Analysis After many years of anticipation, it is fair to conclude that the mobile games market finally arrived in 2003. Japan and Korea aside, the main territories of the world had merely flirted with wireless gaming since 1999, when the first WAP and SMS projects went live. Throughout this period, developers and aggregators bemoaned the general lack of interest from network operators in the sector.
Whilst Japanese networks created tightly controlled data services infrastructures and encouraged content partners with generous revenues shares, the prevailing attitude among their European and North American counterparts was "you build it, we’ll host it and we’ll take 80 per cent too".
Two factors re-drew the landscape:
- Mobile phone penetration in developed countries started to reach saturation, meaning that networks had to look towards non-voice services to increase revenue and act as a differentiating point to reduce churn.
- Downloadable technologies (and enabled handsets) emerged to offer a compellingly simple (and billable) platform for the delivery of games.
In 2003 the first downloadable services were launched en masse. Vodafone’s Vodafone Live and T-Mobile’s T-Zones introduced pay-per-download games in just three or four ‘clicks’ to subscribers. The services were heavily advertised. Throughout Europe most operators launched similar initiatives. Meanwhile in the US Verizon and Nextel led the way for a similar transformation.
The approach taken by operators today is drastically different from that taken during the era of WAP. Now, most networks have a dedicated content unit that liaises with aggregators and developers. The average revenue share is 50 per cent. It is still high compared with i-mode service in Japan (where the share is 91 per cent), but in Europe and the US airtime is cheaper so it is harder than in Japan for networks to profit from the airtime revenue accrued during the download.
The ‘walled garden’ built by operators like Vodafone also contrasts with the open environment of Japanese operator DoCoMo’s i-mode (which has tens of thousands of unofficial sites). Some European networks contend that the system of offering a set number of games on a one-off payment model (rather than subscription) suits the Western mindset best. In order to nurture such a system, the operators need to control it tightly. This control extends to dictating APIs (Application Programming Interfaces) to handset vendors in order to make the consumer experience fast and intuitive. This was vindicated by the overwhelming popularity of Vodafone Live’s Sharp GX10 phone, the handset most strongly configured for the service.
Of course, not all networks are as hands-on as Vodafone. Some appointed third parties to build, manage and provide content for their games platforms. This was the strategy of Norway’s Telenor, which uses Macrospace to deliver Java games. Meanwhile the French enabling firm in-Fusio still works closely with the remaining European networks that support its ExEn games engine. In the US and parts of the Far East, Qualcomm does the same with its downloadable engine BREW.
By the end of 2003 operators were able be cautiously optimistic about the future of mobile gaming. The services were working well technically and delivering hard cash at last. The predominant pay-per-play payment model has also shown itself to be robust. But there is plenty to be done.
A 'billion-dollar' industry
Although downloadable applications have proved popular with consumers, the numbers are still tiny relative to the traditional console and handheld gaming business. The few publicly available numbers reveal that the market has so far barely touched the mobile owning mainstream, except of course in Korea and Japan. According to Screen Digest estimates, in 2003 these two countries accounted for 80 per cent of worldwide games download revenues of €380m.
But the vast majority of major operators in North America and Europe have now established games download services on their networks. The penetration of Java handsets is also rising fast in these markets, such that we expect games-enabled handsets to have risen three-fold in Western Europe to 110m by the end of 2004, and more than double in North America to 70m. As a result, we are expecting download spending outside the Far East to really take off this year.
Whilst games download spending for Japan and Korea combined is expected to grow by around 50 per cent in 2004 (to €446m), Western Europe and North America combined is forecast to grow at 10 times that rate. A 500 per cent jump will result in games download spending in these two regions of €332m in 2004. Although seriously trimmed, Japan and Korea’s majority share of worldwide mobile games market will remain in place for another year. We reckon that Japan and Korea will have accounted for 51 per cent of global spending in 2004.
In total, we anticipate the wireless games download market will prove to be worth around €880m ($1,070m) in 2004, breaking the billion-dollar barrier for the first time.
Despite explosive growth in Western Europe and North America this year in particular, we do not expect combined spending in these two markets to exceed spending in Japan/Korea until 2006 at the earliest. One of the contributing factors is the level of advancement of the mobile universe. In terms of games-enabled handset penetration, Western Europe and North America are around 2-3 years behind these Far East markets. Yet a much more significant factor is the games ARPUs deriving from games-enabled handsets in the market.
It is clear that wireless gaming ARPUs (per game-enabled subscriber) are significantly higher in the Far East than those being achieved in the US and Europe. We estimate that in 2003 games download ARPUs were four times higher in Japan/Korea than in the newer markets, although the gap was expected to have narrowed to 2-3 times higher by the end of 2004. But we think that if the wireless gaming market develops in line with the business models that are currently being deployed in Europe and the US, then there is little chance that mobile gaming ARPUs will match those of Japan and Korea right through to the end of the forecast period in 2010.
The business models common in Japan and Korea are different from those gaining traction in the US and Europe, although in different ways.