Global Economics

Gameloft: Games for a World on the Go


The Paris game developer is our No. 1 Hot Growth company in Europe, and it's banking on deals with mobile operators worldwide to keep profits soaring

When it comes to video games, Gameloft thinks small but still manages to win big. The Paris company is one of the world's top developers of downloadable games for cell-phone handsets. Propelled by hits such as the fantasy adventure Might & Magic and action thriller Tom Clancy's Splinter Cell, sales since 2002 have increased more than tenfold, to €46.8 million ($58.5 million) in 2005. That puts Gameloft in the No. 1 spot on this year's list of Europe's Hot Growth Companies.

Michel Guillemot, Gameloft's 47-year-old chief executive officer and co-founder, says an even bigger payoff lies ahead. Over the past few years, he has signed deals with more than 150 mobile operators worldwide to market game downloads to their subscribers. He also has bulked up Gameloft's network of six development studios in North America, Europe, and Asia. They now produce more than 40 titles a year—with more than 1,500 versions of each game to fit hundreds of different handset models and incorporate mobile operators' technical specs and language needs. "We've reached the threshold necessary to serve all the world's customers," Guillemot says.

Gameloft could have an edge over its bigger rival, U.S. giant Electronic Arts. EA's mobile game sales, including its acquisition of U.S.-based Jamdat Mobile, were about $100 million last year, almost double Gameloft's. But its business is mainly in the U.S., while Gameloft has distribution deals with operators in 70 countries, including Japan and Korea where mobile gaming is hugely popular. Such deals are crucial, because 90% of mobile games are purchased through cell-phone carriers, says David MacQueen, an analyst at the London-based consultancy Screen Digest. "Gameloft's distribution reach is head and shoulders above the others," MacQueen says.

TARGET: MOBILE GAMERS

Mobile games still represent a tiny sliver of the video-game business. But their popularity is soaring as ever-more handsets that can handle games reach stores, and the overall market is set to grow from $3 billion to $8.5 billion annually by 2010, Screen Digest says. The games are cheap, with most Gameloft titles selling for $4 to $8, compared with $40 and up for a console game. Teenagers are the most enthusiastic players, with 34% of downloaders age 13 to 17 and an additional 18% age 18 to 24, according to a recent study by the Port Washington (N.Y.) consultancy NPD Group.

With more than 2 billion people worldwide expected to own game-enabled handsets by 2008, Guillemot is scrambling to broaden the appeal of his portfolio. He recently signed deals to develop mobile games based on the TV series Lost and Desperate Housewives, and the film Mission: Impossible III, while launching mobile versions of PC games such as Prince of Persia, an action adventure featuring warriors and princesses that's been a hit in Asia.

Sounds like fun, but Gameloft still faces serious competition. EA recently signed a deal with Nokia to supply games for the cell-phone maker's next-generation handsets, set for launch next year. Users of the new phones will be able to download the games directly from Nokia, rather than going through their mobile operators.

PROFIT EXPLOSION

Guillemot is an old hand in the business. In 1986, he and his four brothers founded Ubisoft Entertainment, a leading French game developer. In 1999, they spun off Gameloft, with Ubisoft holding a 20% stake. Gameloft shares, listed on the Paris stock exchange since 2001, have more than doubled in the past three years.

After hiring at breakneck speed from 2002 to 2005, when employment soared from 81 to nearly 2,000, Guillemot expects to add fewer than 500 jobs this year. Reduced spending on new hires should fatten profits, which rose to €14.7 million ($18.4 million) in the first half from €1.6 million ($2 million) in the same period of 2005. With results like that, Gameloft can turn its attention to the next big challenge: persuading 2 billion cell-phone owners that they really do need Derek Jeter Pro Baseball or auto racing game Asphalt: Urban GT in their pockets.

Matlack is BusinessWeek's Paris bureau chief .

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