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Source: Wall Street Journal
Let the Games Begin
By DAVID ROMAN
Staff Reporter of THE WALL STREET JOURNAL
February 14, 2005
While mobile gaming has become a key component of mobile 3G services, the shortcomings of new technology may limit the contribution of gaming to the growth in revenues of wireless operators.
World-wide, the mobile gaming industry generated almost $1.9 billion (1.5 billion) in revenue in 2004, according to Dario Betti, senior telecom analyst in London with consultancy Ovum Holdings Ltd. He expects the sector to generate around $5 billion by 2008.
However, some industry observers say technical limitations such as slower reaction speeds and complications over billing will keep a cap on mobile gaming. That means downloadable personalization features such as ringtones and wallpaper could remain the main content segment for handsets for years to come. Emerging billing issues may also complicate relations between operators and publishers, encouraging carriers to cut their fees in exchange for lower credit risks.
"Mobile gaming is a nice market, but there's plenty of questions to solve around it," asserts Leif-Olof Wallin, an analyst with consultancy Meta Group, based in Amsterdam. "The truth is, concepts like online mobile gaming are still far from developed."
Mobile gaming is also small compared with the overall 30 billion videogames industry. And it's absolutely minuscule compared with the whole 436 billion telecom industry, even if it has quickly become an important component of revenue generated by wireless operators' fledgling 3G services.
Mobile games aren't new. Even the most basic handset usually has some sort of simple game to help while away a boring half-hour.
Fancier Games Needed
But the new 3G, or mobile broadband, services currently being rolled out around the world allow gaming on a new level. They can offer better graphics, faster response times, gaming between two or more handsets, and wireless online gaming -- a lure for operators trying to persuade subscribers to boost airtime on their networks.
Mobile operators are pushing the game publishers hard for fancier games for their 3G services and for upgraded versions of the games already available on 2G handsets.
Companies such as Los Angeles-based Jamdat Mobile Inc. and Gameloft SA of Paris have responded with a wide range of game offerings for mobile phones. Bowling, Pac-man and checkers are currently the most downloaded games but Gameloft, for instance, is about to launch "New York Nights," a dating simulator.
Despite the improvements, mobile gaming features still fall short of the experience offered by pure gaming consoles such as Sony Corp.'s PlayStation and Microsoft Corp.'s XBox. But they are a big leap in quality for the typical mobile-game user, who doesn't normally own a console, industry observers note.
"Most people who play this kind of [mobile] game are what we call 'casual gamers,'" says Ovum's Mr. Betti. "People who just play games on their mobile while waiting in line, or sitting on a bus stop. They may be teenagers or 50-year-olds. Dedicated gamers, on the other hand, simply go up a level and buy a console or a computer."
John Brimacombe, president of Washington, D.C.-based games publisher Mforma Group Inc., says mobile gaming has strong potential. He points to accelerated consolidation in the games-publishing industry and a heavy level of investment.
"People are underestimating the importance of games," he says. "We expect this [segment] to be one of the largest sources of revenue among mobile content."
Limits to Technology
Others say the 3G mobile gaming technology is still a limiting factor, especially when playing online. Mr. Wallin notes that transmission speeds in 3G are still low, which becomes a serious problem when playing real-time online games. "Latency is too high to compete in any reasonable way with terrestrial Internet," he says. Latency refers to the speed with which gaming consoles interact.
Currently, a gamer playing a shoot-'em-up type of game online with a 3G mobile has a delay of half a second -- 500 milliseconds -- between pressing the trigger and the "bullet" hitting his rival's handset, says Mr. Wallin. That compares with 20-30 milliseconds for fixed-line broadband play. Even with the new, enhanced super-3G phones, the delay will be 300 milliseconds, Mr. Wallin says.
The operators are tight-lipped about their hopes for mobile gaming, just as they are about their new 3G services in general. Several top European operators declined to comment.
Perils of Hyping Products
They might be wary of over-hyping the prospects for mobile gaming. Consider Nokia Corp.'s experience with N-Gage. The device from the world's largest handset maker was one of the first attempts to combine a mobile phone with a serious gaming platform. Nokia hoped it would have mass-market appeal, but it has remained a niche product. Nokia said last month that sales had been disappointing.
Mobile gaming also faces competition from the console makers, with Sony launching a portable version of its PlayStation and Nintendo Co. also launching a portable console.
The comparative costs of mobile gaming may also put consumers off. For one thing, there's the cost of downloading games. And then subscribers must pay for the time they are connected to the operator's network. Gamers who forget the network-usage charges can soon turn into dissatisfied customers when their bills arrive.
Vodafone Group PLC is working with game publishers to develop single-bill deals, but most other operators are biding their time, says Paolo Pescatore, London-based senior analyst with consultancy IDC of Framingham, Massachusetts.
John Chasey, managing director of IOMO Ltd., a Hampshire, England, game publisher recently acquired by U.S. publisher InfoSpace Inc., says mobile operators and publishers are looking for new approaches to billing, even if major changes aren't expected this year.
Publishers are also likely to increase their share of revenue per game sold, as they are taking on a larger share of marketing and advertising expenses, he says.
The complexity of the issue may eventually encourage operators to minimize risks by transferring most of the billing process to publishers, for example through increased use of prepaid cards and similar methods that would restrict the revenue they collect, some experts say.
"Many of these operators don't want to be banks," says Meta Group's Mr. Wallin. "They're willing to let publishers do the billing, even if that gives them a smaller piece of the pie, because a lot of these gamers are under 25 and they have very limited credit."
