The Role of Branding
Content providers outside the gaming industry are also testing the market by licensing content to publishers for use in mobile games. Disney has provided content for MMS and Java games in Japan and Europe, through an alliance with Vodaphone, while Fox has worked with Sorrent on games tied to Fox Sports and the Aliens film franchise. Warner Bros. has announced its intention to get into the wireless market as well.

“Brands are of paramount importance,” says Cingular’s Nagel. “You could have the best game in the world and people wouldn’t find it without the branding. That’s especially true in this market, where you have a hard value proposition for people to understand. They’re not used to downloading games on their phones yet.” About half the games Cingular offers are branded.

Jill Braff, vp marketing for Sorrent, believes it is too early to evaluate the role of branding. “It’s more about the placement on the deck and how much the carrier supports the game,” she says. There are as many as six pages worth of downloadable games listed on the handset screen (the deck), and those with placement on the first couple of pages do much better than those buried farther down.

Schelley Olhava of IDC notes that the telecommunications and gaming industries had to reconcile their different cultures before they could move to the next level of doing business together.

Cross-promotion is also critical. To help its titles stand out, Sorrent has marketed some games through alliances with carriers. For example, its Fox Sports basketball and football titles were supported by a sweepstakes with Sprint, which got the games noticed in 15,000 Sprint retail outlets and increased sales 50% during the promotional period.

Braff notes that the business has evolved. A year ago, the market was crowded with small publishers, and carriers offered so many titles it was hard to discern quality from quantity. Now, she says, carriers are reducing the number of games and working with fewer publishers. They’re evaluating the quality of each game and offering only the best.

Market Challenges
While the industry has high hopes for wireless gaming as a means of generating incremental revenue, there are challenges, not only in the U.S. but elsewhere as well. “In Europe, mobile gaming is very much a niche activity in terms of downloads,” says Daren Sidall, an analyst in the U.K. office of Gartner. There is a question about consumers’ willingness to pay for games. While15% of mobile phone users in Europe play games on their devices, only 1%-2% of users have downloaded and paid for a game, Sidall says. The remainder play games that come preloaded with their phones and are free of charge. “In our view, consumer interest does not match the amount of hype.”

Sidall reports that cell-phone gaming is essentially a time-killing activity while sitting in an airport or on a train, and consumers typically play for no more than 10 minutes at a time. Even when shown Java-based titles such as graphics-heavy racing titles, consumers in focus groups didn’t show any interest in purchasing such games, preferring PCs and consoles as their gaming devices. “The mobile phone will never become a compelling gaming platform,” Sidall predicts.

Baker believes that teenagers, who spend a lot of their free time away from home, are one market segment with potential in the U.S. Teens have shown interest in downloading content such as ringtones and are starting to experiment with games. “That’s a pocket that makes sense,” says Baker, who adds that 18- to 24-year-olds, who grew up with gaming, also show potential. “But [gaming] is just a distraction, just a way to pass the time. How much money are you going to get from them?” He believes most consumers will draw the line at two to three game downloads per month, at $2 to $3 per game. In addition, within the overall U.S. cell phone market, teens and young adults comprise a relatively small segment.

Verizon Wireless offers downloads of Dwango’s game AquaX. © 2003 Dwango North America.

Nagel disagrees with the proposition that consumers are not willing to pay for games. Noting that people will pay for content such as ringtones, he adds, “Games are interesting because people pay more for them.” Gamers understand the concept of paying for games and are willing to do so on a phone as they would in a retail store, he says.

One area where Sidall sees an opportunity is in sponsored content, where a large consumer goods company creates a wireless game to promote its brand. The game fulfills the function of giving consumers something to do in their free time without paying for it, while phone companies and game publishers are compensated by the corporate sponsor. So far, mobile marketing promotions have been fairly basic, such as offering free ringtones, but large consumer goods companies could invest in a game as a means of strengthening younger consumers’ relationship with their brands.

An even more significant challenge than willingness to pay is the fact that consumers look for different designs in gaming devices than phones, Sidall stresses. They want their phones to be sleek, streamlined and pocket-sized. But to get the most from a game, they need a relatively large screen and keypad, which will dictate larger, bulkier phones, no matter how much technologies improve. One path in the future may be for telecom companies to offer a single service that can be used with multiple devices, so consumers could own a phone and a gaming machine and use both under the same service contract. Yet it’s debatable whether consumers will want to pay for multiple devices.