Postcard From GDC 2005: GDC Mobile - The Consolidation and Specialization of the Mobile Game Industry

The consolidation of mobile games publishers and developers has been clear to anyone following recent news such as Yahoo!'s acquisition of Stadeon, Kayak's merger with Synergenix, In-Fusio's acquisition of Thumbworks and Mobile Scope, or other assorted mobile stories.

Paul Maglione, Senior VP of Publishing and Marketing at Digital Bridges, addressed the topic in a session on the Mobile Games track. Maglione got the standard data on the mobile industry's size out of the way at the start of the session; the important points, according to him, were that "you now have at least four wireless network carriers doing at least a million paid downloads a month, which starts to get very interesting. There are 730 million new handsets sold every year, so that ramps up our installed minibase of game platforms by several hundreds of millions of units every year." Despite this, he continued, typical consumer penetration rates are stalled at only 3% - 6%, even among the 16- to 25-year-olds most likely to download games. Other problems are continued low consumer awareness of carrier mobile game portals; low visibility of mobile gaming in mainstream media, and no successful "mobile-specific" game using the unique functions of the mobile phone platform.

Worst of all, the content side of the business is populated by many developers and smaller publishers, while the distribution side is dominated by telecoms whose core business is voice minutes. "We're dealing with these telco giants who control over 90% of the distribution, which are large conglomerates, and they're very concentrated. Games don't even represent 1% of their revenue, and their core business is something very different. It's that core imbalance that contributes to this industry still being strange in some regard." "What you have in this industry is really the thing that fuels this consolidation, is this dichotomy between a huge potential demand of consumers on the one hand -- 1.7 billion consumers, 700m handsets sold annually, most of which are replaced quickly, and the demand that can make the mobile platform mass-market.

Over on the other side, you have developers and publishers, aggregators, various start-ups, and then specialized mobile publishers like Digital Bridges," Maglione said. "Connecting these two large groups are these little turnstiles, which are the carriers. Not only are there a lot of them, but they're consolidating amongst themselves, which makes fewer of them. They're pruning their carrier decks, they're restricting the number of suppliers of games with whom they want to do business, and therefore it's harder for us as a content industry to actually get the games launched. So it's a very unique situation, and this is really what's driving the consolidation." To deal with the imbalance, Maglione suggests, "You can either become big, and therefore integrate all the things you need to have, to power through that turnstile, or you can become specialized, and both are equally valid strategies, but they're radically different, of course."

Elaborating on the "big" strategy, he said that "In people's minds, consolidation equals big equals bad. That is a creative person's automatic reflex. But when you think about it, big isn't necessarily bad, and certainly not in the games industry. If we look at console games, they would not be a 24 bill industry worldwide if you didn't have a handful of very strong, very well-resourced publishers to drive the business." "Back in the early 80s, videogaming industry was really built thanks to people like Nintendo and Atari and Sega pumping in hundreds of millions of dollars in advertising. That, by and large, hasn't happened at all in mobile gaming, but we forget that 20 years ago there was this big bubble that was driving this consumer awareness of videogaming. When you're talking about that kind of money, only larger companies have that kind of budget."

The minimum scale Maglione outlined to become a large "superpublisher" was extensive: it requires the portfolio size to give yourself a shot at a relationship with carriers, which could be as much as 20 premium titles, as well as a couple a month you can roll out. "You need to be across the U.S. and Europe at a minimum, to amortize investments in IP," he emphasized. To launch alternative distribution via e-commerce would require extensive investments into network connectivity and server technology. "That's really what it's all about today in mobile gaming," Maglione said. "You're talking about an industry which instead of 4 platforms, like consoles, has 150 platforms. Each phone has different screen size, different memory size, different processor speeds. You really have to think of each one as a separate platform. That's a very labor-intensive aspect of the business that developers will find incredibly daunting, and they'll have to collaborate closely with publishers to master this."

On the other end of the scale, said Maglione, you can be a smaller company who specializes in doing one particular thing. "If you look at the mobile games world, from late 2002 to early 2004, it was largely a bi-polar world. You either decided to become a publisher, or you were a carrier, which is very hard to do as a start-up. What we now are in 2005, is really a multi-polar world, where you have this plethora of additional niches and opportunities and specializations. Therefore, what you actually have in 2005 to start something new, is a much greater scope of business models and specializations." More interfaces means more complexity to manage, and a specialized company who takes care of one aspect of that complexity stands to gain in dealing with the larger superpublishers. "There are territories where it's virtually impossible to do anything," Maglione said, offering regional specialization as one possible field for a start-up to get into. "For a publisher to do that itself, they're looking at 2 years before they get started." Other possible fields include specialized content, specialized demography work, specialized geography, and specialized functionality. "As an ecosystem, from consolidation you spawn all these new specializations and businesses which actually grow the market as a whole."

"Every part is becoming more specialized," concluded Maglione, "but that's just new opportunity for all kinds of business. What no one has really cracked is the definitive mobile game, the game which uses the phone functionalities, which breaks away from this pattern of being a shrunk-down console game. So whoever can do that, give me a call, show us what you've got."

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