games that are fun.

“There’s always that conflict of ‘it’s a business, you gotta make some money,’ versus ‘it’s a game, you gotta have fun,’ ” said Fawkner, the Infinity Plus Two CEO. “But there’s a Venn diagram, there’s a huge crossover in the middle. … One of my jobs as the creative director is to make sure that the vision is never lost from the goals of the game, but also the business side is commercially sensible and looked after as well.”

After Infinity Plus Two launches “Puzzle Quest 3,” a mobile game currently on Google Play in early access and later coming to iOS and PC, Fawkner said his next plans are to continue pitching 505 and seeing what sticks.

“I don’t have enough years left on the earth to make all the games I love to make, unfortunately,” said Fawkner. “[505 has] certainly shown they’ll take a chance on some stuff. They’re pretty good at picking winners, so I’ll just keep pitching weird stuff to them and when they finally say, ‘We like that idea,’ it’s probably a pretty good idea, if they’re giving the thumbs-up.”

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