(Copy pasta of all sections/paragraphs referencing Elite)
Frontier is a leading independent developer and publisher of videogames founded in 1994 by David Braben, co-author of the iconic Elite game.
Elite Dangerous continues to grow, with the success of the recent Fleet Carriers update helping to achieve its highest ever player numbers. Elite Dangerous: Odyssey, our major new paid-for update to launch in calendar Q1 2021 (in FY21), was revealed in June 2020 to positive reception.
Nearly 60% of revenue in FY20 was generated by Elite Dangerous, Planet Coaster and Jurassic World Evolution, illustrating the ongoing popularity of the Company’s games, and the success of Frontier’s launch and nurture strategy in generating strong returns over many years.
All four games, Elite Dangerous, Planet Coaster, Jurassic World Evolution and Planet Zoo, benefitted from Frontier’s ‘launch and nurture’ strategy in FY20, with each providing significant revenue contributions through both base game sales and paid-downloadable content (“PDLC”).
ELITE DANGEROUS
Elite Dangerous – available for Windows PC, Microsoft Xbox One and Sony PlayStation 4 – is the definitive massively multiplayer space epic, bringing gaming’s original open world adventure to the modern generation with a connected galaxy, evolving narrative and the entirety of the Milky Way uniquely recreated by Frontier at its full galactic proportions. Elite Dangerous: Odyssey, arriving in Q1 2021, will mark the birth of a highly anticipated new era for the long-running definitive space simulation, allowing players to touch down on countless new planets powered by stunning new tech. See breathtaking new scenery and explore with unrestricted freedom from a first-person, feet-on-the-ground perspective, something we know many players are keen to see.
In addition to new game developments and PDLC packs, our teams have been working hard to deliver three major new releases for our existing game portfolio during FY21. Jurassic World Evolution: Complete Edition will be launching on the Nintendo Switch, Planet Coaster: Console Edition is coming to PlayStation and Xbox, and players will soon be able to get out of their ships and SRVs (Surface Reconnaissance Vehicles) with Elite Dangerous: Odyssey. These major achievements are made possible by the talent, experience and hard work of our teams, combined with our technology leadership through the continued investment in our own COBRA game engine.
These deals, together with the unrevealed major global IP licence announced in March 2019, mean we now have two major new multi-platform game releases for each of FY22 and FY23 which will each benefit from world-class IP licences. We anticipate achieving two major new releases per year on average thereafter from internal developments, which is a significant step up from the cadence of one release every two years from our first two releases in December 2014 (Elite Dangerous) and November 2016 (Planet Coaster).
Elite Dangerous has continued to be very successful since its first early access launch in December 2013 and full release in December 2014. It has hit its highest player numbers this year, in its seventh year, helped by the launch of Fleet Carriers and the announcement of the major forthcoming update Elite Dangerous: Odyssey due later in FY21 (in calendar Q1 2021), in which players will be able to explore and fight on foot.
We use this proven, rigorous and repeatable model to invest our resources with the intention of creating world-class games with strong franchise potential and plans for strong post-launch product support to help realise this potential. With Elite Dangerous we knew there had been significant success in the past, not least because of our own games in that area in previous decades, and also that there were no games like it at the time, and we believed that we possessed the differentiated technical capability to digitally replicate our own Milky Way Galaxy. We verified that there was a significant appetite for such a game with Kickstarter crowdfunding at the end of 2012 and early 2013, and the game itself has now vindicated that decision with continued success in its sixth year of full release (its seventh year since early access). For comparison, other high-profile space exploration games that entered Kickstarter in the early 2010s have still not released at all, speaking to the challenges of the genre and to our team’s expertise and ability to deliver compelling product in a timely fashion.
Our future franchise portfolio is likely to continue to contain a blend of Frontier-owned IP, like Elite Dangerous, Planet Coaster and Planet Zoo, and some with third-party licensed IP, like Jurassic World Evolution and our future plans for the Formula 1® and Warhammer Age of Sigmar games. Games based on owned IP provide Frontier with the benefit of having complete creative freedom and higher margins, while games based on licensed IP have the potential to more easily reach large new audiences and leverage existing lore and characters, such as with Jurassic World Evolution. We review the value of licensing proven third-party major global IP versus developing our own IP for each potential future franchise on a case-by-case basis. We also consider the long-term benefits of relationships with these IP partners and how they can help with future opportunities as the wider entertainment sector continues to change, presenting ever more opportunities for new types of entertainment.
Elite Dangerous is now in its seventh financial year since release in December 2014. Since launch we have continued to release expansions to the original Elite Dangerous game, simultaneously on PC, PlayStation 4 and Xbox One as those platforms have been added – Elite Dangerous launched on Xbox One in 2015 and came to PlayStation 4 in 2017.
The Horizons season of chargeable expansions launched in December 2015 with Planetary Landings and concluded in September 2017 with The Return, with each release in the season providing new headline gameplay features plus a large number of quality of life enhancements and other tweaks, fixes and improvements.
The Beyond season of free updates delivered enhancements to the overall player experience, including foundational changes to the core systems of Elite Dangerous and delivering new in-game content, across four chapters during the period February 2018 to December 2018.
On 3 June 2020 we unveiled Elite Dangerous: Odyssey, which is our major new paid-for update for Elite Dangerous, coming in Q1 calendar 2021 (in FY21). Elite Dangerous: Odyssey marks the birth of a highly anticipated new era for the long-running definitive space simulation, allowing players to touch down on countless new planets powered by stunning new tech and explore with unrestricted freedom from a first-person, feet-on-the-ground perspective, something we know many players are keen to see.
In addition to major expansion packs, Elite Dangerous has a strong back catalogue and future roadmap of in-game personalisation items. This rich customisation model has been further enhanced by the launch of an in-game virtual currency called ARX in September 2019, which has smoothed the purchasing process for players while also rewarding regular engagement with the game.
The Elite Dangerous franchise continues to perform strongly – in April 2020 Elite Dangerous crossed the 3.5 million base game unit threshold. We look forward to delivering some amazing new content in 2021 with Elite Dangerous: Odyssey.
That strategy of supporting and nurturing both our game, and the community of players of our game, has been learned and refined through our experiences on our first three titles, Elite Dangerous, Planet Coaster and Jurassic World Evolution. That strategy continues to pay dividends across all three of those games, with each title providing material financial contributions in FY20 through both base game sales and PDLC.
Capitalisation of costs for game development related intangible assets, together with continued investment in our leading game technology, accounted for £19.8 million in the period (FY19: £13.4 million). Costs related to new chargeable products, or the development of technology to support new chargeable products, are typically capitalised, subject to the usual criteria set out under accounting standard IAS 38. Development costs associated with the development or support of existing products are generally expensed as incurred. Costs capitalised in FY20 represented 80% of gross R&D expenditure compared with 66% in FY19 and 85% in FY18. The lower capitalisation percentage rate in FY19 reflected a greater allocation of development time spent on free content during that period, particularly related to the launch of the Beyond series of free updates for Elite Dangerous. The capitalisation rates in FY20 and FY18 are more typical of the Company’s usual approach to the mix of development effort between free and paid content. Frontier believes that investment in free updates is an important part of its strategy in supporting and nurturing games after launch.
We create and nurture large player communities for our games, providing free and paid content, news, video streaming, and competitions to achieve long-term positive engagement. We support and encourage player connectivity through forums and regular community events which allow the various personalities of each title to come together. This year we pivoted the annual ‘Lavecon’ event, which celebrates Elite Dangerous, onto a digital platform to engage the community through virtual panels, interviews and hosting gameplay streams whilst in lockdown.
David is the co-author of the seminal Elite title and has 39 years’ experience in the games industry. David is also one of the six founders of the Raspberry Pi Foundation, a charity which aims to inspire a new generation of children to get interested in computer science through the use of a low cost credit-card sized computer that plugs into your TV and a keyboard.
Jonny has over 30 years’ experience in gaming. He joined Frontier Developments in 1998 from Sensible Software. Over the course of his career he has been involved in all aspects of the creation of over 30 published games such as Sensible Soccer and Cannon Fodder, along with Frontier’s suite of games, including RollerCoaster Tycoon 3, Elite: Dangerous, Planet Coaster, Jurassic World Evolution and Planet Zoo
Internally generated intangible assets, consisting of direct labour costs, other specific direct project costs and directly attributable project support costs, are amortised on a straight line basis over their useful economic lives. The estimated useful lives of current development projects are between three and five years. When a self-published game is intended for release on multiple platforms without material content change, amortisation is based on the length of time in which that game is expected to be supported in an unchanged format. Acquired rights are assessed for their useful ‘franchise life’. For Elite Dangerous this is prudently estimated at eight years; within the sector successful franchises normally have useful lives of over ten years.
Until completion, the assets are subject to annual impairment testing. In most circumstances amortisation commences upon completion of the asset.
Amortisation charges for intangible assets that relate to game developments, technology and third-party software are expensed in research and development expenses. Amortisation charges for IP licenses are typically charged to cost of sales, which reflects the IP license royalties which our minimum guarantees relate to.
The deferred revenue balance for the year ended 31 May 2020 is in respect of Elite Dangerous lifetime expansion passes, Elite Dangerous virtual currency and disc sales of Jurassic World Evolution that are still within the distribution channel.
Deferred revenue released during the period ended 31 May 2020 was £230k for Elite Dangerous lifetime expansion passes and £397k for Jurassic World Evolution disc sales.
Revenue deferred during the period ended 31 May 2020 was in relation to Elite Dangerous virtual currency at £797k (2019: £nil).
Non-current deferred income for Elite Dangerous lifetime expansion passes is due to be recognised over the expected remaining accounting life of the franchise period, which was the period originally set in 2014. At 31 May 2020 the remaining accounting life of the franchise lifetime expansion passes is considered to be one and a half years
).
