IPhone Impact on Game Industry Growing, But Challenges Abound

Seventy-eight percent of gamers who use an iPhone play games on it at least weekly and “more than a third use it every day” for that purpose, said NPD analyst Anita Frazier, citing the findings of her company’s Games Acquisition Monitor. “The iPhone’s impact on the games industry is still growing, so publishers and developers need to consider how the platform fits, or doesn’t fit, into their strategic plans.”

Because “the complexity of iPhone games is less than that of games for other gaming platforms, it’s relatively simple and inexpensive to develop games” for Apple’s handhelds, Frazier said. “The challenge to the industry is first making games that are engaging enough given the simplicity to hold the attention of the player, and to monetize the experience so as to provide a profitable revenue stream."

New iPhone and iPod Touch games are released nearly every day -- not only by aggressive, dominant players including Electronic Arts (EA), but also by lesser-known players that see Apple’s platform as one of the easiest and least expensive entry points into the game industry. Two examples of the smaller entrants are French developer Gameco Studios, which just released its first title on the platform, the 99-cent word game SLetter, and Canadian developer Big Blue Bubble, which said Monday that it made the first Fighting Fantasy “game book,” Fighting Fantasy: The Warlock of Firetop Mountain at $2.99, available on the App Store. The Fighting Fantasy title combines role-playing games with traditional fantasy storytelling, Big Blue said. More than 15 million copies of the game series have been sold globally, it said. Big Blue said it will release four more titles in the series, including Deathtrap Dungeon this month. The company had tested the App Store waters with titles including Elven Chronicles and its first for the platform, Pop-A-Tronic. The company didn’t respond right away to a request for information about how those games have done.

Although California’s Legacy Interactive hasn’t come out with a big hit for the iPhone and the Touch, it plans to continue experimenting with the platform, Ariella Lehrer, its president, told us. The company developed the game Mean Girls, based on the movie of the same name, for Paramount Digital Entertainment. Lehrer said she wasn’t sure how the game had fared for the publisher. Paramount’s new game division declined to comment for this report. Legacy released the trivia game Bird Brain on the App Store on its own in late fall, and it “didn’t do very well,” she said. Lehrer hasn’t gotten a royalty report from Apple on the game, “but I can tell from its popularity overall I don’t think that we're going to make much money, if any,” from the game, she said. It’s hard to stand out from thousands of other applications, Lehrer said. “How do you compete in a world of 100,000 apps? I don’t have a good idea about that yet."

Bird Brain “was really an experiment” for Legacy, Lehrer said. “We wanted to have the experience of creating an iPhone app and putting it out there and seeing what that whole process was like. So it was a very low risk opportunity for us. I think we learned a lot and hopefully it'll go better for us next time.” Like competitors, she said a major attraction of making games for Apple’s platform is its relatively low cost. Bird Brain cost “probably about” $10,000 to develop, versus the $300,000 or so that the company typically spends to make a computer game, not including any licensing fees, she said. “It’s sort of hard to make a half-way decent” iPhone game “for less than $20,000,” but that’s still much less than the cost to make games for other platforms, she said. Legacy “didn’t want to pay much money” for Bird Brain because that was its first iPhone release, but she said, “I'm really sort of proud the way it turned out,” calling it a “bargain” at 99 cents. Some games on the App Store cost about $10, but most fall lower, toward the middle of the price scale. Legacy is also preparing an App Store version of its The Lost Cases of Sherlock Holmes, Lehrer said.

THQ has been taking a less assertive approach on the iPhone than EA. CEO Brian Farrell said in the fall that he liked Apple’s platform, but “the business model is still pretty challenging” for game makers “in terms of making lots of money at very high price points.” He did, however, call it a good promotional vehicle for THQ’s games.

Gameloft has been among the more aggressive iPhone backers among pure-play mobile game companies. And Glu Mobile CEO Greg Ballard said recently he was especially upbeat about the iPhone, in addition to Android smartphones and social games, including for Facebook. Glu is seeing “encouraging signs that there is some improvement not only in our business on the iPhone, but in the iPhone business as a whole,” he said.

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Legacy Interactive has been digitally distributing its games since 2006, President Ariella Lehrer said. “We were one of the first traditional game publishers to make a concerted effort in that area and … I am so happy we did” that, as well as shift more of the focus to sales outside the U.S. Last year was “a tough” one for the industry “all the way around, and the fact that we're strong in those two areas has really helped us,” she said. Digital distribution faces a significant obstacle -- the lack of broadband in many U.S. homes -- but there’s a large audience of those who can and want to download games, Lehrer said. Legacy recently launched its Murder She Wrote game, based on the CBS series of the same name, using digital distribution only, and early sales were “way beyond our expectations,” she said. Retail sales of the game “will be probably less than half of our digitally distributed sales,” she predicted. Digital distribution “has some definite advantages over retail,” including Legacy’s ability to offer a 60-minute free trial, Lehrer said. The company has about a 10 percent conversion rate for the game among those who downloaded the trial, she said. She conceded, however, that digital distribution of console games is a different business and poses its own challenges. For one thing, consumers can’t trade in a console game they've already played if it was bought digitally. Legacy continues to develop games for other platforms but has not done digital distribution on any other platform besides the iPhone and computer games, Lehrer said. “If I could choose which other platform to focus on I think I would really like to do something for” Microsoft’s Xbox Live Arcade (XBLA), she said. “I like the direction that Microsoft is going in,” with Windows 7 and its touch-screen feature, she said. Legacy hopes to make versions of its latest releases compatible with the touch-screen function and doesn’t believe it will increase costs much, she said. Lehrer said she’s also impressed with Microsoft’s coming Natal motion-sensing technology for the Xbox 360. But the 360 is “still a little more core [gamer] and less family oriented than our current audience on the PC, so I don’t think the same types of games that we create now would necessarily work very well on XBLA,” she said. The company has no plans for digital distribution on the Wii or DS, Lehrer said. “My current perception is that they're not very successful” for third-party publishers, she said, something that Nintendo has disputed. Legacy relies “very much on our European partners for guidance about new products to do because half our sales come from Europe, so I don’t embark on anything without getting a lot of feedback from our European partners,” she said. The response to the DS, in particular, from those European partners, has been “really bleak,” largely due to the widely reported problem of piracy, she said, but that’s a problem only for packaged games and not digitally distributed ones. “Certainly I'm curious about the DS,” but Legacy “is such a small company that for us we're not likely to take the lead on something like that -- that’s a little too experimental,” like the Wii is, she said.