Why Do Venture Capitalists Love Mobile Gaming?

Thanks to the San Jose Biz Journal for its article discussing the boom in funding for mobile phone game creators and publishers. The story notes that venture capitalists "made six gaming investments totaling $50 million in all of 2003. In the second quarter of 2004 alone, there were five [largely mobile gaming] deals totaling $86 million." Apparently: "Java-enabled handset sales tripled in 2003 to 95.5 million units and sales of Qualcomm's Brew platform reached 11.6 million in 2003, up from 3.5 million the prior year." Although "mobile gaming is young enough that it's cheap to produce a lot of games and see which ones stick", do you think these large investments are going to pay off?

Comments

Many of these VC's are unlikely to get a return.

[Anonymous Coward]

(Posted as AC cos I'm in the business)

They see market penetration of handsets, and also see a fairly open market. (Open as in "not locked down by any one supplier") They immedially see $-signs and jump in like a mad thing.

Problem is, in order to get the attention (for the most part) these VC's want licensed games in exchange for their money - see easier sales and greater returns that way. Which is fine, but getting a license (usually) costs money from the original purchaser. How much would it cost to buy... Sonic, to pick an example? Up go the operating costs.
Then these games have to hit a wide variety of different handsets in a short timescale to a very high quality (often with restrictions mandated by the license owner). That requires alot of staff.
Between the two of those, it means the burn rate is _huge_. Many of these companies appear to be securing VC simply in order to keep operating.

Then you have the final coup de grace - the market (apparently) requires price differentiation between standard titles and branded "premium" titles - talking 10 to 15 Euros for a single title, and guys, that's just not sustainable as a business model. Piracy's through the roof as there's very little DRM on the titles, and they're astoundingly easy to re-distribute (given footprints circa 100k). You get coverage but not sales.

This is why (in my biased opinion) branded games are going to be a swift route to Chapter 11 for some producers and the VCs that fund them - the impulse-buy market needs lower prices and that's not feasable given the costs inherent in producing a branded game.

For what it's worth, I understand that some of our stuff sells for just over the price of a ringtone, and sells well. Impulse-buy works, people.

It's 1985 all over again

[FlimFlamboyant]

When it came to the old consoles, games were relatively easy to produce; not because they were easy to code (it was basically all assembly language back then), but because they were so small.

Eventually, games were almost *too* easy to produce, as the market was flooded with such garbage that it nearly destroyed the videogame industry.

Now with the advent of these fairly simplistic (in terms of capability) mobile gaming devices, once again we have the danger of history repeating itself. Not that I think the whole industry will collapse; certainly not. But with all this venture capital flying around, it's beginning to look like the .com thing in 2000 all over again; too many people investing in too many products with little or no real value.