Chillingo, the publisher behind mega-hits like Angry Birds and Cut the Rope, has a knack for finding mobile gaming cash cows.
FORTUNE — Mobile game publisher Chillingo knows how to pick a winner. Founders Chris Byatte and Joe Wee were the first publishers to stumble on Angry Birds, created by Espoo, Finland-based Rovio, back in 2009. With Chillingo’s help, the game grew into a $1 billion franchise spawning numerous spinoffs. Then in 2010 Chillingo published Cut the Rope — arguably the second-most successful mobile game to date.
Mobile gaming shows no signs of slowing down. Sales of games such as Bad Piggies and Letterpress reached $9.7 billion in 2012, according to Gartner. But identifying hits in a burgeoning field of so-called indie developers is no easy task. Traditional game companies have struggled to adapt to changing tastes and technologies, which has only complicated the sometimes nebulous process of finding mega-hits. What’s more, developers are increasingly choosing to forego formal relationships with mobile publishers, selling them directly to gamers over the Internet or through digital storefronts such as Valve Software’s popular Steam as well as funding projects through Kickstarter. (Rovio, for example, began self-publishing its titles after its initial partnership with Chillingo lapsed.)
That has only made Chillingo more unique, argues Bernard Kim, senior vice president of social and mobile publishing at Electronic Arts EA . “What folks like EA and Chillingo can provide are massive market insights,” he says. “[Insights] turning what could be a B-minus game into an A-plus title before it gets to the marketplace.” EA bought Chillingo in 2010 for $20 million. Chillingo, which is based in Macclesfield, England, sifts through thousands of submissions and pitches per year, aiming to bring at least one new game to market per week. Co-founder Joe Wee says the process is a hunt for quality.
Developer-publisher relationships in mobile games operate similarly to those in the book industry. An indie developer who chooses to partner with a well-known publisher like Chillingo receives promotional support as well as a stamp of approval with gamers, says Kim. Because Chillingo has a strong eye for talent, that approval can go a long way, says analyst Michael Pachter. “They certainly have more big hits than anyone,” he adds. “It’s sort of like, what is it that Steven Spielberg does differently to a movie and what does Martin Scorsese do differently as a director? [Chillingo] just has that sense of what’s going to work.” To date, Chillingo has published 12 titles that have reached No. 1 on the mobile gaming charts.
So how much is a “Steven Spielberg” of mobile game publishing worth? EA appears to have struck gold with its paltry purchase price, a steal according to multiple analysts. (Just one week earlier, Japanese mobile company DeNA, Inc. purchased developer/publisher Ngmoco for $400 million. Last year, Zynga’s ZNGA $100 million acquisition of OMGPOP, maker of Draw Something, was widely seen as a mistimed mistake.) Mobile gaming consultant Kevin Dent believes that Chillingo could have fetched a similar price tag if it had waited just a year or two longer. “In terms of mobile, it was the second-best buy in the history of the industry,” he says. Chillingo remains part of EA’s larger mobile gaming outfit, which includes other publishers like PopCap and Firemonkeys, Australia’s largest game studio.
In addition to spotting some of the industry’s most profitable titles, Chillingo is trying to transform the gaming business model, says Dent. Publishers previously offered developers large paydays up front in exchange for keeping higher revenue percentages once games hit the app market. Chillingo does the opposite, shelling out little money up front and allowing developers to keep the lion’s share of revenues. This has given developers more control, and Chillingo has acquired a strong reputation as a publisher developers wanted to work with, says Dent. It hasn’t taken long for others to follow suit. “Everyone in the market now basically followed Chillingo’s lead,” he adds. Still, there is no guarantee the company can reproduce its outsized hits.
The publisher is also trying new approaches. This month, the company outlined a partnership with Samsung, which launched a “100% Indie” campaign aimed at bringing more developers to Samsung Apps, the phone maker’s app marketplace. Developers that launch in March on Samsung Apps will receive 100% of revenue for the first six months on the platform, racheting down in 10% intervals until reaching an industry standard of 70% of revenue after two years on the market, says Byatte. The program is intended to encourage indie developers to bring their games to market without fear of losing out on revenues. “We actually want a platform that allows us to give back to the community,” says Wee, “to act as mentors to gamers, to inspire them, and to create content.”