Back from GDC

The Movaya team was in San Francisco this week for GDC. GDC Mobile took place Monday and Tuesday and then the broader games industry took over on Wednesday.

We were very busy over the three days we were there, with over 20 meetings so we didn't have any time to post news on the site this week, but we will try to backfill interesting stories over the next couple of days.

We didn't spend any time at the sessions but having talked to lots of folks, the general theme surrounding the mobile game sector is that alternative distribution channels are the new focus for the vast majority of mobile game publishers. Moconews posted an article earlier this week titled: "The End Of Carrier Control In Mobile Gaming May Be Near" and from the discussions we had, this is definitely moving from talk to reality.

Now, to be clear, Movaya's interests are 100% aligned with off-deck or non-carrier mobile content distribution, so we are certainly biased, but let me provide some color on what is happening in the US market and you can make your own conclusions.

Of the 15 or so mobile game publishers we talked to this week, the majority said "2007 was a challenging year". Why was it so challenging? Well, it is broadly known that over 90% of the mobile games purchased in the US are sold by the carriers directly, meaning 4 stores (Verizon's Get it Now, AT&T's Media Mall, T-Mobile's T-Zones, and Sprint's Game store) control nearly all the mobile game distribution. And when you are reliant on only 4 channels for distribution, your risks are significant.

Point #1 - Carrier Game Business

- Verizon's business was great for just about everybody as their technology platform works well and they have made some minor investments to improve merchandising, etc.
-AT&T was generally flat from 2006 to 2007 because, although their subscriber base increased significantly, their technology infrastructure is inferior and they had a whole bunch of new customers who love to play games but couldn't buy anything (iPhone).

-T-Mobile continues to plug away but they experienced significant organizational restructuring which caused different issues for publishers.

-Sprint is cratering; they are losing subscribers and employees by the minute and no one's paying attention to the store. I heard one significant publisher say: "Focusing on Sprint right now would be a waste of resources".

So, what does all this carrier info mean? Well, if you have a good relationship with Verizon you probably did OK in 2007. In fact, someone told me that Gameloft generated 50% of their US revenue from Verizon.

Point #2 Cutting the number of partners

All of the 4 major operators in the US made significant cuts to the number of direct partners they would work with moving forward. Rumor has it that AT&T went from 25 or 30 direct partners to 6 "premier partners" and 6 additional partners. This means that roughly 20 companies lost their direct relationship with AT&T. Ouch. This does not mean that their games won't show up on-deck but the path to that deck just got more complicated and more expensive.

If you don't have a direct deal with the carrier, your new process for getting your game carried means working through one of the direct publisher partners or one of the certified aggregators. Both of these routes create issues for the non-direct publishers.

- Aggregators: these are intermediate third party companies that sit between the game publishers and the carriers. Their job is to "pitch" the game concept to the carrier and then run interference between the carrier and the publishers for accepted games. They generally make 15% of the revenue for their efforts. The potential value of these aggregators is understood. Carriers can't manage hundreds of independent partners; they simply aren't resourced appropriately. The aggregator can take on a lot of the operational tasks and filter out the lousy developers. Unfortunately, at least what I hear, is that none of the publishers like the current aggregators. I'm sure there is a certain amount of sour grapes here but hearing the stories of failures in what I would call basic tasks is brutal. Furthermore, the aggregators are providing very little value (technical or sales) to justify their 15%. Bottom line: if you're a publisher who used to work direct, but now works through an aggregator, your revenue just got cut by 15%, while your costs stayed the same and your control is diminished significantly.

- Other Publishers: Mobile game publishers like iPlay have now gotten into the business of aggregating games from other publishers. If you have even half a brain you can probably quickly understand the challenges with this model. Although the game publishers are most likely way better operationally than the aggregators and their knowledge and ability to sell into carriers is superior, you have a major conflict of interest here. Let's say iPlay is going to release 12-15 games this year. Their primary focus is to get these games placed on deck and get these games sold. That in itself is no easy challenge, and now they are going to effectively get other publisher s games highlighted as well? Not to mention the fact that now one of your competitors has access to your sales reports? Sounds risky to me.

Now, most game publishers have no choice. If they want to stay in business and not completely bleed cash, they will determine which path to the carrier deck makes the most sense and work that channel to keep the lights on. But, in parallel, all of these companies are either already investing in alternative distribution or are actively investigating their options. In a later post I will discuss the off-deck distribution options for mobile game publishers in more detail but here are some of the quotes we heard from publishers this week:

1. "Our focus in 2008 is on direct-to-consumer. We know this business is small today but we have to start investing today to be ready when this market matures."

2. "Our focus in 2008 is to broaden our distribution by making web based versions of our mobile games. By making web based versions, people can play our games online, and then we can provide a path to purchase the game for their phones."

3. "Our focus in 2008 is moving from a mobile game publisher to a digital lifestyle brand. Mobile will continue to play a big role but the broader web is critical to achieve the growth we need."

Furthermore, Movaya measures the growth of the off-deck business by watching the number of content developers and merchants who sign up to our service and are seeing very strong growth month-to-month here. (We'll have more to report on this soon as well.)

If we did miss you at GDC, please drop us a line or we can plan to get together at the next tradeshow - CTIA Wireless (Las Vegas, April 1-3, 2008).