PLAY TIME

MOBILE GAMES ARE NOW GENUINELY WORTH PLAYING THANKS TO IMPROVEMENTS IN HANDSET TECHNOLOGY. BUT ARE SOME OPERATORS, NOT TO MENTION HANDSET MANUFACTURERS, IN DANGER OF LOSING THEIR SENSE OF PERSPECTIVE? AFTER ALL, IT'S ONLY A GAME

IT seems ironic that Nokia Snake should have gone down in history

as the mobile game that started it all - as a gaming experience, it really wasn't up to much. For a game that appeared at the turn of the millennium, Snake was hopelessly out of date; better video games had been available 20 years earlier. And yet people still played it - still do play it. In fact, Snake was a significant USP for Nokia phones for quite some time.

The lesson was that people weren't bothered about the limitations of the mobile phone as a gaming platform. If you stuck a game on there, no matter how basic, they'd play it.

And yet the popularity of Snake also highlighted the potential downfall of mobile gaming from a commercial point of view. What people wanted from a mobile game was a very short burst of simple, time-killing entertainment; in other words a low-value experience in which they were unlikely to invest any money. Persuading consumers that mobile games can offer an experience that is worth investing in for its own sake is therefore what this business is now all about.

This is becoming easier, of course. Colour screens, polyphonic sounds and downloading engines are giving developers the tools they need to drag mobile gaming out of the Snake Age. And both developers and operators are hoping that consumers will find this new breed of games something for which they are prepared to pay.

Some warn that expectations are already getting too high in certain quarters.

"We need to be careful about the hype level," argues Giles Corbett, CEO of French games service provider In-Fusio. "Operators are telling us that games are strategic for them, that they'll represent five to 10 per cent of their revenues over the next five years. I don't believe that at all.

Our view is that games will come to represent 0.75 -to 1.5 percentage points of operators' revenues. So while it's a serious opportunity, operators are not going to be able to increase their ARPU enormously." At the higher end of In-Fusio's estimates, then, operators should not anticipate earning an annual ARPU of more than about E5 or E6 from mobile games. Corbett's sense of caution is shared by Richard Clifford, a mobile analyst at Datamonitor.

"Operators are looking for the next SMS, the next big thing," he explains, "but I don't think gaming will be it. It will remain a niche - although that's not to say it won't be a very profitable niche."

The profits could indeed be significant - not enough to compensate singlehandedly for falling voice revenues, but an important weapon in the data armoury nevertheless. Worldwide, ARC Group foresees one billion people playing mobile games in 2007. European mobile subscribers will have gone from spending $50mn on games in 2002, according to Games Analyst, to spending $358mn in 2007. A major reason for this rise in spending will be the transition from the SMS games that account for most of today's revenues to downloaded Java and BREW-based games, which are perceived to have a far higher value.

And, if anything, the European market has been something of a laggard in this field. "Japan and Korea have been mad on games, and we should be cautious about expecting to replicate that kind of success elsewhere," suggests Richard Clifford. Giles Corbett identifies China as the most exciting market that In-Fusio is currently involved in. "When they start playing, they play a lot," he says. North America, too, has been witnessing promising levels of interest in mobile games, according to Tom Elsworth, executive vice president, marketing and corporate development, at Jamdat, a leading US-based mobile games publisher. "In the US, the national launch of downloadable games was primarily with Verizon Wireless," he recalls, "and we've had 2.5 million downloads since September 1st 2002." 3.2 million Verizon customers had bought 1x 'Get It Now' handsets by the end of April.

In Europe, meanwhile, Vodafone Live! users had downloaded one million Java games by mid-May, according to Adrian Letts, Vodafone Global Content Services' head of products, and that from a user base of a little over one million. Having now seen sales of handsets embedded with its ExEn gaming platform pass 5 million, In-Fusio claims a user base of 2.5 million players and sees over 100,000 interactions (i.e. game downloads or requests for new levels) every day. The figures in Europe and the US demonstrate a number of things: that many people with the capability to download games are not doing so; that even 'average' users are not downloading games more than once every few months; but most importantly that there is nonetheless a sizeable market for downloadable games even at this relatively early stage.

Bearing this in mind, the approximate E5 jump in yearly ARPU across the board that In-Fusio's estimates point to would be far more considerable amongst the target demographic - the youth segment that is the games community's core market. Anecdotally, operators have seen ARPU rise by as much as E20 a month among gaming customers.

T-Mobile is also seeing the number of games downloaded via its t-zones service increase at a promising rate. "From February to March we saw a 25 per cent increase in game downloads," explains a T-Mobile spokesman.

"And right now about 60 per cent of the handsets we sell are Java-enabled.

By the end of the year that will increase to 80 or 90 per cent, rising to virtually 100 per cent by the end of next year."

Besides having to manage their own expectations, operators have a number of issues to consider in ensuring that the games market can progress.

How much can they realistically charge for mobile games? How much should they pay the games provider? What sort of games do people want to play on this limited platform? Then of course there's the thorny issue of how much control operators expect to retain over the value chain.

On this last point, operators will have noticed that the much-discussed Club Nokia concept looks like catching on elsewhere. Sony Ericsson, for example, has set up a P800 application download shop in conjunction with Handango in order to have a stake in the applications that are downloaded to the device. "Operators seem to have changed their views on this," suggests Peter Marsden, Sony Ericsson's marketing director for the UK and Ireland.

"Originally, they thought: that's our customer, leave him alone. Now they're less protective, I think."

A look through the list of games available for download on the P800 is revealing on two fronts: one, that games on so-called 'smart' devices already have far more in common with the Playstation than they do with Snake; and two, that as a result some providers are not going to be shy to charge Playstation-like prices. As such, Sony Ericsson's P800 games range from a not unreasonable [euro] 4.50 to a rather disproportionate [euro] 30.

Customers vote with their feet on issues like this, of course, and we can expect to see the price points of E30 mobile games fall when nobody buys them. The games that Sony Ericsson is offering for around [euro] 5 seem more sensibly priced. T-zones games, by way of comparison, are available for between [pound] 1 and [pound] 5 in the UK, or [euro] 2 and [euro] 4 in Germany, while Vodafone Live! games are also top-priced at [pound] 5.

In Sony Ericsson's case, the more serious end of the gaming strategy is directed at the lower end of the handset market. The recently released T310 phone featured an exclusive game - Tony Hawk's Pro Skater 4, which was a major Activision hit on the Playstation - as its main USP. "The gaming experience was very much built into the design of the product," says Peter Marsden of the T310, which incorporates the Mophun gaming platform supplied by Synergenix. The idea of marketing a new phone on the back of a game, was that "the people we're aiming at already know who Tony Hawk is," and that users could then be encouraged to continue their relationship with Sony Ericsson by downloading additional levels of the game - Tony Hawk download packs, which include three new levels, cost [pound] 4.50 in the UK - and different games subsequently. "Mophun is a gaming-only platform that allows us to bring a better gaming experience to the entry level part of the market," Marsden continues, explaining Sony Ericsson's choice of gaming platform.

"It's not that we're turning our back on Java; we think in the future it will be a strong platform. But right now we think Mophun is the best way of reaching the entry level."

The big-brand game, be it a console cross-over or a movie/sports tie-in, offers operators and handset vendors a tempting way to attract customers' attention. Games providers, though, are more likely to use them as a way of gaining the market's trust. Experience shows that while familiar brands may be better suited to operators' marketing strategies - take, for example, Vodafone's popular Formula One game that fits in cosily with its Ferrari sponsorship - they are not necessarily the games that customers will use the most heavily. "In the United States," explains Tom Elsworth of Jamdat, "our first game for download was EA Sports Tiger Woods Golf, and it was quite popular. Its success persuaded the carrier to trust us. So we essentially used the Tiger Woods brand to get their attention. Once Tiger had done well we brought them Jamdat bowling - and this became even more popular than Tiger Woods Golf." A combination of a big brand and a quality gaming experience is perhaps the ideal, though. Jurassic Park remains In-Fusio's most popular game, Giles Corbett explains, although he stresses that having branded games as part of a wider portfolio is the wisest approach.

Jamdat, which also supplied Tony Hawk to Sony Ericsson, still sees operators, not handset manufacturers, as "the main route to market" for their games.

"Manufacturers want to sell devices," says Juan Montes, manager of Jamdat Europe. "Making revenues through downloading $2 applications - that's not their core business and most of them would admit that."

It's a fair point, and one that Nokia, for one, must have taken on board.

Gaming revenues are undeniably there for the taking, but manufacturers of mobile phones are not particularly well placed to harvest them - unless they change the nature of the device that they are trying to sell.

Enter the Nokia N-Gage: the device which aims to turn the concept of gaming on a mobile phone on its head. The N-Gage is the first device to make telephony functions subordinate to game-playing and it marks a bold attempt to carve out a niche in a handheld gaming market entirely dominated by the Nintendo Gameboy. Furthermore, with Sony announcing plans for a handheld version of its world-beating Playstation console, dubbed the PSP, to be released next year, Nokia could find its new chosen sphere of activity an even tougher environment in which to thrive.

As Microsoft has recently shown with its Xbox console, of course, game players will gradually warm to a new format if the offering is compelling.

However, Nokia's situation with the N-Gage may not be altogether comparable.

"Central to all of Microsoft's new markets," says Datamonitor's Richard Clifford, referring to wireless, games consoles and interactive TV, "is the internet. Microsoft wants to own the internet, that's its strategy.

But with the N-Gage Nokia's just looking for something to make its phones sell." In which case Nokia would be preparing to take on Nintendo and, as of next year, Sony and enter a new business area as a way of bolstering its position in the handset market - not directly as a means of staking a serious claim to the games market.

Cost could cause severe problems for the N-Gage project. Nokia is not a poor organisation by any means, but it lacks the prodigious war chest that Microsoft has at its disposal to bankroll its new business areas.

And the headache with a relatively powerful gaming device, like the N-Gage, is that games become more and more expensive to develop. "For In-Fusio," says Giles Corbett, "to go and get a full quality game costs between [pound] 35,000 and [pound] 60,000. But when your games cost between [pound] 150,000 and [pound] 400,000 to develop and your device has limited distribution - as the N-Gage will - then you're facing difficulties."

Mobile gaming works because everybody has a mobile phone and, if they can play games on them into the bargain, then that's fine with them. Nobody going out with the intention of buying a phone will buy an N-Gage; people going out to buy a Gameboy might. But retailing at [euro] 300, as the N-Gage is expected to, compared with the new Gameboy Advance SP, which sells for as little as [euro] 125, the N-Gage faces a severe challenge. On a positive note, content deals point to a gaming experience that will be well worth considering - publishers like Sega and Eidos have already signed up to deliver such favourites as Sonic, Super Monkey Ball and Tomb Raider. And the Bluetooth multiplayer option could prove a key differentiator for the N-Gage if enough people buy them to make meaningful use of it.

However, the N-Gage experiment will remain little more than an interesting aside for the majority of the mobile gaming industry. For the games providers, the priority remains building up their user base and fostering their relationships with the operators. "Working with the operators is definitely getting easier; says Giles Corbett." They understand now that they have to share a substantial amount of the revenues with us." Jamdat's Tom Elsworth echoes the point: "We have to have the resources to go out and get the highest quality brands and games, and I think the carriers understand that now."

Elsworth, though, believes above all that the mobile gaming market is poised to enter a decisive growth phase. "The price of colour devices is coming down and that will give us a huge installed base of people who could potentially be playing games. The next year will be the key stage for this business; this Christmas will be critical."