STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT DAVID BRABEN, FOUNDER AND CEO AN EXCITING FUTURE Our strategic objective is to create long-term sustainable growth. The five years since we transitioned to a self-publishing model Over the last 12 to 18 months we have been have been really exciting. We continue to successfully execute exploring the potential to use our publishing capability, industry experience, commercial the strategy we set out at IPO, building a great portfolio of our own partnerships and financial resources to games in the process. FY19 has been our best yet and I am very supplement our own development roadmap. pleased to report a record level of financial performance, which The three areas we have been reviewing are: reflects the skill and hard work of our talented people and the • third-party publishing (controlling the support of our players around the world. We continue to nurture promotion and distribution of other and enhance all three of our existing titles (Elite Dangerous, developers’ games); Planet Coaster and Jurassic World Evolution) and I look forward • commissioning (outsourcing the majority to the release of our fourth, Planet Zoo, later this year. Our roadmap of development of Frontier games to other developers); and for future releases both as a developer and publisher is looking particularly strong, including our announcement in March 2019 • acquisitions (to enhance our franchise portfolio or capabilities). that one future launch, in 2021, will benefit from a major global IP licence. More IP licences are anticipated. In June 2019 we announced our first deal under our Frontier Publishing initiative (third-party publishing) with experienced developer Haemimont Games. I anticipate further deals in the future for Frontier GROWING OUR PORTFOLIO Publishing, and we also continue to explore commissioning and acquisition opportunities. FUTURE FRANCHISES Earlier in 2019 we celebrated our 25 year FRONTIER PUBLISHING anniversary as a company and while I am PLANET ZOO (2019+) very proud of all of our achievements to date, it feels like we are at the start of our journey. (2018+) JURASSIC WORLD EVOLUTION The opportunities we have now are better than PLANET COASTER (2016+) ever. I am excited about our future, our next 25 years, as we continue to expand our horizons ELITE DANGEROUS (2014+) and grow our portfolio, our team and our partnerships. FRONTIER DEVELOPMENTS PLC ANNUAL REPORT AND ACCOUNTS 2019 07 CHIEF EXECUTIVE’S STATEMENT CONTINUED DAVID BRABEN, FOUNDER AND CEO THE GAMES MARKET Our industry has always thrived on disruption, smooth revenue, but major releases of new The games market, along with film, TV and music, in terms of individual games, game genres, franchises are still a significant factor in the is part of the wider $300 billion entertainment charging models, technology and routes to revenue stream. As we scale the number industry. Games forms the largest sector, worth in market, and it has been interesting to observe of franchises over future years, and as the excess of $130 billion, and it is still growing rapidly the impact of some of those disrupting factors frequency of these releases approaches one unlike its other counterparts, such as TV, that have in the last 12 months, particularly in terms of per year, this will have a smoothing effect typically experienced declines over several years. new digital distribution channels and streaming on growth, but in the meantime revenue services. We believe that many of these changes is sensitive to the specific schedule of such With audiences craving greater levels benefit those companies who both create and releases and may therefore exhibit ‘stepped’ of interactivity within their entertainment own their own content, which is a further behaviour across financial years, as those experiences, the lines between these sectors validation of our transition to a self-published new franchises are released. continue to blur. Frontier is well placed to both development model. Our particular focus on drive and support future changes in the wider We are growing our portfolio and consequently ‘games as a service’– supporting our titles and industry, including the potential addition of we are increasing our development team to their communities with regular updates – is whole new forms of entertainment, leveraging enable us to support additional titles while working very well, producing three successful our strong relationships with leading generating new content for our existing titles. titles so far, with early indications that the fourth entertainment companies. We expect to grow our resources and capability is being well received, but we will continue to over time to enable us to achieve one major The games market is typically seen as three monitor and consider different delivery model launch every 12 months, but this will not require different sectors, PC, console and mobile/tablet, options as the industry continues to evolve. us to increase our workforce linearly because each with distinct characteristics, though STRATEGY supporting an existing franchise typically requires increasingly it is play styles that matter. We believe that publishing our own franchises, fewer staff than creating a new one. Rich, engaging experiences where the expectation and selectively those of other high-quality might be to play for an hour or so in a session As stated in the Group’s previous Annual Reports development studios, is the best way to maximise for example, are currently confined to PC and and other communications, in addition to the the benefit of our core skills, our assets and our console. In the future we might see these coming current core model of using internal resources, COBRA technology platform. The Company’s focus to other platforms too like mobile and tablet, supplemented by outsourced services, the Group is on developing and delivering top-quality, via the new streaming services. Our main will continue to explore other opportunities to self-published PC and console titles for development focus is therefore on those rich, accelerate its scale-up. digital distribution. engaging experiences currently most suited The Board expects the third-party publishing to PC and console, as the audiences on these We will continue to follow our repeatable model to initiative announced in June 2019 to grow as platforms greatly value games exhibiting support our great franchises over many years with more third-party games are signed and added Frontier’s key development strengths of new releases and updates, and to create further to the publishing roster, though it is not expected compelling gameplay and high production franchises in popular game genres where we can that these games will contribute material revenue quality. Currently, the mobile sector is overcrowded use our key expertise, knowledge and/or valuable in the current financial year (FY20). and has a very low barrier to entry, typically external IP to deliver highly differentiated, with games with a 5-10 minute play expected best-in-class player experiences, and to further We will also continue to explore opportunities play session, making audiences less predictable build our revenue pipeline over the long term. for commissioning (outsourcing the majority and much less influenced by quality. ‘Discoverability’ of development of Frontier games to other Our strategic objective is to create long-term (the ability to find a title) is also better on PC developers) and enhancing the Group’s franchise sustainable growth through successfully and console, with excellent support from portfolio or capabilities via acquisitions. The Group publishing a growing number of franchises. reviewers, content creators and social media. has considered a number of possible acquisitions, Our strategic focus is on two key areas: but so far none have met our valuation, product The entire games market is moving rapidly • developing our business to achieve alignment and culture fit thresholds. towards digital download as the primary delivery repeatable success; and model. Mobile and PC are now almost 100% digital, and the console audience is quickly • creating and managing franchises. DAVID BRABEN catching up, as focus shifts to the new generation FOUNDER AND CEO We are scaling up for the future so we can of hardware and older business models are 4 September 2019 release games more frequently and we already replaced. We have also seen a number of have future franchises in different phases interesting developments and announcements of development. The increase in the number of for streaming game content. While technical releases supporting our existing games helps considerations mean that streaming games from the cloud to consumer devices may take several years to become mainstream, we believe The size of the global games industry market¹ the prospect of streaming is already shifting the balance of power from distribution stores in favour of game developers, as evidenced by a 22% Downloaded/Boxed PC games 20% 31% Console games 31% leading distribution store adjusting its distribution 2018 2021 fees from 30% to 20%-25%. 35% Smartphone games 40% $138.7Bn 09% Tablet games 08% $178.2Bn +28.5% 03% Browser PC games 01% 5322+313593R+47 Our target segments 5120+314081R+49 1 NewZoo Global Games Market Report 2019. 08 FRONTIER DEVELOPMENTS PLC ANNUAL REPORT AND ACCOUNTS 2019 STRATEGIC REPORT David Braben, Chief Executive, said: I am delighted to report a record level of financial performance, which reflects the skill and hard work of our talented team and the support of our players around the world. We continue to nurture and enhance all three of our existing titles (Elite Dangerous, Planet Coaster and Jurassic World Evolution) and I look forward to the release of our fourth highly anticipated game, Planet Zoo, later this year. Earlier in 2019 we celebrated our 25th anniversary as a company and while I am very proud of all of our achievements to date, it feels like we are at the start of our journey.