Interview: Johan Ãhman, former CEO of Net Entertainment
In his final interview before stepping down from the business after eight years, Ãhman speaks exclusively to eGaming Review about the pioneering work Net Ent has done in the casino market since it began life in 1996.
As I sat waiting for Net Entertainment CEO Johan Ãhman in the reception area of the company’s Stockholm headquarters observing its largely 20-something employees file outside asking each other what they should eat in a multitude different of languages, little did I know its chairman Vigo Carlund and his board were involved in discussions of an altogether different kind.
Unknown to me and his 400 or so staff, Ãhman had been negotiating an exit for a number of months and this would be his last interview as chief executive.
After eight years at the company, arriving in 2003 as head of sales and marketing and taking over in November 2006 as CEO, the business learned of his immediate departure on Friday 29 July at 1pm with Carlund appointing current Maltese CEO Björn Krantz as his temporary successor the following Monday.
The official grounds for his sudden resignation were later announced in a press release as “family reasons”, however it seems that despite guiding the company through a flotation in 2007, maintaining a profitable business since 2003, growing the number, and crucially raising the quality standards of casino games and launching them to larger licensees in a number of new markets, it was time for a fresh approach.
As he commented during the company’s end of year 2010 results, “our industry is going through significant change as many countries around the world are in the process of regulating online gaming, which affects both operators and suppliers.” Perhaps as egaming continues to mature, the board felt it needed someone who could guide them into increasingly complex waters but with an even more successful outcome.
“It’s been an interesting ride to say the least,” he told me on a warm day in Sweden in late June looking worn out but still passionate about a business he’d cared for and nurtured for more than half a decade.
“The business was a lot smaller when I arrived. It was healthy and growing but I wanted to build on what was founded a long time before me. That was to focus on casino, continue to increase the capacity and quality of the games and work with innovation and also reliability and availability of the systems and solutions,” he says looking back.
Dream works
Five and a half years ago Net Ent, as it is more commonly known, operated on the same casino operation and management platform; what has changed in 2011, the broad-shouldered Swede explains, is that it has spent millions of Krona developing a new platform ready to roll out in the coming months as well as around 100 games. These games, however, are developed very differently to others on the market.
Walking round its downtown Stockholm offices and observing the design and creative departments is more like taking a tour of Disney’s graphic department than a casino empire with a market cap of around £220m and that saw revenues rise from SEK300m (£29m) in 2009 to SEK368.3m a year later.
Hundreds of developers take months to hand-draw each character with minute precision, working on thousands of variations until they get it just right. Characters such as Gonzo from its Gonzo’s Quest slot game, for example, are now household names; each score is individual to each game with its Frankenstein music especially commissioned and worked on alongside Universal guidelines; while graphics are worked on for millions of man hours until they are clear, precise and uniquely recognisable as Net Ent products.
The entire process is not dissimilar to working for a movie studio, its head of creative, hired from legendary US animation house Dreamworks, tells me as he demos Frankenstein, the first of many brands it has chosen to license from Universal film studios in Hollywood. “Just look at the flames darting out of the screen when you hit a bonus,” he exclaims, “you don’t get that kind of detail, sound, graphics, storyline and entertainment with any other game or games developer.”
Ãhman tells me he has no fear when it comes to the competition, the mass games producing Microgaming, which develops new products virtually every day, and the increasingly dominant and market-grabbing Playtech that recently ventured into mobile by acquiring highly regarded Swedish outfit Mobenga in July.
“Every game looks different, and with the amount of money being turned over in an online casino today you need to ensure the games you select are really tried and tested and don’t have bugs. I’m sure operators are aware of that but they should still recognise what it takes.
“From completion of development of one of our games until its release to the market takes three months of solid testing. I don’t know how their suppliers [Playtech and Microgaming] work but we’ve taken it on ourselves to make sure no bugs are left in the games when they’re released.
“We take that very seriously because the damage that can be done to an operator and to ourselves in huge. Serious things. We have well over 1bn being wagered in our systems every month, so if you get something wrong it can hurt you quite badly.”
The now former CEO of Net Ent was also unafraid of taking big decisions to benefit the business’s long-term ambitions and, at the beginning of this year, terminated around 15% of its 60-strong customer base to focus on larger potential clients. “We want to focus on the larger operators that are generating large revenues,” he says.
“Many of the operators we have terminated agreements with have been ported to white label partners such as Entraction and we continue to provide them with our games.
“Italy and the UK are key target markets at the moment. The ones we have are Victor Chandler, Stan James and Sportingbet and the list we want is well known: Betfair, Ladbrokes and Bet365. Some of these are looking for our kinds of products, some aren’t but as the business matures, the sales cycles get longer and it’s a question of being there and talking. Once they decide to change, you have to ensure you have an established relationship and that you’re ready.”
The Apple effect
The long-serving executive only fears one thing and that is the unknown. He does not want Net Ent to become yet another Nokia or Ericsson, with both Swedish telecom firms blown away by the “Apple effect” in 2007, and both of whom failing to recover since.
“The biggest threat is the Apple effect”, he says, “some sort of new companies entering this market. We have high growth, high profitability, few suppliers, few operators and a market that is consolidating.
“I wouldn’t be surprised if there weren’t a number of new companies planning to enter the market that we’ve never heard of. All respect to Microgaming and Playtech, but the biggest threat comes from the unknown.
Look at Ericsson and Nokia who were swept off their feet in 2007. Apple entered the market 15 years later than anyone else and killed everyone overnight.”
The biggest opportunity before Facebook or an unknown non-gaming business decides to branch out and enter the online gambling market, is the expansion of regulated markets and mobile, says Ãhman “ both areas he convinced the board to invest in.
“For the longer term picture we have created a team here called Netlabs who are looking at what the next big thing is “ it’s an evolution not revolution. This industry is too conservative and has been for far too long. The games have looked the same for ages and it is time to break some new ground and try some new things.”
In his last few months as CEO, Ãhman was busy converting a number of its existing games, such as its graphically led Jack Hammer that will be launched in the second half of this year. “With mobile we think you’ll be able to target a new type of player segment so we’ll probably have to generate new types of games. It is a massive opportunity, and a new generation there to be captured in a good way,” he says.
“Operators are saying that live betting is growing like crazy and they’ve virtually done no marketing. Players find the games and they just start to play and spread it using word of mouth. We’ll roll this out across to all our licensees.”
Ãhman knows all about the perils of regulated markets. The delays in the launch of Italian casino licences last year combined with an ill-fated French experience and a strong euro against the Swedish Krona, cost the business “a lot”, he suggests without wanting to divulge the exact amount.
He remains defiant, however, and says Net Ent will “definitely” take a position in each geographical market in Europe that becomes regulated, “but we’ll be sure to do it in a timely fashion to avoid a similar situation then we ended up with in Italy and forces us to take on costs well ahead of revenues,” he adds.
Future strategy
He is keen to add that the business, despite “seriously considering” a number of acquisition targets across all verticals in the last year, and under his now former reign, will never diversify away from casino because casino is not its “core business”.
“The industry is becoming polarised. A number of our competitors that have had a full suite of our products are now stating they are focusing exclusively on casino; if you look at the growth of poker it’s not a growth market; betting is interesting but most operators have bespoke solutions anyway and there are a number of good commercial suppliers… not many have their own technology but it’s a mix; and bingo is a product we admire. In all its simplicity it’s a complex product you need to have huge respect for. In addition a large portion of what’s classified as bingo revenues are actually casino revenues. That really doesn’t leave that much does it?”
He adds: “Casino is one of the fastest growing segments and we’re doing a great job. With the market becoming regulated we’ve said “let’s focus on maintaining a really, really good offering and make sure it is compliant all over Europe’ because otherwise we’ll just lose customers.”
Whenever eGR met the now ex-Net Ent chief, he was always positive about the company’s future. But little did I know one of the industry’s mainstays was seeking an exit just as things were getting interesting.
One thing he constantly reiterated however was that there is always a great opportunity around the corner that Net Ent was in a good position financially, technologically and structurally to exploit. “Given the value of future cashflows, [the share price] should be a lot higher than at present. We’re undervalued based on what lies ahead,” he concludes as we part ways… as he would just a month later.