But Cambridge-based Jagex, the maker of RuneScape, said it was positive about the future and praised the performance of its flagship game, adding that the team finished the year "on a high".
According to the financial accounts for the year to 31 December 2013, Jagex reported operating profits of £944,833, a significant drop from £9.7m the year before.
Gross margin has decreased from 45 per cent to 31 per cent, reﬂecting the bigger investment in talent during the year. Headcount increased from an average of 472 to 515 in 2013 financial year.
Pre-tax profits slipped from £9.8m to £968,123.
This was on the back of a decline in revenue - from £53.1m to £46.5m. Game income, which includes both subscription and microtransaction sales, fell from £52.3m to £46.1m, while advertising revenue declined from £735,118 to 332,496.
But other income, which includes revenue from advertising and the sale of merchandise, rose from £27,907 to £89,537.
A statement by company secretary R Hodgson said: "During the year the company focused on its two leading titles RuneScape and Transformers Universe and decided to pause the expansion of the Third-Party Publishing division to ensure the two main games were prioritised above other activities.
"Revenue decreased in comparison to 2012 but the management team is pleased with the current underlying game engagement and community sentiment going into 2014, which is stronger than the same period in the previous year.
"The landscape is continuing to be very competitive but the group is positive about the future, given the successful engagement with the RuneScape community and the upcoming launch of Transformers Universe in the coming ﬁnancial year. The company made the decision to invest further in Transformers Universe and extend the launch date into 2014."