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Mobile gaming gets its skates on

A $1bn industry and growing

Flat-rate or pay-per-download?

The Japanese (i-mode) model is a flat-rate subscription to an unlimited supply of content, which has been highly successful at encouraging both wireless gaming usage and stimulating a thriving and innovative wireless games development industry in the country.

Replicating this model in Europe would undoubtedly generate similar benefits for the European industry, and consequently for wireless games spending in the region. Some operators question whether this model would be financially viable, given the low price of airtime in Europe compared with Japan (where NTT DoCoMo makes its money out of the airtime component of this model).

The i-mode model is being deployed in several European markets, and although it is early days, it’s fair to say that its success rate has so far been ‘limited’. However, there are major mobile operators in Europe who are convinced of the need to move to a flat-rate pricing structure for data services, and we believe are prepared to go it alone if necessary.

In our view, the introduction of flat-price pricing would result in a major fillip to the European mobile gaming market. If i-mode does take off in Europe, or some other form of flat-rate price model becomes widespread, then our forecasts for wireless gaming spending in Europe and worldwide will be revised upwards significantly.

In Korea, the predominant business model for wireless gaming is the pay-per-download model found in Europe and the US. But games download ARPUs are comparable with Japan, and (paid for) download rates are considerably higher than that achieved in the US and Europe.

The major difference between Korea and Western Europe/US is in pricing, with mobile games downloads in Korea averaging around 1,500 won ($1.30) in 2004. This is between a third and a quarter of the average price charged by operators in Western Europe and the US. Yet pricing differentials are dwarfed by the difference in download rates, with about 10 times the number of games purchases per enabled handset in Korea than outside the Far East. As a result, Korea has much higher mobile gaming ARPUs (for enabled handsets).

Certainly not all of this massive difference in download rates can be explained by the cheaper Korean download price. But it is a major contributing factor, with the whole spectrum of potential users highly incentivised to download new games, or even just try out mobile gaming for the first time.

The Korean model shows that there is an alternative to the flat-rate model to generate higher mobile gaming ARPUs, and that is more competitive pay-unit pricing. This is certainly a serious consideration for European and American operators wishing to increase their overall download revenues. Both of these strategies have a corollary in the fixed-line data market. Several European broadband ISPs are now finding that subscription-based models for fixed packages of content are a far more attractive consumer proposition than pay-per-download. Meanwhile, after years of prevarication, the market for (legal) music downloading has taken off with the introduction of the 99 cent download (and cheaper) by companies like Apple, Real and Wal-Mart.

Operators' key gaming issues

Because usage and awareness are still relatively low, networks must now address key issues if they are to maintain their position as the drivers of the market.

These include:


Often there is still a vacuum where promotion should be. Thus far, virtually all marketing has been generic rather than specific. Of course, revenues may not justify the advertising of individual titles. But more must be done to show subscribers how easy and enjoyable mobile gaming can be.

Meanwhile, specialist portals such as Germany’s Jamba and Zed do advertise heavily. Operators must surely be aware of how the ringtone business was poached - they will be wary of this happening again in gaming.


Operators should consider broadening the scope of the games decks. They are right to maintain quality control. But if the sector does surge, again customers will defect to portals and magazine ads for their games as they did in the ringtone market.

New technologies

Making available demos, pay-per-level, access to leagues and tournaments, multi-play and so on - if they are implemented well - should improve the user experience and grow the market. Also significant could be the downloading of mini games engines that allow for further play. For example, a user could purchase a chess engine and then play a nominal amount to play games with other owners of the same engine. Many of these technologies will be made easier to implement by the arrival of MIDP 2 for Java and by standards agreed by trade bodies (such as the Open Mobile Alliance’s work on digital rights management).

Alternatives to the operators

There are plenty of alternatives available to the keen player of mobile games, should operators fail to entertain subscribers or keep their partners happy. In Europe, the web now provides an open-ended channel for masses of Java games vendors to offer games using premium SMS as a payment mechanism. Virtually all ISPs (Internet Service Providers) and some major consumer brands offer downloadable games from their sites. But there are hundreds more specialist sites dedicated to selling Java games.

These websites are generally more localised than operators, working with local studios to make available games that cater for regional tastes. They can handle any number of titles and generally shuffle them far more reactively than the networks. Some offer a high revenue share for content suppliers - up to 80 per cent. However, the norm is rather less attractive with portals subtracting up to 40 per cent in billing fees, and another 20 per cent for marketing/advertising.

The remainder is split in half leaving the content partner with 20 per cent of the download fee. Players can also acquire games from interactive digital TV services and from adverts in the press. In the case of the latter, there is often diffidence from developers to be involved thanks to the sometimes transient nature of the organisations placing the ad. There have been reports of illegally posted games and non-payment of content providers in this sector.

At present, web and TV portals could control as much as 50 per cent of the business in some European territories, but overall we believe that operators command 80-90 per cent of the European market. In the US, their share is negligible because the non-adoption of SMS there makes billing a problem for any would-be games supplier apart from the operators themselves.

In the future, operators may face competition from retailers (although it won’t be competition if the retailer is the part of the operator’s own high street network). Some stores have already begun selling games. During the WAP era these came in the form of scratch cards that revealed ID numbers to unlock games WAP sites. In the download era, they use the same basic model although others have been tried such as the CD-ROM that allows the transfer of games on to a phone via a cable or bluetooth link.

Self-evidently, this model is only likely to attract hardcore mobile gamers rather than the more casual mainstream market. The sector may improve when retailers formalise a technique to ‘flash’ games into handsets on the premises.


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