Kim K’s royalties send mobile game maker on wild ride

There can be a lot of pleasure — and pain — when you get into bed with Kim Kardashian.

Just ask Glu Mobile, the San Francisco video game maker that produced "Kim Kardashian: Hollywood," the popular smartphone game that has soared to the No. 5 best-selling game in Apple's App Store since its June 25 release.

Glu shares soared 98 percent in the first 18 trading days after the game's release — to $7.47 a share from $3.78 — helped in part by the reality TV star tweeting about the game to her 22.5 million followers, which helped fuel downloads of the free game and real-money in-game purchases.

But Glu shares on Thursday fell 18.7 percent, after it announced following the market close Wednesday that non-GAAP gross margins would tumble to 58 percent in the third quarter, the first full quarter the Kardashian game will be available, from 69 percent in the previous three-month period.

One Wall Street analyst pegged the decline in profitability — and the concurrent drop in the company's stock price, in part, to the enormous royalties Glu was paying to Kardashian.

Mike Hickey, an analyst with Benchmark Company, estimated Glu was paying Kardashian 30 percent to 40 percent of in-game sales revenue.

Douglas Creutz, an analyst with Cowen & Co., told Bloomberg the game could ring up annual revenue of $200 million.

If Hickey's royalty payment estimate is correct — and terms of the deal have not been disclosed — Kardashian could earn $60 million to $80 million annually from the game.

Hickey said Thursday's stock decline, which came amid trading volume three times its daily average, was also attributable to an expected "deceleration of marginal sales in the fourth quarter."

In the game, players can imitate Kim's indulgent lifestyle by spending real money on in-game items such as virtual hairstyles, clothes and energy boosts for their avatars.

The point of the game is simple: the more your avatar does, the faster you can ascend the ranks from E-List to A-list status.

In one scene, the famous "Hollywood" sign is replaced with a "Kardashian" sign. It might be better displayed across the street from a bank.

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