Devolver Digital says no to subscription deals that undervalue its games’ long-term value and revenue

Financial highlights

• According to its H1 2023 report, Devolver Digital reached $43.87 million in revenue, down 17.2% year-over-year.
• Normalized gross profit fell 50.5% year-over-year to $9.39 million. Normalized Adjusted EBITDA reached a loss of $3.5 million, compared to a profit of $6.8 million in the same period last year.
• Speaking about the reasons for the decline in revenues, the company cited the lack of new games launched in the first half of 2023, saying that Terra Nil was the only major release in the period. Overall, Devolver released four titles in H1 2023 (vs. seven in H1 2022).
• As a result, its back catalog, which currently consists of 109 titles, accounted for an “unusually high” 87% of total revenues.

Delaying games and declining subscription deals

As Devolver co-founder and chairman Harry Miller summarized, the company expects its full-year 2023 financial performance to be impacted by:

• Delays to new game releases;
• Reduction in revenue from subscription deals;
• “Relative weakness” from its back catalog titles.

Cult of the Lamb was one of the main drivers of back catalog sales, which increased by 10% year-over-year. According to Devolver, the game’s sales “have continued to out-perform expectations from the start of 2023.”

Another major game in the publisher’s portfolio is Inscryption, which continued to perform well in H1 2023. But other back catalog titles “have seen weaker performance” compared to the same period last year.

Speaking about the delays, Miller noted that “giving our titles every chance to succeed is critical to our long-term growth.” Devolver wants to “maximise the appeal and success of new titles” by increasing investment in development, QA, and marketing.

The reduction in subscription revenue is due to the company’s decision to decline certain subscription deal proposals as part of its strategy to “unlock long-term value.”

“After a period of strong growth in subscription deals in 2021 and 2022, we expect the trend of reduced revenues from subscription deals to continue into 2024,” Miller said. “We expect to continue to turn down subscription deal proposals that undervalue the titles’ value and revenue opportunity in 2023 and 2024.”

The publisher first commented on this decision in a trading update last month, saying that it has declined several “weaker propositions from major platform partners.” So we can expect fewer Devolver games coming to Game Pass or PS Plus.