Mobile gaming: turning enthusiasm into revenues

By Mark Donovan

The mobile industry isn't all fun and games. But gaming remains the most popular form of entertainment among U.S. mobile phone owners.  M:Metrics MobiLens research found that more than 20 percent of mobile subscribers reported playing a game on their phone in March 2008.  This compares to 7 percent who used their phone to listen to music and the nearly 6 percent who watched video on their third (or is that their fourth?) screen.

It seems clear that Internet-based services that stitch together people's online and mobile lifestyles are a winning proposition, but the current audience using their mobile browser to access news, information and entertainment online stands at less than 14 percent.

With one in every five mobile subscribers playing games, it's no wonder that nearly 150 game publishers are vying for their attention.  But those publishers who make games-and the operators and direct-to-consumer aggregators who merchandise them-don't have an easy task in turning this general enthusiasm for mobile gaming into growing revenue streams:  Usage among most gamers tends to be irregular, often doesn't involve a game purchases, and sales continue to flow primarily to the few titles. It's a challenge for publishers to rise above the noise inherent in large catalogs and crowded decks.

It's useful to put mobile game usage in the context of other popular mobile services.  Mobile phones remain predominantly about person-to-person communication and so it's not surprising that over half of people who send text messages and 44 percent of those who send mobile email do so almost every day.  Perhaps more surprising, though, is that nearly one-third of those relying on their mobile browser or applications for news, information and entertainment do so almost every day while more than 25 percent of mobile music consumers get a music fix on their phone almost daily.  In contrast, just 21 percent of mobile gamers play their games almost every day and fully half play games only one to three times in a given month.

Don't take those data points as evidence of a gloomy market outlook. Current realities aren't dim so much as they are complicated.  From March 2007 to March 2008, the audience of mobile game downloaders grew 17 percent, nearly twice as fast as the overall U.S. market.  Developers gathered for BREW 2008 will be happy to know that game downloaders on Verizon Wireless  increased by 21 percent over the same period.

This audience growth is encouraging but needs to be tempered by the fact that the number of consumers purchasing games grew with the market.  So more people are downloading games but a roughly the same percent are purchasing them.  The growth in the audience of mobile game downloaders is not proportionately increasing the number of mobile games purchasers, but this doesn't mean that revenue from mobile games is not increasing.  Earnings results reported in May 2008 by Electronic Arts and Glu Mobile, the clearest barometers of the industry, show revenue growth.  What's going on? There is a shift in the business model.

In April 2007, less than half of the mobile games inventory available on carrier decks was offered on a subscription model.  A year later, 61 percent of titles were available under a recurring billing model, usually a monthly fee.  This steady move to a recurring revenue model is a boon to the sector, though a glance at the ringtone market urges caution if you're building a business based on a breakage model.

As I write this, consumers in the United States have nearly 1,400 mobile games from which to choose. Mobile gaming remains at the core of carrier-promoted services.  In April, Verizon Wireless customers had more than 300 games to choose from while customers of rival AT&T Mobility had nearly 600 titles from which to pick; games continue to represent the largest collection of downloadable applications in any category.

While this robust inventory creates lots of consumer choice, this vast selection poses a challenge for consumers wishing to discover new content. That's a lot of choice to wade through on that tiny screen.  Most consumers don't wade, they select what's most prominent, and here we can clearly see the challenge faced by publishers who are not on the A list.  Strike that: Not on the A+ list.

In the month of March, the period for which M:Metrics has the most recent data, the top ten titles accounted for 20 percent of game purchases.  Put another way, about 1 percent of the inventory accounted for one in every five purchases, a statistic that makes the 80/20 rule look magnanimous.

Mobile games-like movies, music, and console gaming-remains a hit driven business and this is true whether we're looking at the success of GTA4 or mobile Tetris.  In many ways this characteristics of the sector is a self-fulfilling prophecy since carrier merchandising tends to reinforce hits, making it difficult for a naïve consumer to ever discover what's lurking beyond the first page or so of the deck. 

Once more BREW developers can take some solace.  While the top five game publishers command a 62 percent share of premium placement on AT&T decks and a 75 percent share at Sprint, they account for less than half of the premium promotional slots on Verizon Wireless.

This much is clear: Mobile phone owners like to play games, have a vast selection to choose from, have increasingly capable devices that improve the gaming experience, and are downloading them in record numbers.  But the limited ability of consumers to discover titles outside of the hits-or at least those promoted as such-is a throttle on market growth. 

Consumers are spending more money than ever before on mobile games, but this rising tide is not lifting all boats.  That might just be market forces, or perhaps it's a function of a merchandising ecosystem that needs improvement.  Did I mention it's complicated?

Mark Donovan is the chief marketing officer and senior analyst at mobile media measurement firm M:Metrics.