How Mind Candy won by failing over and over

How Mind Candy won by failing over and over
Michael French

By Michael French

June 14th 2011 at 10:15AM

The Moshi Monsters man bares all on reaching 50m subscribers from the brink of financial collapse

Mind Candy is definitely a winner. The London-based studio, which employs over 100 permanent and part-time developers, has become a hot property in games and the wider online tech world – and for good reason.

Its virtual-pet-meets-games-meets-social-network Moshi Monsters has over 50m users worldwide, with money made from subscriptions and licensing.

Merchandise and spin-off products are popping up everywhere – in Sainsbury’s, on the App Store… and hopefully soon on cinema screens.

Acton Smith himself is Willy Wonka made flesh – a messy-haired, focused inventor of what amount to ‘virtual sweets’, but with a real youthful, playful personality. No wonder, then, that he’s the first to blurt out that it wasn’t always so good for Mind Candy when Develop catches up with him in London.

THE GOLDEN TICKET

As an entrepreneur, Acton Smith cut his teeth with the founding of famed UK gadget estore Firebox, but eventually moved on, hoping to bring together his passion for games, the web and business into a new venture.

“My big love has always been gaming. In 2003 I wanted to explore the intersection of gaming and the internet.”

And so Mind Candy was born. “And we raised lots of venture capital for Perplex City.”

Although dubbed ‘a global treasure hunt’ with multimedia content, Perplex City was faithful to its name.

“Creatively it was amazing, but it was way too complicated – people don’t want to consume their story across all these different mediums. Eventually, I had the worst feeling you can get as an entrepreneur. I felt awful – a real aching in the pit of my stomach. I realised that this was just the wrong thing.

“We were burning thousands of dollars in salaries a month. I went to the board and said ‘I know you’ve invested $10m in this, but it’s not working’. We had a choice – burn through the cash until we ran out, or try this little kids game I was thinking about. They were shocked, but to their credit they said to go for it. We spent the remaining $1m on that.”

Moshi Monsters was the result, built in 2007.

For many success stories, this is the juncture where cash starts pouring in, yes? This is where the day is saved with that last roll of the dice, right?

Not quite. “We sold toys to access it, the only way to get in was have a code from the toys. But it just didn’t work. Retailers wouldn’t stock it, and we were getting around two sign ups a day. It was a very solo experience – you adopted a monster and looked after it.

In April ‘08 Mind Candy took a new gamble, making Moshi Monsters free to access.

“We had to stop asking kids to pay, make it free, and worry about the commercial stuff later. We went from a handful sign-ups a day, to 5,000 a day. It grew dramatically in 2008.”

Still no cause to unpack the bunting just yet – “By the end of 2008, we had no money left,” explains Acton Smith.

“In December 2008 I couldn’t pay salaries, I had some offers from investors that were pulled – it was chaos around that time, horrible. The financial crisis scared away a lot of investment.”

“I didn’t know what to do. I still believed in the business, and we had a bit of traction.”

A last-minute meeting with an angel investor saved the day.

“He didn’t know much about games – but the big driver was that his kids played Moshi Monsters. He put in a bit of money which was enough to keep us going into 2009, when we launched the subscription service.”

SETTING UP SHOP

That was the real ‘goosebump moment’, says Acton Smith.

“We switched subscriptions on, and sat there waiting… and then mums started paying. And we made thousands in the first month, doubled it the next, and so on. That’s when we realised we had something special. We became cash flow positive quite quickly and have been profitable ever since.

“It was amazing to see their parents willing to pay for it – but it’s because they could see the kids enjoying it and trusted it, it’s a very safe environment for kids.”

It helps too that the property itself is fun and engrossing. Fast forward to luxury London retailer Selfridges in early 2011, and Acton Smith saw that first hand: Moshi toys are on store shelves after a licensing drive kicked off in 2010, and trading card backs are sold at the till.

“I always knew that toys would make sense, but didn’t really know if they would sell. But I was in Selfridges and there were two kids and their mum fighting over the trading cards. She gave in and just bought them a handful. Seeing that energy and excitement… it’s clear we can build a global entertainment brand, not just a little website.

“I always believed in it and knew it’d work given enough time. Yes, it’s taken a long time to get to this point,” says Acton Smith.

“We’ve had several dead ends along the way.

“But that’s the beauty of building an online game versus a boxed one. Instead of building what we think someone wants, we can make what they actually want by constantly tweaking the direction we are going with. We take all the data and feedback, and marry that with gut instinct.”

Having shot past the 50 million user mark, Mind Candy says one user per second signs up to the site.

Subscriptions of £5 a month or £30 for the year are the main revenue drivers, propped up by proactive licensing forecast to be bringing in $100m dollars in gross sales from merchandise.

That’s the other not-so-secret Moshi success: pushing the strong IP beyond its game confines. A Moshi Magazine, launched earlier this year, is already the best-selling kids magazine in the UK after three issues.

Mind Candy has started its own ‘Moshi TV’ YouTube shows to support the site, with users as the star subjects.

“It’s building and building – I was in Hollywood recently trying to do a deal for a movie, we’re making more and more toys, and I want to do a live tour,” says Acton.

“When you have valuable IP – and this is something video game companies haven’t done as well as they could – you have to find ways for it to be enjoyed on other platforms.

Just look at Pokemon, Harry Potter, Star Wars. But we want to be the first that does that for the digital generation, with the website at the heart of the property.”

UNIVERSAL APPEAL

So despite the trials and tribulations, how have the Monsters survived? A simple glance offers one obvious answer. Moshi Monsters has an intrinsic quality – its art style is memorable and clear, the content is playful, funny and full of very British puns, but it has universal appeal.

“It’s how Disney have tried to craft their films, or Henson made his characters,” offers Acton Smith. “We’ve taken that and married it with deep understanding of the social web to create an experience that kids love.”

Acton Smith says the core appeal to the site is actually quite obvious; just overlooked by many.

“The penny drop moment for us was when we realised kids love to show off online just as much, if not more, than adults. But no one had built the service for them.”

However, “we couldn’t have made that without the characters, or vice versa”, so that great design married with the core understanding of the web forms a virtuous circle for the firm.

“From a simple idea, and with a small amount of capital – you can build a very global business.”

AMERICAN IDOLS

And global is right. The next challenge is to crack America.

“We’re very ambitious and want this to be a global entertainment brand – America is important for that and it is a tough market to crack. Paying users and sign-ups has been slower than in the UK – although have more users in total in the US, per capita UK is still a bigger market.”

But the US market is starting to wake up to Mind Candy and the Moshi Monsters. More licensees are signing up all the time, and the big retailers there are showing some interest.

“It has been a much harder sell for them, partly because they see us as a UK company, or want it to be a far bigger no-brainer hit first. But the buzz is picking up.”

A big coming out party at a huge Las Vegas licensing expo this month will seal the deal: Acton Smith and his team have even picked a booth next to Pokemon’s to show the true might of this British-born but globally focused entertainment property.

“We’ll be out in force in the US – we’re really rolling our tanks onto the lawn. We mean business.”

OPEN SECRET

Fittingly, Acton Smith name-checks key American entertainment leaders Steve Jobs, John Lassiter and Jim Henson as heroes – a diverse bunch reflected in his personality, and his business.

“What’s nice about what we are doing is that we are not in just the one domain. We needed a social experience online – so needed web skills. We needed to add great stories – so needed character designers. And we needed great gameplay – so we needed great game designers.”

Indeed, Mind Candy had already cracked the idea of ‘transmedia’ before corporate games firms tried putting it on the agenda.

“I hate that word,” he says. “A lot of these companies run their franchises badly – transmedia is just a word they use to mean exploit, which itself is an ugly word to mean ‘try and just make some money’.

“What they really want to do is consider their audience and consider their property. Don’t just take a game and port it to another platform, you have to approach it in a new way. Don’t scatter your story around – it sounds very exciting and clever, but no one likes engaging in that fragmented way. I learnt that with Perplex City.

“Some big companies get it right – just look at Halo. But many don’t. They abuse, neglect or misunderstand their IPs.

“I would love to get my hands on something like Call of Duty – imagine the innovative stuff you could do for that community using content and videos that they just aren’t doing right now.

“There’s a lot for these big companies to learn from how the internet has disrupted so much of how everyone lives and engages with content and each other.”

As it stands, says Acton Smith, that’s the important warning that the rest of the world should take from how something like Moshi Monsters has continued to thrive in the face of many challenges.

“There is a big online wave coming that will hit everyone. Publishing and broadcast was shielded from much of it, but they will experience it soon.

“Music felt it deeply. And games will be the next. Not straight away, because we saw how it happened in music. But everyone should be prepared – thankfully I feel Mind Candy is well ahead in that regard.”

In fact, it’s well ahead of most other companies in many other respects, too.