M:Metrics' Industry Analysis

U.S. Mobile Gaming Market Overview: The World is Flat.

Investors registered their disappointment in the recently less sanguine outlook by management at Jamdat for the mobile games business by sending the value of the company down by 25 percent. The fact that the market for mobile content is seasonal with strong year-over-year growth apparently caught the investment community flat-footed. But Jamdat's earnings statement revealed a phenomenon that we have been watching for the past several months at M:Metrics: mobile games consumption is relatively flat.

Despite seasonal bursts of download activity, most notably over the period surrounding Christmas, the monthly number of mobile game downloaders has hovered around 6 million since the end of last year. But enthusiasts and investors in the mobile games space should not be discouraged, as this market can grow.

To unlock the market and create a business that Wall Street can embrace, the industry must: expand its audience by honing its focus on casual games and provoke perennial, not seasonal, game consumption by providing mechanisms for peer-to-peer distribution and recommendations, and provide real incremental value each month to those that chose a subscription option.

Mobile Is Not the Traditional Console - Casual Games Rule and Tetris is King.

By seeking to position handsets as a new venue for traditional console games carriers and publishers have miss the mark. The primary addressable market for mobile games are college-aged young adults, who are more than twice as likely to download a mobile game than the average subscriber, and the 25-35 set, who are more likely to own high-end handsets capable of a quality gaming experience and who have the disposable income to afford regular downloads.

It is widely known that casual games: card games, casino games and arcade puzzle games like Tetris and Bejeweled, are the most popular mobile games. Our data shows however that mobile operators and many publishers in the U.S. still confuse mobile handsets as a new venue for console gaming. Carriers are stocking their decks with hundreds of action/adventure and sports games based on popular console franchises and tie-ins with Hollywood blockbusters. Despite aggressive promotion and premium deck placement, few mobile subscribers are playing such games.

Nearly half (45.6 percent) of the titles offered by the major U.S. operators are in the sports or action/adventure categories, but more subscribers downloaded arcade puzzle games like Tetris than they did action/adventure and sports titles combined. It seems illogical that only 12.9 percent of titles offered are of the arcade puzzle and card game genres.

With our data showing that 13-year-olds to 34-year-olds have a strong propensity to purchase mobile games, the audience for casual games is quite broad. The challenge lies in compelling mobile gamers to purchase games all year long or to sustain subscriptions by offering incremental value each month.

The Move Away from Seasonal Consumption

Downloads of content and applications are strongly influenced by the diffusion of new handset technology, which expands at a steady pace with spurts during the Christmas and Back-to-School selling seasons. Content downloads are also likely influenced by aggressive promotion by carriers and OEMs, also seasonal in nature. Carriers and media companies need to find new ways to spur consumption of mobile entertainment.

For example, the proliferation of MMS-capable handsets is creating a free resource for content creators to offer new forms of viral, dispersive media that would foster a broader market for mobile interactivity. We expect that mobile operators will open MMS infrastructure to support such models during the first half of 2006, a move that could prove to be a catalyst to support consumption of new types of casual, viral entertainment experiences.