Wireless gaming is a match made in venture capital heaven: The mobile carriers need new ways to hold on to its customers; the gamers need ways to find new ones. Small wonder, then, that financing is flooding in to the handful of companies looking to become the Electronic Arts of the wireless gaming market.
It was only a few years ago that cell phone gaming in the United States was limited to a handful of text-based games produced by a few tiny start-ups even as detailed, full-color games on the go were catching on in Asia and Europe. Now, however, it's a multimillion-dollar enterprise.
Some 12.2 million Americans downloaded or subscribed to wireless games through their cell phones in 2003, said Schelley Olhava, a wireless gaming analyst at market research firm IDC.
“We are still in the early stages of this market, but I think it’s one that has serious growth potential,” Olhava said. She estimated that revenue in the wireless gaming space would grow from just under $160 million in 2003 to 1.7 billion by 2008.
New technology, new funding
The reasons for the rapid evolution are many, analysts say.
Mobile phone technology in the United States is becoming more sophisticated, and many Americans are swapping their old black-and-white cell phones for the latest Java-enabled color handsets. At the same time, venture financing is flowing into a handful of startup companies working on everything from designing wireless games to building the infrastructure that delivers them to consumers’ phones.
Jamdat Mobile is a case in point. The Los Angeles-based firm, which filed for a public stock offering in July, is widely seen as the leader in the wireless gaming space. Jamdat’s IPO, which is expected to take place later this year, may spur more investor curiosity and venture capital in other wireless gaming firms, said Dave Mock, an author of a number of books on the wireless industry.
“The Jamdat IPO is creating a buzz in the venture capital community, and I think that if you get a successful IPO it could take this industry to the next level,” said Mock. “It will legitimize the sector and bring in more investors.”
Mock said he sees the wireless gaming market in the United States at an “inflection point.” Whereas countries like Japan have played games on their cell phones for years, the uptake of wireless gaming in the United States has lagged, he said. One reason is the U.S. wireless infrastructure, which hasn’t developed as well as in other countries. Another is the quality of phones in the United States, which haven’t had the rich color capabilities of overseas handsets.
“So given these factors there’s a huge opening for gaming, and this is why we are seeing a rapid rush of venture capital,” he said. “When money goes into the wireless area, it’s mostly going into gaming because venture capitalists see gaming as one of the first areas to take off, especially with the young crowd.”
Analysts also point to the rapid development of gaming technology, and much of the impetus is coming from large corporations like Qualcomm and Nokia.
Before Sun Microsystems’ Java technology and Qualcomm’s BREW platform, which allows gamers to download games to their phones over the air, most games were stored on the mobile phone itself. Today, gamers can pay a few dollars to download the latest color-rich applications like Jamdat's “Bowling,” one of the most popular cell phone games.
“We are seeing multibillion dollar companies getting into this space,” said Tom Taulli, an expert on IPOs and a professor of business at the University Southern California.
“The devices are already out there and more and more enabled to allow for higher bandwidth, and for color and data services; more sophisticated wireless services coming online.”
Youth demographic appealing
Cell phone gaming is also a serious boon for the wireless providers themselves, said Taulli. They recognize the benefit of generating revenue from the casual gaming market, he says — gamers who do not necessarily spend hours playing games on a computer or a gaming console, but might play a game of solitaire or chess while they wait for a bus or a train.
Some carriers are already starting to report impressive numbers. In May, Sprint said that more than 3.5 million games were purchased in 2004, bringing its total since launching Sprint PCS Vision, a new high-speed data service for wireless phones, to 9.5 million. Wireless firms typically charge about $5 per game, or offer a subscription service.
At the same time, the outlook for the overall video gaming industry looks rosy. Sales in the United States rose almost 28 percent in July, according to research by the NPD Group, buoyed by strong sales of titles like “NCAA Football 2005" and "Spider-Man 2." And the second half of 2004 is expected to be the biggest six months in industry history.
The youth demographic is very appealing to wireless firms, said Taulli. “The demographic is hard to reach, but once you get it it’s a great consumer to have because younger consumers tend to spend and not save and they have lots of purchasing power,” he said, adding that the potential for movie-themed advertising and e-commerce is significant.
“From a convergence standpoint, this is big,” he said. “You’ve got the Internet, wireless and the content side coming from Hollywood, and it’s all coming into play. So if you’re playing a game based on a movie it might ask you if you want to buy tickets, or the DVD.”
Greg Ballard, CEO of Sorrent, one of the top five wireless game makers, said he sees wireless content eventually moving beyond games.
“We have just scratched the surface here,” said Ballard. “We really think of ourselves as an entertainment company and we’re thinking of other sources of entertainment, which may be something remote from a simple game. We want to be one of the companies that works out how to do all kinds of applications through a phone — it’s an exciting frontier.”