FUNCOM N.V. | ANNUAL REPORT 2012 WWW.FUNCOM.COM Contents DIRECTORS’ REPORT About Funcom 4 Lett er from the CEO 6 Large-scale Massively Multiplayer Online Games 8 Free-to-play Massively Multiplayer Online Games 16 The Dreamworld Technology 18 Report of the Management Board 20 Corporate Governance – Statements of Compliance 26 Responsibility Statement 36 Corporate Governance Declaration 37 Report of the Supervisory Board of Directors 38 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Statement of Comprehensive Income 42 Consolidated Statement of Financial Position 44 Consolidated Statement of Cash Flows 46 Consolidated Statement of Changes in Equity 47 Notes to the Consolidated Financial Statements 48 FINANCIAL STATEMENTS OF PARENT COMPANY: Income Statement 88 Statement of Financial Position 88 Notes to the Company Financial Statements 89 OTHER INFORMATION: Other information 99 Auditor’s report 100 Investor Relations Policy 102 Financial Calendar for Funcom 2013 103 Contact Details 104 ANNUAL REPORT 2012 3 About Funcom Funcom is a world leading independent developer and publisher of massively multiplayer online games (MMOGs). Funcom was founded in 1993 and during the twenty Age of Conan launched in 2008 and has since then years that have followed since then the company has sold more than 1.5 million copies and the game is developed and published over 25 game titles across estimated to have generated over 125 million USD several genres and gaming platforms. Most notable of to Funcom and its partners. Following the move to a these are the online games The Secret World, Age of free-to-play business model, more than 3.2 million Conan and Anarchy Online, as well as the adventure players have signed up to play in the virtual Hyboria games The Longest Journey and Dreamfall. to date. Anarchy Online, the company’s fi rst MMO, has been in operation for more than 11 years and There are currently nearly 120 talented individuals has served over 225 million hours of entertainment from dozens of diff erent nationalities working at thanks to the more than two million gamers who have Funcom, spread out across studios in Canada, Norway set foot on the virtual world of Rubi-ka. the United States and China. This makes Funcom one of the most multi-cultural game development studios One of the key reasons for Funcom’s achievements in in the world, and Funcom is aft er twenty years of op- the MMO segment is the development of a proprie- eration one of the largest and most infl uential inde- tary MMO engine called Dreamworld. This engine and pendent game development studios in the business. all its associated tools gives the developers the fl ex- ibility and power needed to create some of the most The company is currently working on completing the advanced virtual worlds on the market. Aft er years of upcoming massively multiplayer online game with continuous development and upgrades, Dreamworld the Lego Minifi gures brand. Based on the hugely has become one of the most powerful game engines popular Minifi gures franchise, the game sends play- available. ers off on great adventures through themed worlds all built in the beloved and instantly familiar LEGO® The company has also proven itself in the free-to-play style. Block by block and piece by piece, Funcom is and social games market, having successfully devel- currently working towards bringing the game into oped and delivered Fashion Week Live and Pets vs. its fi rst beta phase during the fi rst half of 2014. The Monsters at its Montreal studio. Fashion Week Live development of the LEGO Minifi gures game is an im- provided hundreds of thousands of Facebook fash- portant part of Funcom’s new corporate strategy of ionistas with hours of entertainment throughout building more focused, high quality games that have a 2012, and Pets vs. Monsters has proven that Funcom high degree of community and player interaction and can develop high quality massively multiplayer on- require less time and cost to bring to market. line games for a younger audience. Funcom has a highly skilled live services team situ- Funcom has also established a mobile and tablet de- ated at its Durham, North Carolina studio, which velopment team at the Montreal studio, and the team primary task is to support, expand and enhance the is currently busy working on two new LEGO® titles company’s three major live games The Secret World, for those platforms. The company is also pursuing Age of Conan and Anarchy Online. Launching in July work-for-hire opportunities for the Montreal studio. 2012, The Secret World is the company’s latest mas- sively multiplayer online game, and the game has re- Funcom is a publicly listed company on the Oslo Stock ceived both critical and public acclaim for its unique Exchange under the ticker ‘Funcom’. take on the classic MMO formula. In late 2012 the game moved to a buy-to-play business model, which For more information, visit www.funcom.com. proved successful with server activities increasing signifi cantly following the move. ANNUAL REPORT 2012 4| 5 Lett er from the CEO It is a pleasure for me to be able to sit down and pen When your business is in an industry which so in- my very fi rst CEO lett er, just a litt le over nine months tensely moves on the very cutt ing-edge of art, sci- aft er stepping into the role. ence and technology, being able to adapt and change course becomes crucial. Funcom has reinvented it- I assumed the position as the head of the Funcom self many times and that is perhaps the most impor- Group in July 2012 during one of the most critical tant reason why we have been able to keep creating and exciting moments in the company’s history. We unique gaming experiences that have been enjoyed had just released our third and biggest massively by millions of people all over the world. Where many multiplayer online game yet; The Secret World was other companies regrett ably have had to close their the most elaborate project the company had ever un- doors, Funcom has endured for over twenty years and dertaken and aft er years of production we had fi nally it should come as no surprise that we plan to stick polished it off , tied the bow and handed it over to our around for many years to come. fans. It was also a challenging time. We had high ex- pectations for The Secret World and even though we One of the key ingredients for our success and our pulled off a smooth, technically successful launch, longevity is our own proprietary Dreamworld tech- the game simply did not live up to the pre-launch nology platform. In 2012 the company continued sales indications. to advance the tools and the core technology as we worked on fi nalizing The Secret World, and today That took us by surprise, and for me personally, it Dreamworld represents some of the best the industry meant that my new job suddenly became very diff er- has to off er in terms of speed, fl exibility and power. ent from how I had envisioned it was going to be when We consider it the ultimate platform for develop- I fi rst took the company reins. Still I was absolutely ing massively multiplayer online games and we are determined to see this through and turn the situation continuously adapting and enhancing it to fi t the around, and without any delay, it was time for us to requirements of the new games we put into produc- roll up our sleeves and face the challenges. tion. Right now we are in the process of creating a Flash engine for Dreamworld which will allow us to One of my main priorities was continuing the work put high-quality, Dreamworld powered games right we had started on mapping out the future course for into people’s browsers. That is an incredibly excit- the company, planning the implementation of the ing achievement. During the second half of 2012, our new company strategy of building more focused and team also adapted the Dreamworld technology to the more cost-eff ective high quality games. As we had highly specialized needs of our new MMO based on announced just a few months earlier, following the the LEGO® Minifi gures brand, a game which repre- launch of The Secret World Funcom would move away sents the very essence of our new company strategy from the big-budget productions that had largely of building more focused, more cost-effi cient high dominated the latt er half of the company’s now twen- quality games. ty year long history. It signaled a signifi cant course- change for Funcom, but it was a change we felt very comfortable with having already built up the tech- nology, knowledge and expertise developing smaller- scale games such as Pets vs. Monsters and Fashion Week Live. ANNUAL REPORT 2012 The fact that we are able to quickly adapt our technol- I am incredibly proud of what my team of managers ogy is part of the reason why progress on the LEGO® and employees across our studios has accomplished in Minifi gures game is tracking so well. In just six our work towards creating a new and exciting future months aft er development began, we have gone from for Funcom. In 2013 we celebrate twenty years in the drawings on the whiteboard to actually being able to business. This is undoubtedly an exciting time, not jump into the game to explore pirate and medieval only for those of us who have the pleasure of working themed worlds, discover the immensely enjoyable at Funcom, but also for those of you who keenly fol- minifi gures, batt le enemies and watch it all unfold in low our developments whether you play our games or colorful, highly animated graphics that stays true to watch from the sideline.