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Anarchy Roils Games Market as Talent Migrates to Mobile

March 25, 2013

Anarchy Roils $67 Billion Games Market as Talent Moves to Mobile

The ''Angry Birds'' mobile-phone game, designed by Rovio Mobile Oy is seen on an Apple Inc. iPhone in this arranged photograph in London. Photographer: Jason Alden/Bloomberg

Ben Cousins used to make the kind of action-packed video games for Electronic Arts Inc. (EA:US) that played on dedicated machines and sold for $60 each. His next project promises console-quality action for free to anyone with an iPad.

Cousins’s journey reflects the turmoil roiling the $67 billion video-game industry more than 40 years after “Pong” lit up black-and-white screens. The largest U.S. publishers face a talent drain as big-game veterans like Cousins bring their skills to cheaper and easier-to-develop mobile platforms including Apple Inc. (AAPL:US)’s iOS. and Google Inc. (GOOG:US)’s Android.

“It’s anarchy out there, and these big companies are finding it difficult to steer their supertankers,” said Cousins, 38, now general manager of Tokyo-based social-game maker DeNA Co. (2432)’s Scattered Entertainment.

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Consumer tastes have shifted at warp speed away from higher-priced packaged discs, and developers are following. Fifty-eight percent of North American developers are planning their next games for smartphones and tablets, based on a survey of 2,500 for the Game Developers Conference, which starts today in San Francisco. Just 11 percent expected to work for Sony Corp. (6758) or Microsoft Corp. (MSFT:US)’s upcoming consoles, and 6.4 percent for Nintendo Co. (7974)’s Wii U, out since November.

Newer products such as Cousins’s horror-themed shooting title, “The Drowning,” threaten to undermine console sales before big publishers like Electronic Arts and Activision Blizzard Inc. (ATVI:US) can move to new platforms.

Mobile Rise

Revenue from free mobile games and those downloaded to computers surpassed annual sales of packaged titles in 2012, when follow-on spending for weapons and other in-game items are included, according to a December survey of U.S. gamers’ playing trends by Frank Magid Associates Inc.

Changes in player preferences recently forced publisher THQ Inc. into bankruptcy and Electronic Arts CEO John Riccitiello out of his job. Former Electronic Arts executive John Schappert, who became chief operating officer at Zynga Inc. (ZNGA:US) when social games on Facebook were gaining popularity, stepped down last August as momentum shifted to mobile.

Google’s Android operating system is the latest big threat. Three of four handsets sold in the $260 billion global smartphone market are powered by Android, and developers are moving to capitalize.

Adding momentum to the shift are coming machines that give Android developers an outlet for more powerful features and add mobility to PC game-play.

Ouya, Razer

Ouya, a $99 Android console, will be released on March 28. Handhelds from Nvidia Corp. (NVDA:US), Wikipad Inc. and San Diego-based Razer Inc. will appear before the next PlayStation or Xbox arrives. In Seattle, closely held Valve Corp., which has built its Steam online store for PC games to more than 50 million members, is working on a home hub for games and media, CEO Gabe Newell said in January.

Cousins left Redwood City, California-based Electronic Arts in March 2011 after working on console and free-to-play versions of “Battlefield.” EA, which calls the title one of its core franchises, is expected to unveil a new version on March 26.

Cousins’s “The Drowning” will be released by midyear, first for Apple’s iPad and then for Android mobile devices. Developers on the title helped create blockbuster console and PC titles such as Microsoft’s “Halo,” Ubisoft Entertainment SA (UBI)’s “Far Cry” and “Crysis” from Electronic Arts, Cousins said.

Screen Time

“With consoles, you’re only in front of the TV for a couple of hours in the evening,” Cousins said. “The main platform for games will be where it’s most convenient, and that’s fast becoming everywhere, on mobile.”

Traditional software and hardware makers are trying to maintain a balance. Electronic Arts, Activision and Take-Two Interactive Software Inc. (TTWO:US) have slashed the number of costly console titles and diverted resources to newer platforms. They continue to work on big games with built-in audiences, such as “Call of Duty” and “Grand Theft Auto,” which cost as much as $50 million to make.

By comparison, mobile games are mostly created by teams of 10 or less, and can be funded out-of-pocket for as little as $100. A typical independent mobile game costs up to $20,000 to make; some cost as much as $10 million.

The competition means larger studios, with higher fixed costs, have less leeway for mistakes. Riccitiello was ousted this month after Electronic Arts lowered its sales and profit forecast, waylaid by bets on expensive games that didn’t attract enough users.

‘Job One’

His departure “underscores the industry’s difficult transition to new platforms, business models and genres,” Sean McGowan, an analyst with Needham & Co., said in a research note. “Its profits are a shadow of what they were a decade ago.”

The company’s scale and major franchises like “FIFA” and “Battlefield” allow Electronic Arts to compete in all markets and lets “us smooth out the valleys of the console transitions, said Peter Moore, the company’s chief operating officer.

‘‘Job one for us is to nail this transition here over the next couple of years, but it’s nice to have this little safety blanket of tablets and smartphones,” Moore said in an interview.

Electronic Arts gained 1.5 percent to $17.97 on March 22. The shares (EA:US) have climbed 24 percent this year. Activision, based in Santa Monica, California, is up 35 percent year to date.

Channeling Developers

Tokyo-based Sony, which plans to begin selling the PlayStation 4 before the holidays, has added flexibility. Players using its new console will be able to pause the action and pick it up later on the PlayStation Vita handheld or Xperia smartphones and tablets.

The PlayStation 4 will allow for game self-publishing, mimicking the open architecture of smartphones, and Sony will provide upfront payments, publishing and marketing support to encourage smaller developers to create titles, said Adam Boyes, the vice president of publisher and developer relations for Sony Computer Entertainment.

“The first thing is to start to think like a developer, figuring out what is most important to them and making it easy and simpler to partner with them,” Boyes said.

The company has also signed onto San Francisco-based Unity Technologies’ video-game engine and tools that let game makers develop a title and publish to multiple platforms.

Wii Workshops

Nintendo, based in Kyoto, is hosting a booth on the show floor and holding development workshops on Wii U and its Miiverse social network. In January, the company cut its sales forecast for the console by 27 percent for the March-ending fiscal year.

Microsoft, which hasn’t revealed its next-generation console plans, won’t have a booth, a spokesman said. The company is said to be planning its own event in April.

Small-fry Razer will be handing out free units of Razer Edge, a Windows gaming tablet that can play Steam and other PC games at home, said Kevin Scarpati, a spokesman. Facebook, Intel Corp. (INTC:US) and Google will host workshops.

They are likely to draw crowds. The developers survey logged more interest in tablets, smartphones and Android-based consoles than in next-generation Sony and Microsoft machines.

“I see more and more people moving toward Android,” said Momchil Kyurkchiev, chief executive officer of the mobile applications company Leanplum Inc. “A lot of people who have neglected Android, over the last few months, they’ve figured they’re missing the train.”

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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