Gameloft: Now Playing on the iPhone

Mobile gaming's reigning champ releases six titles in Apple's new iPhone App store, where users can download the fun right to their 3G handsets

by Jennifer L. Schenker

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A new era for mobile gaming began with the July 10 opening of the iPhone App store, an online catalog of programs for the new 3G iPhone from Apple (AAPL). Consumers are able to browse, download, and install games onto their phones directly, without having to transfer them from a computer—and without paying big airtime fees to operators. And thanks to the iPhone's slick hardware, gamers will benefit from high-definition graphics, tilt control, and a touchscreen interface.

"It will completely change consumers' perceptions of playing on the go," says Michel Guillemot, chief executive and co-founder of Paris-based Gameloft (GLFT.F), which released six iPhone games in the App store July 10.

Thanks to such advances, the market for mobile games is expected to reach $3.7 billion annually in 2012, up from $2.3 billion in 2007, according to Screen Digest, a London-based consultancy. Analysts say no company is in a better position to benefit from that growth than Gameloft, one of the world's top developers of downloadable games for mobile phones.

Lofty Download Numbers

The Paris company sells an average of three games every second all over the world. Its titles are available for 1,200 different handsets, and it has 50 games out of a portfolio of 250 that have sold more than 1 million copies each. Three blockbusters, including Block Breaker Deluxe, have sold more than 10 million units. In addition to the new iPhone games, Gameloft will launch later this month its sixth new title for the N-Gage mobile-games service from Nokia (NOK). And it is in talks to develop games for the new Android mobile operating system spearheaded by Google (GOOG).

Gameloft overtook EA Mobile, a division of Electronics Arts (ERTS) in the fourth quarter of 2007, to become No. 1 globally, says brokerage Natixis Securities (CNAT.PA). Natixis figures Gameloft still looks the best positioned to outpace the market and improve its profitability. The company had 2007 revenues of $150.84 million, up 40% from the previous year. It expects sales to grow another 25% to 30% this year, even though business generated by new platforms such as the iPhone isn't expected to have a major impact on its results until 2009.

The biggest growth driver for Gameloft is the increasing market penetration of mobile phones able to handle multimedia content such as music, movies, and games. Another key factor is growing acceptance among consumers for downloading media into their phones. Today, only about 5% of handset owners ever download anything, but that soon could double to 10% thanks to the emergence of models such as the iPhone and Nokia's high-end Nseries, says Richard Beaudoux, a Natixis analyst based in Paris.

Easier to Buy, Download, and Play

New speedier mobile networks also make it easier to access games and play online against multiple players. Operators have encouraged use of data services by rolling out fixed-price "all you can eat" pricing plans. That means consumers are no longer hit with hefty fees just to download games—not to mention the hours they spend online jousting with rivals over the air.

The Gameloft games sold in the App store, for instance, will sell for a one-off price of just $7.99 to $9.99 in the U.S., €5.99 in Europe, and £3.49 in Britain. Under Apple's business model, game makers keep 70% of that fee, Apple gets 30%, and mobile operators get nothing. That's a better deal for game makers than they were previously getting from mobile operators, who sometimes kept more than 30%.