Game makers hope new platforms are game changers

There continues to be a fair amount of optimism among mobile game makers. Whether the rose-colored lenses are warranted, though, is more uncertain than ever.
Gameloft last week offered a surprisingly upbeat outlook for wireless gaming as it posted $34.1 million in third-quarter revenues, up 8% from the year-ago period. The Paris-based publisher generated $99.6 million during the first nine months of 2008 – up 9% from 2007 figures – with mobile games accounting for 98% of overall sales.
But while slow-but-steady progress may not have been staggering – Gameloft said sales were “in line with the company’s expectations” – the publisher went out of its way to paint a rosy portrait of a space that has struggled to gain mass-market traction.
This year “is a turning point in the mobile gaming industry,” the company said in a prepared statement. “The major innovations introduced by companies such as Apple, Nokia and Google have radically transformed and improved the gaming experience (and) consumption behaviors, as well as the industry’s business model. In addition to these innovations in the mobile gaming industry, the entire video game industry will have moved towards digital distribution by the end of 2009.”
That hopefulness was echoed by Glu Mobile Inc. a day later even as the San Mateo, Calif.-based company posted a miserable quarter. Glu reported a $56.9 million loss during the period thanks largely to a whopping $46.6 million charge for “impairment of goodwill” – essentially a write-down of two of its three reporting units that were “determined to be below the carrying value of their respective goodwill balances.”
Glu also reported unexpectedly high royalty payments of $1.9 million as well as “transitional expenses” of $347,000 and $126,000 in restructuring charges. The firm lost $753,000 during the same period last year.
“We are disappointed in our results this quarter,” CEO Greg Ballard said during the earnings call, “and in our fourth-quarter outlook. The deteriorating economic conditions in the U.S. and increasingly to the other parts of the world have negatively affected our game sales this quarter. We expect these conditions to continue and these assumptions are reflected fourth-quarter outlook. Moreover, even on those worldwide regions that are doing well in unit sales, our revenues are being impacted by the sudden and dramatic fluctuations in currency exchanges.”
And Nokia executive Jaakko Kaidesoja told Reuters the previous week that for the mobile gaming market – which suffered an unexpected slump last year – “challenging times will continue” as global economies struggle to recover from Wall Street’s implosion.
While global economic factors are certainly at play in the space, Glu’s dire figures call into question two of its core strategies: a willingness to pay top dollar for high-profile licenses – the company’s current library includes “The Dark Knight” and “Madagascar Escape 2 Africa” – and a reluctance to experiment with ad-supported games.
But while the company will “continue to make prepayments for licensing arrangements in 2009,” according to CFO Eric Ludwig, it has begun tinkering with price points and even toyed with free games. Glu saw impressive success when it offered Space Monkey to iPhone users for a week; the company then improved the game, released it for 99 cents and watched it climb into the App Store’s top 50 paid games.
Interestingly, Glu claims its business has been hurt by the emergence of the very platforms that may be mobile gaming’s saviors. New devices and distribution channels from Apple, Google Inc. and Nokia Corp. “have actually slowed the growth from the carrier business and more mature market,” Ballard said last week, “which is impacting our business in the short term” by luring gamers away from the deck to the new storefronts.
And though the new phones and app stores may offer bright skies on the horizon, the short-term outlook for Glu is, well, gloomy. The company expects to end the year with $17 million in cash, and has an additional $8 million credit facility to tap. But Glu expects a GAAP fourth-quarter net loss of about $7 million, and next year it will have to fork over about $25 million in cash and stock to close the acquisition of MIG, a China-based game developer.
But Ballard said the company will continue to support the new platforms as they get their legs, embracing the iPhone and other high-end devices as part of a strategy to address a wide variety of devices.
“We can create games for several next-gen platforms as a part of a slightly more expensive development project that also yields Java, BREW, Microsoft and BlackBerry versions for perhaps a 30% premium over our current development cost,” the executive said last week. “For this reason, we now plan to publish every major title on at least one of the next-generation handsets as we move through ’09.”