Winning and Losing in Mobile Games

SUMMARY

Mobile Gaming came to the market as a product of the hype surrounding the potential of WAP and mobile-internet-based services. Much of the poor demand for mobile games was blamed on the poor user experience, SMS & WAP delivering poor quality graphics and game play.

Interest in the Mobile Games market has however seen a marked increased globally since 2002 with the launch of new colour handsets that have offered greater usability, gaming device-like controls, polyphonic sound and Java? Technology. The number of mobile technologies that support mobile gaming are a quality typical of a relatively immature and fragmented market.

Newer devices allow the user to receive or download games onto their devices. The hype surrounding the launch of the Nokia N-gage is unprecedented and will take mobile gaming convergence into a whole new era. Not all are however convinced of its potential success - this report explores the impact of a new generation of devices on the traditional gaming market and the potential incentives and pitfalls for non-mobile companies in attempting to dominate this market. Mass market appeal will attract many non-mobile players into the market, particularly those that have been successful in the PC, console and handheld gaming device market and a number of them will view their commitment to the market as business critical.

Companies increasingly look to the success of mobile gaming in Asia as a roadmap the key markets of Europe and North America. The questions this report answers is not only when but how the Mobile Games market will reach maturation and who are going to be the companies that stand to gain the most.

Winning and Losing in Mobile Games has been developed by W2F over 6 months of intensive research utilising

a) key interviews with leading content Mobile and Non-mobile Games developers

b) intensive statistical analysis providing market valuations, technology availability and potential consumer demand for Mobile Games

c) case studies of successful mobile games markets and services providers identifying their business models and how they are monetising Mobile Games profitably.

TABLE OF CONTENTS

1 Executive summary

2 Introduction to mobile games

introduces the concept of mobile games and provides a snapshot of the industry

• Table 2.1 Sample games from around the world
• Table 2.2 Past and present in mobile games

3 Myths of mobile games exploded

illustrates questions that need to be asked regarding this industry to analyze its performance objective. Media and the industry itself are often caught up in the numerous myths that pervade current analysis

4 Headline figures for mobile games

provides an overview of what W2F and industry analysts are saying regarding the potential market valuations for the mobile games industry in the foreseeable future.

• Table 4.1 Analyst market valuations for mobile games 2001-2008
• Figure 4.2 Graph of analyst market valuations 2001-2008
• Table 4.3 Market valuations for ringtones and electronic gaming 2003
• Figure 4.4 Average user spend on mobile games by country 2003-2006
• Figure 4.5 Mobile games market spread internationally

5 Japan and Korea lead the way

highlights the advances made by the Japanese and Korea markets, assessing the growth both in quantitative and qualitative terms

• Figure 5.1 Comparative sizes of mobile games market 2003
• Table 5.2 Sample images form games available in Japan and Korea
• Table 5.3 Aggressive forecasts for mobile games users in Japan and Korea 2003
• Figure 5.4 Regular mobile games players by country 2003-2006
• Figure 5.5 Detailed graph of regular mobile games players by country 2003
• Figure 5.6 Mobile games market valuations for Korea 2001-2003
• Figure 5.7 Number of regular mobile games players in Japan 2003
• Figure 5.8 Mobile games market valuations for Japan 2001-2002
• Figure 5.9 Mobile games market valuations by country 2003-2006
• Figure 5.10 Console shipments per 1000 population by region 2002
• Table 5.11 Console shipments by region 2002

6 Telecommunications Industry Evolution

provides the backbone to all industry analysis. Understanding the services sector for telecoms can only be done on appreciating the needs of the mobile operators and how these needs change over time. W2F finds that the growth of mobile games and other services is inextricably linked to the developed of the telecoms industry as a whole.

• Figure 6.1 Theoretical modelling of Telecoms Industry Evolution
• Figure 6.2 The ARPU "gap" resulting from declining voice revenues
• Figure 6.3 Illustration of mobile network operator strategies
• Table 6.4 Mobile network operator strategies as a function of evolution
• Table 6.5 Comparison of evolutionary stages for regions globally
• Figure 6.6 Evolutionary stages of global market regions plotted

7 Mobile games publishers

this section analyses the roles and responsibilities associated with mobile games publishing.

• Figure 7.1 Theoretical modelling of aggregation strategies for publishers
• Table 7.2 Licensing fees paid by electronic games publishers in 2002

8 Mobile games developers

this section analyses the roles and responsibilities associated with mobile games development

9 Mobile game market evolution theory

developed from the fundamental theories of telecoms industry evolution, the mobile game market evolution theory explains how the market will develop over time. Factors that affect growth - from cost to profitability are discussed in detail in this section

• Figure 9.1 Comparison of regional development plotted against evolution curve

10 Barriers to entry

provides an overview of how market supply will be affected by the inherent mobile games market barriers to entry. For mobile games companies this section identifies how competition will change over time and what strategies becomes available to the provider to maintain long term profitability

10A Barriers to entry: Market knowledge

identifies the role of sector knowledge in restricting market supply and how this will change over time, particularly how this will keep electronic games publishers out of the industry

• Figure 10.1 Knowledge barriers to entry as a function of market evolution

10B Barriers to entry: Cost of production

examines how the costs of production for mobile games will change over time and what the implications are for publishers. Evidence from electronic games industry is used to illustrate potential growth curves for cost and identify what contingency plans publishers need to implement to stay in business

• Table 10.2 Typical costs of development for mobile and PC/console games
• Figure 10.3 Costs of mobile game production as a function of market evolution

10C Barriers to entry: Control of distribution channels

provides an overview of how distribution channels will change over time as a function of market evolution and what this implies to publishers and developers. This section identifies the growing importance of distribution strategies and provides the publisher with advice as to how to remain competitive in the long term through effective distribution

10D Barriers to entry: Brand

examines the role of the branded game and the company's own brand over time and how this change will force strategic change in companies

10E Barriers to entry: Economies of scale

assesses the growing importance of scale economies in the maturing market and how this will impact and inevitably polarize the mobile games industry between market leaders and dependents

• Figure 10.4 Economies of scale and polarization of market structure

11 Market evolution and supply

aggregates W2F theory presented in this report to determine the current and future levels of competition within the mobile games market

• Figure 11.1 Aggregate barriers to entry as a function of market evolution
• Figure 11.2 Theoretical modelling of mobile games supply and demand curve

11B Market evolution and revenue shares

illustrates typical content revenues share agreements, who gets what and how these agreements will change over time as operators potentially shift their market focus

• Table 11.3 Typical revenue shares in emerging mobile games market
• Figure 11.4 Pie chart of typical revenue shares in emerging mobile games market
• Table 11.5 Typical revenue shares in maturing mobile games market
• Figure 11.6 Pie chart of typical revenue shares in maturing mobile games market

12 Mobile games and the consumer

answers the question of "who is the consumer?". W2F research is presented to provide a theoretical model for publishers, developers and operators to understand how to effectively segment the market and target the product specifically for the desired audience

• Figure 12.1 Observable and functional layers for consumer drivers in mobile games

13 Potential market size

summarises the theoretical grounding of this report in a straightforward modelling tool for assessing potential market size

• Table 13.1 Consumer profiles and access populations as a function of evolution
• 14 Summary of mobile games market evolution

provides a brief review of all evidence presented in the theoretical section of this report

• Table 14.1 Summary of mobile games market evolution

15 Evolution and the electronic games industry

examines the relationship between mobile and electronic games. This section provides an overview of the electronic games sector and a basic understanding of the drivers of this sector. It examines how the mobile channel is relevant to the electronic games sector and what this means for both channels in terms of competition and opportunity

• Figure 15.1 Market capitalization of lead players in games industry 2003
• Table 15.2 Electronic gaming market values 2001-2004
• Table 15.3 Market values for mobile and electronic games markets 2001-2006
• Figure 15.4 Value of mobile channel to electronic games sector
• Figure 15.5 Comparative mobile and non-mobile games market values 2001-2006
• Figure 15.6 % share of market value of mobile and non-mobile 2001-2006

16 Conclusions

• Figure 16.1 Traditional industry "value chain"

17 Recommendations

18 Mobile Games Statistics

Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, UK, USA

• Figure 18.1 Mobile ownership by country 2003-2006
• Figure 18.2 Mobile penetration by country 2003-2006
• Figure 18.3 Java? Enabled handset ownership by country 2003-2006
• Figure 18.4 Number of mobile gamers by region 2003-2006
• Figure 18.5 Regular mobile games players by country 2003-2006
• Figure 18.6 Mobile games market value by country 2003-2006
• Figure 18.7 Comparative sizes of mobile games market 2003
• Figure 18.8 Comparative sizes of mobile games market 2006
• Figure 18.9 Average user spend on games by country 2003-2006

19 Technology of mobile games

• Figure 19.1 Strengths and weaknesses of J2ME
• Figure 19.2 Strengths and weaknesses of BREW
• Figure 19.3 Strengths and weaknesses of ExEn
• Figure 19.4 Strengths and weaknesses of Mophun
• Figure 19.5 Strengths and weaknesses of WGE

20 Case studies: Mobile Network Operators

• Vodafone
• AT&T Wireless
• Orange
• T-mobile
• O2
• NTT DoCoMo
• Case studies: Games Developers
• in-Fusio
• Namco
• Gameloft
• mForma
• Digital Bridges
• JAMDAT
• Electronic Arts
• THQ
• Disney
• Sega
• Taito