Booming mobile gaming industry lacks sustainability

SAN FRANCISCO, CA - DECEMBER 09:  The Zynga logo is displayed on the front of the company's former headquarters on December 9, 2011 in San Francisco, California.  San Francisco based social games company Zynga is preparing for its initial public offering and hopes to raise as much as $1.15 billion. (Photo by Justin Sullivan/Getty Images)
Zynga recently laid off almost 20 percent of its workforce. Credit: Justin Sullivan/Getty Images

To get a sense of how investors view the promise of mobile gaming, one need look no further than Japan’s GungHo Online Entertainment. With just one game under its belt, its stock has risen tenfold since October and its market cap almost equals that of decades-old Nintendo.

From veterans like Electronic Arts to rising stars such as “Clash of Clans” maker Supercell, the $66 billion video game industry is scrambling to devise games and experimenting with ways to appeal to a generation of players that spends more time on mobile devices than on computers or consoles.

Most are having scant success in an industry peppered with one-hit wonders like OMGPOP and where even established players like Zynga are faltering, industry sources say.

“It’s sort of like all the chess pieces have been thrown in the air, and the industry has not yet landed on what the chess board looks like,” said Owen Mahoney, CFO of Japanese online gaming giant Nexon Co. Ltd, which has in the past year bought two companies to accelerate its mobile foray.

In recent years, the model has been to offer games for free, then encourage players to spend real money on in-game purchases — a system perfected by Zynga in its online games. But its rapid decline in just the past year illustrates the challenge of hooking new players and loosening gamers’ purse strings.

The company that shot to fame on the back of Facebook games like “Farmville” bought OMGPOP, developers of the mobile sensation “Draw Something,” for $180 million. After months of losing users, who numbered 14.5 million over a year ago, Zynga last week shut its New York-based studio, effectively laying off the OMGPOP team.

Industry executives say mobile gamers today are spoiled for choice as the industry has exploded. In 2007, when Apple launched the iPhone, there were but a handful of developers. Today, there are hundreds, whose apps sell across the globe on Apple and Google’s Android devices.

“You see these rocket ships in the industry that explode on the scene with a casual game that’s easy to develop with not much money and they gain users quickly. But users get bored or angry because they can’t progress without paying more money,” Nexon’s Mahoney told Reuters in an interview.

Nexon has had some success boosting its mobile portfolio, a likely factor behind revenue growth of 24 percent in 2012 to 108 million yen ($1.1 million).

Looking for answers

To stand out from the crowd, developers big and small are seeking ways to build a sustainable business.

EA, as one of the best-funded competitors, is turning to data analytics to keep track of its players’ gaming patterns and behavior.

Japanese gaming giant DeNA is experimenting with on-the-spot tweaks to its games by employees, who adjust conditions depending on what players do, CEO of DeNA West Clive Downie said.

Canadian indie studio Noodlecake, known for games like “Zombie Road Trip,” is employing loyalty programs similar to airlines with daily virtual currency rewards for first-time and frequent players.

Others resort to tricks like seasonal deals and holiday-themed content to boost their rankings on app-download charts during the crucial holiday period.

Up-and-coming GungHo, which has seen its shares rise tenfold since October as investors bet on its ability to rise above the fray with its sole title “Puzzle & Dragons,” is turning to costly TV advertising to place its brand front-and-center.

Japanese telecoms giant Softbank Corp owns a majority stake in GungHo.

Even Rovio — backers of pop-culture phenomenon “Angry Birds” — has reported that it now leans on stuffed toys, mugs and other merchandise for 45 percent of its revenue.

“Everybody wants a manual” with the best user acquisition techniques, said Doug Smith, an independent developer who launched his kids game “Chugga Bugga” on the Apple App Store in early April but has had only about 3,500 downloads. He is disappointed that it’s becoming “harder and harder for new entrants to come in without a big budget.”

Gold rush

As E3, the industry’s largest annual convention, kicks off in Los Angeles next week, console games going up against mobile games will be an underlying theme.

Revenue from games on mobile and portable devices is expected to grow about 38 percent to $8 billion in 2013 and touch $20 billion in 2018, according to David Cole, an analyst at research group DFC Intelligence. That’s why mobile developers won’t give up.

Game publishers are now rushing to hire people with data science and analytics skills dedicated to acquiring users and analyzing their behavior, said Ville Heijari, European general manager for PlayHaven, which helps developers monetize and market games.

EA has made investments in data analytics to build a suite of back-end proprietary software to break down its players by region and preferences, to help development of future games, said EA’s President of Labels Frank Gibeau.

For now, consumer spending remains concentrated on the decades-old console gaming industry. But the situation is fast changing: in just a few years, mobile gaming has grown to account for about 9 percent of overall revenue.

Mobile is “an absolutely critical, if not ‘the’ growth driver for the industry for the next several years,” Gibeau said.

Despite the success of a number of companies, “a lot of the industry is still in a learning phase,” PlayHaven’s Heijari said.



News
Entertainment
Sports
Lifestyle
Local

NYPD: Suspect dead after two U.S. Marshals, cop…

A suspected sex offender died during a shootout inside a West Village smoke shop that left two U.S. Marshals and an NYPD detective wounded, officials said.

National

OkCupid admits to Facebook-style experimenting on customers

By Sarah McBrideSAN FRANCISCO (Reuters) - OkCupid, a top U.S. matchmaking website, intentionally mismatched users to test its technology, the IAC/InterActive Corp service said on…

Local

MTA fares still increasing 4 percent in newly…

The agency said the 4 percent increases, previously announced in December, will remain steady even as the MTA deals with increasing labor costs.

Local

De Blasio, Bratton defend city's efforts after Eric…

Mayor Bill de Blasio justified the city's response to the death of Eric Garner, a Staten Island man who died while in police custody earlier this month.

Movies

Interview: Brendan Gleeson on the way 'Calvary' depicts…

Brendan Gleeson talks about how his new film "Calvary" began over drinks and how his character here is the opposite of the lead in "The Guard."

Movies

'Get on Up' producer Mick Jagger on the…

Mick Jagger, a producer on the James Brown biopic "Get on Up," talks about the time had to tell the singer some bad news and his favorite JB record.

Television

'Glee' star Lea Michele to appear on 'Sons…

"Glee" star Lea Michele has been confirmed as a guest star in the final season of "Sons of Anarchy."

Television

TV watch list, Monday, July 28: 'The Bachelorette'…

See Andi Dorfman make her big choice on tonight's 'Bachelorette' finale.

NFL

Computer to Jets: Start Michael Vick over Geno…

Jets general manager John Idzik says the choice of who starts between second-year quarterback Geno Smith and veteran Michael Vick will be a “Jets decision.”

MLB

Yankees looking to trade for Josh Willingham: Report

CBS Sports’ Jon Heyman reported Sunday the Yankees are interested in Twins outfielder Josh Willingham.

MLB

Joe Torre: I'm in Hall of Fame because…

Joe Torre spent 18 years putting together a near Hall of Fame career as a player. But it was the 12 years he spent as…

MLB

Yankees GM Brian Cashman breaks down art of…

The action frequently accelerates as the non-waiver trade deadline approaches, as it will on Thursday.

Travel

Glasgow: Hey, hey, the gangs aren't here

This European city has done a good job getting rid of its more violent residents and revitalizing with artists.

Education

Babson College tops list of best colleges for…

Money magazine has just released its inaugural list of "The Best Colleges for Your Money" -- and the answers have surprised many. Babson College, which…

Education

NYC teens learn how to develop apps during…

Through a program sponsored by CampInteractive, the high schoolers designed their own community-focused apps.

Tech

The Ministry of Silly Walks app is both…

Monty Python have dug into their back catalogue for cash-ins once more, but with the Ministry of Silly Walks app, they've made something that's fun too.