How Studios Should Think About Their Next Game Investment - Gameometry

The mobile games market is saturated and unforgiving: most of the mobile games fail to reach scale and profitability. For studios looking to greenlight their next game, success hinges not just on product vision, but on disciplined commercial strategy. Studios too often settle for suboptimal margins in pursuit of new growth opportunities, inadvertently creating financial "drags" that drain valuable resources rather than positively contributing to studio growth.

Conventional Process to Greenlight a New Game No Longer Works

Several studios evaluate new game investments by carefully constructing detailed business cases. These typically include segment attractiveness, consumer trends, product positioning, internal capabilities, identified risks and mitigants, financial projections, and alignment with the studio’s strategic goals. If the business case aligns comprehensively with these rigorous criteria, studios usually proceed with greenlighting the project.

Despite meticulous initial assessments, production delays often emerge from underestimated complexities or unforeseen challenges. Studios typically respond by allocating more resources, inadvertently exacerbating rather than resolving these issues. Teams may also discover that prototypes fail to meet original expectations, presenting difficult decisions: discontinue the project and absorb sunk costs, or continue investing in hopes of a turnaround. Repeated experiences with these setbacks severely impact not just the financial stability but, crucially, the studio's confidence and morale.

Thorough Assessments Are Essential, But the Most Crucial Question Is Often Overlooked

While thorough initial evaluations are essential, studios frequently overlook the most critical question: Return on invested capital. In today's market, where most of the mobile games fail to achieve scale and profitability, disciplined investment strategies have become vital. Inefficient resource allocation often leads to suboptimal returns, draining valuable resources needed to sustain business operations and drive new investments. With intensifying competition and evolving consumer expectations, studios can no longer depend solely on creative vision when greenlighting a new project. In our experience, the pivotal question often insufficiently addressed by studios is: what return on the proposed investment is necessary for the project to be financially viable?

We Believe Return on Invested Capital is a Critical Metric for New Projects

The internal rate of return (IRR) should be the primary metric when assessing a project’s viability. To sustain operations, studios should target an IRR of between 15% and 20% on each new game. Achieving this benchmark requires studios to achieve operating margins of 20% or higher, after significant initial user acquisition investments aimed at scaling the player base.

By achieving this IRR threshold, studios can typically expect a payback period of around five years from the game's launch. This financial self-sufficiency empowers studios to reinvest capital into new projects. Studios too often settle for suboptimal IRR and margins in pursuit of new growth opportunities, inadvertently creating a financial "drag" that drains resources rather than contributing positively to long-term studio growth.

We are not suggesting that studios should greenlight projects solely because they forecast a 20% IRR. Instead, no matter how strategically attractive a new project may appear, if management cannot clearly envision a realistic pathway to achieving at least the minimum IRR described above, the project should not move forward.

This principle enables studios to use this as a yardstick to make critical decisions on games when they fail to achieve their targeted IRR. Making painful decision is difficult, but it is more palatable than facing certain financial catastrophe.

Gameometry helps studios maximize the success of new game projects by providing a structured, disciplined approach

Gameometry’s Greenlight Process (GLP) is a structured, data-driven framework designed to help studios navigate critical investment decisions for new games. At its core, the GLP emphasizes disciplined financial management, anchored around clear IRR targets and investment criteria. By systematically validating market potential, optimizing CPIs, and leveraging early, cost-effective tests, the GLP ensures studios maintain investment discipline and clarity, enhancing their ability to achieve sustainable IRR benchmarks and commercial success.

Strategic Evaluation involves assessing genre attractiveness, growth potential, and market opportunities to ensure new projects align with a studio’s overall portfolio strategy. This evaluation enables studios to identify the minimum retention, monetization, and user acquisition metrics required to achieve their target IRR, highlighting both risks and rewards. This helps studios fully understand the critical factors necessary for a project’s success.
Early Market Testing is crucial for quickly and cost-effectively validating a game's market potential before substantial investment is made. By conducting targeted CPI and KPI tests early in the development cycle, studios can validate high-performing concepts or recognize potential issues, significantly reducing risk. This proactive approach not only enhances IRR by highlighting what works and what doesn’t work early but also helps studios avoid costly pitfalls, ensuring resources are allocated to projects with genuine market viability.
Scenario Planning involves deriving financial forecasts that integrate key performance metrics to evaluate a potential new game's viability. By defining payback periods to guide user acquisition spend and factoring in retention metrics consistent with current market standards, studios can realistically project the game's revenue and cost structure. This enables studios to evaluate different IRR scenarios and determine if there is a feasible pathway to achieve the financial targets and whether to greenlight the project.

A Disciplined, Return-Driven Approach Is Essential for Sustainable Success

In the saturated and highly competitive mobile gaming market, traditional methods of evaluating new game investments, relying on product vision and creativity, are no longer sufficient. To thrive, studios must embrace a disciplined, return-driven approach to their decision-making process. Early market tests and comprehensive scenario planning allow studios to identify viable projects and minimize investment risk. By prioritizing return on invested capital (IRR) as a key benchmark, studios can avoid financial "drags" and drive sustainable growth.

Regular reviews of the capital allocation strategy enable studios to maximize value and avoid opportunistic investments. Maintaining a healthy balance sheet is a strategic pillar that helps studios navigate strong macroeconomic headwinds and emerge stronger than before.