Independent Video Game Companies Gain Market Share

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Sand Island may seem like a nice place to visit, but you wouldn't want to live there. The remote tropical community is home to the pygmies of Tribe Ooga Chaka, a pint-size primitive culture destined to endure a seemingly endless series of horrible fates--everything from volcanic eruptions to meteor showers to swarms of man-eating fire ants, each set into motion by a single swipe of the fickle finger of fate.

Sand Island is just one of several fantastically exotic locales that make up the ever-expanding virtual realm of the smartphone game Pocket God. A delightfully subversive, unabashedly sophomoric farce with roots ranging from Mad Magazine to South Park, Pocket God grants gamers omnipotent control over the luckless Ooga Chaka universe and rewards them for indulging their most malevolent impulses. Built in just one week, the 99-cent Pocket God ranks among the signature hits of the iPhone era, generating more than 13 million downloads and giving birth to a growing cottage industry spanning T-shirts, toys and comic books.

"The idea of doing bad things to these characters is appealing to a lot of people," chuckles Dave Castelnuovo, the otherwise mild-mannered software programmer whose startup Bolt Creative launched Pocket God in early 2009. "It's so simple. It's something you whip out at a bar and say, 'Look how crazy this is. It's all about killing these little guys!'"

Pocket God's pygmies are on fire.

Pocket God's very existence--let alone its massive success--would have seemed equally crazy not so long ago. Multinational brands like Nintendo, Sony and Sega once dominated the video game industry, devoting many years and millions of dollars to developing console and PC titles that typically sold for $50 to $60. Then in mid-2007 Apple introduced the iPhone, and everything changed: Virtually overnight, handheld computers landed in the pockets and purses of millions of tech-savvy consumers, liberating digital gaming from the living room and propelling it into the world at large.

With the advent of the App Store, Apple further rewrote the rules, giving third-party developers access to its iPhone application programming tools and establishing a direct-to-consumer digital distribution platform that bypassed brick-and-mortar merchants, exorbitant programming expenses and other obstacles that had impeded small, unheralded gaming startups. Fast-forward to 2012: There are now more than 120,000 games available in the App Store and roughly 150 new titles submitted every day, priced at an average of just over $1 each. (In exchange for revolutionizing the mobile software business, Apple claims a 30 percent share of all App Store revenue.)

North American mobile gaming revenue will surpass $1.2 billion this year, exploding from $462 million just five years ago, according to PricewaterhouseCoopers. The ascent is tied directly to smartphone penetration. Roughly 110 million U.S. consumers--more than one-third of the population--own smart devices like iPhones and Androids, according to comScore. By comparison, Nintendo has sold only about 5 million 3DS dedicated gaming handhelds to U.S. consumers since the product launched in March 2011.

Still, Nintendo and Sony have remained stubbornly dedicated to their proprietary platforms, opening the door for indie developers like Bolt Creative to flourish. A recent report issued by mobile analytics firm Flurry indicates that 68 percent of all smartphone gaming sessions are devoted to titles developed by studios that launched on mobile, as opposed to companies that extended their existing gaming efforts from competing platforms.

"In order to build a console game, you have to have good connections and pitch a ton of ideas, and then executives tell you, 'No, it's not different enough' or 'It's not alike enough' or 'These are the only genres that are selling,''' Castelnuovo says. "The iPhone is a once-in-a-lifetime thing. There are no game manufacturing costs, and no revenue split with retailers. This is a creative experience for us. We're not trying to craft a business model to separate people from their money. We're just trying to create something interesting--and we want people to enjoy it."

God Is In the Details
It's a perfect summer day in San Francisco, home to Bolt Creative headquarters--aka Castelnuovo's house in the Sunset District. Three computer monitors, a Wacom graphics tablet and an array of Apple devices stretch across Castelnuovo's crowded desktop, while superhero plush toys and statuettes immortalizing Japanese anime heroines line his office bookshelves.

His love for popular culture exerts a profound influence on Pocket God's ongoing evolution: In the wake of Charlie Sheen's public meltdown, the game introduced a manic pygmy character named for the actor, and in June Bolt Creative teamed with Parry Gripp, frontman of punk-pop band Nerf Herder, to release "Pygmy Theme," a digital single sold via Apple's iTunes.

It's fair to say the 42-year-old Castelnuovo never imagined Pocket God would carve out its own spot in pop-culture lore. The former aerospace engineering student and self-taught programmer cut his teeth on Sega console projects like Ringler Studios' Clay Fighter and Zono Incorporated's Mr. Bones before launching Bolt Creative in 2001 to create Flash-based apps for the web. Castelnuovo was freelancing on the online game World Golf Tour when the introduction of the iPhone opened his eyes to the creative and commercial possibilities of the mobile platform: Pocket God took shape as one in a series of throwaway apps intended to hone his skills writing software for Apple's iOS mobile operating system.

"I gave myself 10 hours to learn the iPhone, build the simplest of apps and publish it to the App Store," Castelnuovo recalls. "I first came up with this stupid little image-warping program called Fwarp! It ended up selling about 150 units a day, and I realized, This could be doable. If I had 10 of these, I could do this for a living."

Roughly a month after Fwarp!'s October 2008 release, Bolt Creative launched the Spirograph-inspired Slinky Ink app. Both earned scathing user reviews in the App Store. "Those apps didn't have a lot to them," Castelnuovo admits. "I did a few updates, but they didn't evolve a great deal."

Making Ooga Chaka mischief: Pocket God sketches.

Pocket God, Bolt's third published iPhone release, drew its inspiration from an e-learning project that Castelnuovo and longtime creative partner Allan Dye built for client ASK Learning, in which players dragged characters that looked like zeros onto different platforms to create binary numbers (the real fun came from tossing the characters around). Dye, who handles all Pocket God design and animation, sketched out the pygmy characters over a lunchtime brainstorming session, and Castelnuovo completed the programming work in a matter of days.

"Pocket God was meant to be a steppingstone. We knew that if it took off, we could add more features and expand, but we didn't have a time frame in our head," Castelnuovo recalls. "It was mostly a matter of doing something and getting it out there."

Though Pocket God attracted attention during its first weeks in the App Store, online discussion about the game was largely negative, fueled by ill will toward Bolt Creative's previous efforts. "One person on [iOS gaming forum] Touch Arcade said, 'This looks cool, but it doesn't do anything, so don't waste your time,'" Castelnuovo says. "Others said, 'Look at their other games. They don't support them. This is a game trying to sell itself on future promises they're not going to keep. Bolt Creative is not a reputable developer. Don't trust them.'

"How do you deal with that?" he adds. "I felt I needed to be honest and decided to approach it from a low-level, grassroots perspective to get people on our side. I went on Touch Arcade and said, 'We're just a couple of guys. We are serious about this game; we really enjoyed working on it and we hope to do more updates. Trust us.'"

Castelnuovo and Dye proved their mettle by delivering Pocket God updates over 14 consecutive weeks. Designed as sitcom-like "episodes"--complete with titles like "Does This Megabyte Make My App Look Fat?" and "You Always Hurt the One You Lava"--each update added new game-play features while fleshing out the Ooga Chaka universe and solidifying the game's tongue-in-cheek sensibilities.

"Dave and I are used to doing everything on our own," Dye says. "That's not the norm. We work quickly, and we can add all this content quickly because we know the two of us can do everything we need to do. That enabled us to build out this world really fast. It's not as easy if you have a big company full of people who specialize in every different thing."

Bolt Creative also responded to critics by making each Pocket God update free for users who forked over the original 99-cent download cost--a model that remains unchanged more than three years and 46 updates later. Castelnuovo credits the deluge of new content for nurturing the devoted fan base that keeps the game in the upper rungs of the App Store's sales rankings.

"[The updates] built a story for us," he says. "We never got any major press coverage or promotion from Apple, but people started saying, 'These guys care about their app more than anyone in the App Store.' It's all been about talking to reviewers and 12-year-old kids and getting them enthused. That kind of word-of-mouth is more powerful than advertising."

As the Pocket God cult grew, Castelnuovo began to reconsider his original plans to abandon the game for something bigger and better. "I knew from the minute I dropped that pygmy in the water and he started drowning. I thought, Oh my god, that's so hilarious. I knew we had something there," he says. "Once we had all this attention, I felt it would be a shame if we didn't put our all into it. And if we did put our all into it, could we come up with a Sonic [The Hedgehog]? Could we come up with our own Mario Bros. franchise?

"A lot of companies don't learn the lessons of the big guys that put out sequel after sequel after sequel," he adds. "I felt if we had an evergreen app, we could do it the same way the console folks do it, and build this into our baby by building longevity into our life cycle."

Bolt Creative's commitment to constructing a Pocket God franchise also solved one of the most daunting challenges faced by mobile startups: user retention. A study published earlier this year by analytics firm Localytics reveals that 22 percent of mobile apps downloaded by consumers are used only once, and another 13 percent are used just twice. At the opposite end of the spectrum, 31 percent of apps are accessed 11 times or more. With each new episode, Pocket God gives gamers a reason to come back time and again.

"Pocket God is such a great value," says Peter Farago, vice president of marketing at Flurry. "You get it for 99 cents, and [Bolt Creative] keeps adding content and keeps the game fresh. That model is what makes them such an interesting company."

Temple TalesPocket God is, of course, far from the only mobile game that has rocketed to renown via the iPhone. Apple ranks the title No. 9 on its list of the App Store's Top 25 All-Time Paid Apps, behind indie blockbusters like Rovio Entertainment's Angry Birds, Halfbrick Studios' Fruit Ninja and ZeptoLab's Cut the Rope. But mobile games that rely on the premium-download business model are becoming increasingly rare: More and more App Store developers are instead embracing the so-called freemium approach--i.e., games that are free to download but offer premium in-app transactions like virtual currency, weapons and additional levels or lives.

Freemium titles now make up 87 percent of the App Store's top-grossing games, according to Flurry. "Freemium is a great way to get consumers to try your app, because they don't have to make a decision about paying a price upfront," Farago says. "If they like it, chances are good they'll spend money to accelerate their progression through the game."

Imangi Studios' Keith Shepherd amps up the mobile game with App Store hit Temple Run. Photo© Squire Fox

Freemium blockbusters include Temple Run, the wildly popular adventure game created by Raleigh, N.C.-based Imangi Studios, led by the husband-and-wife developer team of Keith Shepherd and Natalia Luckyanova. In July, Temple Run--an Indiana Jones-like exploit that challenges players to navigate a series of ancient temple walls, sheer cliffs and booby traps while collecting coins and avoiding demonic monkeys--shattered the 100 million downloads milestone, less than a year after its original release.

"Making it free eliminated any barrier to download," Shepherd says. "Once people started playing, it had the right combination of things they hadn't seen before, like endless running, 3-D graphics and swiping gestures. It's the perfect pick-up-and-play game."

Shepherd and Luckyanova met in 2003 while working at healthcare software developer Vecna Technologies. "I got into the software business because I wanted to make games," Shepherd says. "Before the iPhone, making a game was akin to making a movie: Everything was produced by huge studios with million-dollar budgets. Distribution was such a challenge. You don't publish something in retail without a large company behind you. It's amazing how Apple has leveled the playing field."

Shepherd quit his Vecna job a few months prior to the App Store's launch, and together he and Luckyanova created Imangi, a word game he now dismisses as "really hard and not that fun." A series of premium titles followed, but for every step forward, like the minor hit Harbor Master, Imangi Studios suffered a setback; for example, the 3-D racing game Little Red Sled, scheduled for release during the 2008 holiday season, faced a series of internal delays and didn't debut until late-February 2009.

A tied game: Temple Run adventurer Barry Bones

"We tried to do something too ambitious," Shepherd admits. Max Adventure, which Imangi spent close to a year developing, also fared poorly.

Temple Run began as an effort to streamline the complex user interface created for Max Adventure. "We wanted to develop a more intuitive control scheme, and we realized that if you have the character always walking forward, using swipes and broad gestures to turn, it felt cool--like you're pushing the character around in the world," Shepherd says. "We thought, How can we take this control scheme and build it out into a game? We came up with the idea of a maze with lots of twists and turns that are randomly generated. If you don't turn at the right time, you run off the end and you die." Add in a jungle environment, Aztec imagery and an indefatigable adventurer in hot pursuit of a priceless idol, and Temple Run was born.

Like previous Imangi Studios releases, Temple Run entered the App Store with a 99-cent price tag when it launched in August 2011. "At that time freemium was a new trend in the market," Shepherd says. "We felt like if it didn't catch on we had nothing to lose by making it free." Despite positive App Store user reviews and favorable notices from the blogosphere, Temple Run failed to catch fire, so after about a month, Imangi flipped the switch to freemium, continuing to offer in-app coin packs starting at 99 cents each.

"Almost immediately we were making five times as much money as we were before," Shepherd says. "Every day we saw more and more downloads. Temple Run took on a life of its own and went viral. With so many people talking about it, it kept climbing the charts and finally peaked at No. 1 on the free and top-grossing lists around New Year's."

Shepherd credits Temple Run's success to the simplicity of its game play and the complexity of its virtual world. "You can play for just a few minutes and get a couple of runs in, but there's also lots of depth," he explains. "You can unlock many different levels and characters. There are many reasons to keep coming back. And that's the biggest difference between Temple Run and our other games--people keep coming back."

Gamers weren't the only ones taking notice of Temple Run. Earlier this year, The Walt Disney Company approached Imangi to collaborate on a branded version of the game that would incorporate characters and settings from Pixar's hit summer movie Brave. Although the Disney Interactive unit has developed a host of its own original iPhone titles, including the smash Where's My Water?, the creative synergy between Brave--an animated fantasy about Merida, a gifted archer coming of age in 10th-century Scotland--and Temple Run was simply too perfect to pass up.

"We try to build mobile games around major releases and events, but we only do it if we have a game-play experience to match--we don't want to build something just because a movie is coming out," says Disney Interactive director of communications Brian Nelson. "It was clear to everyone [Temple Run] was the perfect fit."

Imangi and Disney developed Temple Run: Brave in a matter of months, working around the clock to finish the project prior to the Brave theatrical premiere. Shepherd and Luckyanova maintained the original Temple Run's core game-play mechanics but teamed with Disney engineers to update the setting to the magical Scottish forest depicted in Pixar's film, with players controlling Merida as she flees the clutches of the monstrous bear Mordu. Temple Run: Brave, priced at 99 cents, has now topped the App Store bestseller list in 60 countries. (Shepherd declines to disclose Imangi's total revenue to date.)

Next up for Imangi: Licensed Temple Run T-shirts, toys, a board game and a comic book published by Ape Entertainment, the same company that produces the Pocket God series. "We haven't started working on new [properties] or games--Temple Run is such a phenomenon that we can't set it on the shelf to work on something new," Shepherd says. "But we're happy sticking with Temple Run. We're fortunate to be in the position we're in. I never imagined I would create something that 100 million people have seen."

Beyond Gaming
Temple Run: Brave isn't the only sign that mobile gaming is going Hollywood. An Angry Birds animated series is in development, and Rovio Entertainment has hatched plans for a full-length animated film based on the foul-tempered fowl. Meanwhile, Sony Pictures Television, Ryan Seacrest Productions and Embassy Row are developing a TV game show based on Draw Something, the competitive-sketching title acquired by Zynga earlier this year for a reported $200 million.

A Pocket God animated series is also in development, with producer Suzanne Todd (Austin Powers: International Man of Mystery, Memento) onboard. Castelnuovo and Dye are working with strategy and business consultant Jean Mathews on the project, but so far haven't identified a writer with the comedic sensibilities to successfully adapt Pocket God from the mobile screen to the TV screen. In September Castelnuovo, Dye and Mathews released two new lines of Pocket God vinyl figurines manufactured by toy designer Funko and sold through Barnes & Noble, and other retailers. The trio has also been spitballing ideas for new T-shirts to follow a wave of apparel that rolled out in 2011 at Target, JCPenney and Sears.

Idol hands: Temple Run explorers are in endless pursuit of a priceless treasure. Illustrations courtesy of Imangi Studios

The pop-culture junkie in Castelnuovo revels in seeing his creations immortalized as toys and shirts, but the software programmer in him just wants to get back to work on his game. "When you get enough notoriety, there are a lot of things that take up your time--there are more people to correspond with during the day, and more people coming to you with deals," he says. "A lot of those deals don't come to fruition, and you have to put a lot of effort just to get to the point where you realize something isn't going to come to fruition. So you have to look at things from a pragmatic standpoint and ask if it's something we're interested in--and if not, don't pursue it at all. We choose not to pursue most of the deals [Mathews] brings us."

Castelnuovo nevertheless takes particular pride in the comic book version of Pocket God, which he and Dye have plotted roughly 100 issues ahead. "The comic isn't about making money--we're making a tiny bit of revenue, but it's really a passion project," Castelnuovo says. "I love creating a story and creating a world that our characters exist in."

The Pocket God comics were born when David Hedgecock, CEO of publisher Ape Entertainment, recognized the game's multigenerational appeal after playing it with his 5-year-old nephew. "My nephew totally understood it immediately, and even figured out three new ways to kill pygmies I'd never seen," Hedgecock says. "I thought, There's something here. On a whim I contacted Bolt. Dave and Allan both love comics, so they jumped at the chance to do this."

Ape Entertainment publishes new digital issues of the Pocket God comic through the App Store each month, priced at 99 cents and promoted via ads inserted into the original game; when a story line has run its course, the individual issues are collected into traditional printed trade paperbacks. Digital sales of the first issue, published in August 2010, now exceed 250,000 units. (By comparison, milestone issue number 100 of the zombie apocalypse epic The Walking Dead, the bestselling independently published comic of the last decade, topped out at 383,000 copies.)

"We don't make as much money on digital as we do on print on a per-unit sales basis; in fact, we make a lot more on print," Hedgecock says. "But the volume of digital sales makes up for it."

Castelnuovo says Bolt Creative's newest game: Pocket God: The Runs, scheduled for release in early 2013, will highlight some of the characterizations and story arcs introduced in the Pocket God comics. Based on a popular mini-game introduced in a previous Pocket God update, The Runs is a single-button auto-running game in the mold of console classics like Super Mario Bros. "Huge levels, lots of variety, different power-ups and stuff," Castelnuovo notes.

"I know that if we do a new app, we can strike it out of the park, just because of the popularity of Pocket God," he says. "And then if the app is successful enough to stand on its own, we have a very good chance of another evergreen app that drives a lot of revenue for us."

The introduction of The Runs doesn't mean the original Pocket God saga is winding down anytime soon, however. Castelnuovo says he's just getting started--good news for fans; terrible news for Tribe Ooga Chaka.

"We've put three and a half years of solid work into this game," Castelnuovo says. "Every new update is a lot of stuff. With something like Angry Birds, they can do a new update and there's a lot of work that goes into it, but they're not adding a brand-new game with every single update. Most apps now do a ton of content updates, but they don't build in the narrative, and they don't build out a world. As long as I'm learning new things and having fun doing it, it will be fresh for me--and hopefully fresh for the audience, too."

Indie vs. Established Game Sessions
Android and iOS games by indie developers are played more than those by the big guys

Get In on The Action
You don't need a killer concept and programming chops to compete in the mobile gaming segment. The explosive growth of the mobile ecosystem has sparked the emergence of new services and technologies designed to vault game developers to the next level.

Here are the types of companies getting involved.

Mobile advertising networks (such as Millennial Media, InMobi and LeadBolt) connect brands and agencies with developers selling ad inventory within their games.

Social gaming platforms (Gree, PapayaMobile, PlayPhone) enable developers to create connected gaming communities with social features like invites, leaderboards and achievements.

Development platforms (Appcelerator, appMobi, Kony Solutions) help simplify software creation, feature updates, cross-platform porting and related complexities.

Subscription service providers (Big Fish Games, Exent) offer consumers access to a catalog of licensed titles for a recurring monthly fee.

Mobile marketing platforms (Fiksu, buzzdoes, Kickanotch) help developers and publishers promote their games.

Analytics providers (Flurry, Distimo, App Annie) deliver actionable usage and engagement metrics to developers.

Mobile rewards networks (Kiip) are designed to increase engagement by giving users awards, offers and discounts for in-game achievements.

Super Models
Apple iOS and Google Android mobile gaming applications are on pace to generate worldwide revenue of $8.7 billion in 2012, up 60 percent from last year, according to analytics firm Flurry. Three business models--premium, freemium and ad-supported--dominate the segment, with Flurry calculating that premium and freemium games combined will rake in revenue of $6.7 billion this year, up from $4.5 billion in 2011. Here's how the three models shake out.

Premium: Games are priced at 99 cents and up. Premium games make up nine of the top 10 all-time bestselling iPhone applications in Apple's App Store, led by Rovio Mobile's Angry Birds.

Freemium: Games are free to download and play, driving revenue from premium-priced advanced features, functionality or content. These in-app transactions now yield 91 percent of revenue across both the iOS and Android platforms, reports market research firm Newzoo.

Ad-supported: Games are free to download and play; revenue comes from integrated mobile advertisements. Ads are expected to yield mobile app revenue of $2 billion in 2012, up from $980 million a year ago, Flurry reports.