Focus: From Communist-era roots to cash cows: Poland's gaming industry takes on the world

11 Bit Studios SA

23/01/2020 13:34

By Anna Koper and Michael Kahn
    WARSAW/PRAGUE, Jan 23 (Reuters) - The drab exteriors of a
pair of 1970s buildings in an industrial Warsaw neighbourhood
belie the hive of high-tech activity inside where developers,
screenplay writers and others at leading video game maker CD
Projekt hustle to create the next global hit. 
    Poland -- Eastern Europe's biggest economy -- has quietly
developed into a leading video game exporter thanks to low
labour costs, a young educated workforce and a thriving gaming
tradition rooted in the Communist era.
    After CD Projekt's  CDR.WA  top-selling Witcher series put
the country on the map, foreign investors are keenly searching
for promising game developers in a fast-growing market.
    "People are starting to take notice of Poland," said Borys
Musielak, founding partner at U.S.-Polish venture capital firm
SMOK Ventures, which is in talks with two Asian investors to
fund local gaming companies and in January made its first such
investment alongside a Finnish partner.
    "There have been mainly angel investors and some private
equity but now global venture capital groups are looking into
the region."
    Poland's booming video game and esports market was worth
$664 million in 2019 -- up from $400 million in 2014 -- and is
projected to climb to nearly $850 million over the next four
years, according to data from PwC.
    
    WITCHER 
    The success of CD Projekt's medieval fantasy world Witcher
has been a key driver. Based on a series of best-selling Polish
books and the basis for a Netflix show that premiered in
December, the games have sold more than 40 million copies
worldwide.
    The release later this year of the company's first person
futuristic adventure game "Cyberpunk 2077" is likely to sharpen
focus on a sector in which eight companies listed on the main
market of the Polish stock exchange between 2015 and 2019.
    On the NewConnect market -- the bourse's exchange for
smaller companies -- 21 debuted during the same period.
    "Historically, a lot of those companies chose the stock
exchange to finance themselves because there were not many ways
to raise capital," said Mariusz Gasiewski, head of mobile gaming
and apps at Google in Poland. "Now it is getting easier as more
interest comes from abroad."
    The combined value of the listed gaming companies leapt 82%
to more than 32 billion zlotys ($8.36 billion) last year, led by
CD Projekt, 11 bit studios  11B.WA , PlayWay  PLWP.WA  and Ten
Square Games  TENP.WA , according to exchange data.
    Moreover, CD Projekt's roughly 27 billion zloty valuation is
rapidly catching up with that of Poland's biggest company,
refiner PKN Orlen  PKN.WA , at 36 billion zlotys.  
    
    KNOW-HOW
    At CD Projekt -- whose headquarters feature Silicon Valley
perks such as a gym, film studio and open plan offices -- the
company has parlayed Poles' love of video games into a global
brand.
    "We have been working intensively on increasing the
knowledge of CD Projekt among foreign investors," the company's 
president and one of its founders Adam Kicinski told Reuters.
    "We are meeting with funds from around the world focusing on
western markets, especially in the United States."
    Bigger funding rounds and the tapping of international
investors will help Polish companies compete with industry
leaders from countries such as China, Japan and the U.S..
    "Due to their know-how and appropriate budgets, foreign
investors help those companies go from the stage where they
create very good games to the absolute top," said Stanislaw
Just, a former board member of the Polish Games Association who
recently started his own company.
   Flying Wild Hog, a smaller developer known for the Shadow
Warrior series, was acquired by London-based Supernova Capital
in 2019, while Artificer, which is working on its debut game,
was bought by Dutch-based Good Shepherd Entertainment.
         
    A WORLD WE ALL DREAMED OF  
    Poland's love of video games stems from the Communist era
when students flocked to street markets to swap pirated games,
building up a flourishing community.
    "For the previous generation, Rock & Roll was a ticket to
the world we all dreamed of, then came the games and we all
played to touch what was happening in the West," said Grzegorz
Miechowski, president of 11 bit studios, whose most popular
title "Frostpunk" depicts a dystopian 19th Century England. 
    Nearly half of Poland's 38 million population identify as
gamers, while there are around 400 active gaming companies --
dwarfing an estimated dozen in Germany -- with some 100 Polish
titles hitting the global market each year.
    The country hosts a popular international video game
festival as well as one of the largest esports events in the
world - the Intel Extreme Masters, which last year drew a record
232 million viewers worldwide.
    Miechowski also pointed to Poland's education system which 
churns out computer science savvy graduates eager to work in
game development. 
    The government has taken notice too, doling out around 300
million zlotys through a European Union funded program -- the
fourth round of which is underway -- to award developers early
stage grants to help gaming projects get off the ground.   

($1 = 3.8261 zlotys)

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FACTBOX - Polish game productions that hit the jackpot   
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 (Writing by Michael Kahn, Editing by Kirsten Donovan)
 ((michael.kahn@thomsonreuters.com; +420 224 190 443; Reuters
Messaging: michael.kahn.thomsonreuters.com@reuters.net))