Despite Low Profile, Israel's Online Games Firms Earn Big for Startup Nation

Last week’s $500-million sale of Plarium to Aristocrat Leisure shows trend - but its the content, not the tech leading the way

Illustration: A mobile game.
Illustration: A mobile game. SeongJoon Cho/Bloomberg

When people think of Israeli high-tech these days, the first thing that comes to their mind is cyber security and the second is self-driving cars.

Leveraging its military capabilities, Israel has become a major player in protecting computer networks from hackers and other attacks. The tech industry database PitchBook estimates that 365 Israeli cyber security startups raised $581 million in 2016, about 15% of the global total. Meanwhile, Intel’s giant $15.3 billion acquisition of Mobileye has put Israeli auto-tech startups in the limelight.

But the games industry may be just as big, as seen by the $500 million acquisition of Plarium by Australia’s Aristocrat Leisure, one of the world’s largest makers of slot machines. Plarium’s portfolio of online games includes Vikings: War of Clans, which has been among the top-10-grossing strategy games since its release two years ago.

The deal will not only makes Plarium’s backers rich but will earn the Israeli government some $130 million in tax revenues.

“That’s bigger than any merger and acquisition deal in the local cyber security space and as big as any Israeli high-tech exit, apart from Mobileye,” said Nir Miretzky, chairman of GameIS, an organization of online games companies.

Playing for money The most prominent Israeli gaming companies

Nor was Plarium a fluke. A year ago, another Israeli games company, Playtika, was sold for $4.4 billion – roughly the same amount for which the Silicon Valley company Yahoo changed hands.

In the case of Playtika, the deal wasn’t strictly speaking Israeli because the company had been sold to Caesars Interactive Entertainment in 2011 for $160 million, and last year’s transaction was between Caesar’s and the Chinese consortium that bought it. Nevertheless, Playtika has remained a stand-alone company all these years based in Israel and under Israeli management. It employs 1,300 people worldwide.

“The two exits testify that the gaming segment is growing and that Israel is an important player in the industry. Delegations from overseas are coming to Israel all the time [for] the next unpolished diamond,” Miretzky said.

The global games industry is worth more than $43 billion and an estimated 170 Israeli companies are believed to account for between $1.5 billion and $2 billion of that. Among the Israeli stars in this virtual universe are Jelly Button Games and TabTale. The industry employs more than 4,000 Israelis.

Jelly Button Games
Ofer Vaknin

Israel’s institutes of higher education are trying to ensure that the country doesn’t lose its edge in the field. In recent years universities and colleges have started 12 academic tracks dedicated to games content and design.

As Playtika’s experience shows, global buyers aren’t looking to acquire the games and run. They are buying the manpower that made the games a success and that means leaving the companies and their managers intact in Israel as stand-alone businesses.

It's the content, not the tech

But unlike other tech startups, the success of games companies isn’t the technology as much as it is the content, said Miretzky.

“Plarium had no patent – it just developed good content, in particular four great games. The ones who put their money in it know that it [Plarium] can produce more and more hits. The game it developed four years ago is still making money,” he said.

TabTale.

Vikings: War of Clans is a military game of the kind hugely popular in the Russian market. It’s available to play on Facebook as well as on VKontakte and Odnoklassniki, two of the most popular Russian social networking sites.

Jelly Button’s success has been built on the strategy game Pirate Kings, one of the biggest successes in the Israeli industry. The company was formed in 2011 by five partners who developed a way of playing games without being connected to the internet, as are most social games.

Pirate Kings enjoyed its first big success in Singapore, where it reached a million users daily and quickly spread to other Asian markets. In March, it launched Board Kings and has three other games in the works, one of which is due out before the end of the year. All told, 80 million people in 100 countries have downloaded Jelly Button’s games – 60% from Thailand, Vietnam, Malaysia and the U.S. and Britain.

TabTale got its start in 2010 with mobile games for children and now counts 1.4 billion downloads. Its model is a free basic game that requires users to pay for advances as they continue playing.

Another success story in Israel is Ilyon Games, formed four years ago and which since then has developed more than 40 games that have garnered 100 million downloads. Its bestseller is Bubble Shooter.

Israel is also home to successful casino gambling companies, led by 888 Holdings and Playtech. GameIS doesn’t include casino gambling companies in its purview, but both 888 and Playtech have developed non-casino games alongside their core businesses.

Playtech bought the Israeli gaming startup Funtactix last year for an undisclosed sum. Its portfolio incudes games based on the Netflix series “Narcos.”

Miretzky said casino-gambling companies, both those operating online and physical casinos, have hit a wall. Aristocrat Leisure has run up against the problem of stagnant growth of new-casino development and is now looking for growth engines outside gambling that will bring it new users and new revenues, he said.