Bryan Cashman is the founder of Callvention, a service enabling phonecalls with game developers.

The mobile games sector is poised for challenges ahead, with the latest data pointing to diminishing short-term returns in the once thriving space.

According to numbers released today from SuperData, a leading market intelligence firm in the games industry, mobile game user acquisition costs topped  ARPPU every month since July, 2013. 

Game makers often boost their user base by purchasing ads and referrals from ad networks, with hopes to recoup their acquisition cost through spending by mobile gamers. If a game developer spends more to acquire a gamer than the gamer spends on the game, the model becomes unprofitable.

“For October we recorded an average spend per mobile gamer of $1.96, compared to an average cost per install of $2.73, up from $0.97 in the same month last year,” said Joost van Dreunen, CEO of SuperData.

On average, that sees game developers paying $0.77 more to acquire a gamer than they can recoup in a month.

The data is forecasted to get worse coming into the holiday, as major publishers with significant financing drive up the costs to acquire users, threatening the growth of smaller game developers.

“We anticipate an increase in user acquisition cost unlike we’ve seen before, with publishers aggressively buying users to claim a top market position during the holiday season,” said van Dreunen. “With the lead-up to the holiday season underway, we anticipate an increase in the cost of user acquisition that outpaces mobile gamer spending.”

By the end of the year, the company forecasts the cost per installation of a game to reach $3.36, over double the predicted ARPPU for mobile games of $1.06. While these numbers represent the broader industry, and not the performance of individual successful games, they do indicate that the overall mobile game sector maybe headed into a bubble.

Still, the mobile game sector is receiving investor interest, with Gamevil acquiring Korean mobile gaming company Com2us, and Softbank and Gungho Online Entertainment acquiring 51% of Supercell for $1.5 billion USD.

“The two deals further validate the mobile games market, and indicate an expectation of growth for the segment,” said van Dreunen. With cash flooding the market, it’s easy to see how acquisition costs continue to rise, even to unprofitable levels.

The data may also be evidence of a different trend: longer-term success for hit games that earn revenue for subsequent months. Paying more per install is easier when gamers continue investing in a game months after release. The top three grossing games for October (Candy Crush Saga, Clash of Clans and Game of War) were all released in 2012.

The author, Bryan Cashman, blogs about business issues in the video game industry at CONSULGAMER. This article represents Bryan's personal opinion only.

Source: SuperData