Mobile games hot sector for venture capital

The 7th annual Mobile Games Forum was held in London on January 19th and 20th. Paul Flanagan, Executive in Residence, Ariadne Capital was invited to speak on a VC panel and relays his thoughts on the event.

The first thing that caught my attention is that our US cousins are more active on the mobile web than Europeans. How could this be - I thought we were light years ahead? Wrong. Alistair Hill, Lead Analyst of comScore Inc pointed out that the US carriers offer more unlimited data plans than European operators.

Mobile games are a big business, recently more dominated by big players such as EA Games and Gameloft than smaller studios or start-ups. For example, video game publisher Gameloft announced consolidated sales of €122m for 2009, up 11% compared to 2008. Years ago much of the coding and development moved offshore and UK game developers focused up-market on console titles.

The iPhone, iTouch and Android platform offer new opportunities in this space for UK and European developers and start-ups and we have seen the app stores flooded with great games. Gameloft reported earnings of €25M from app stores last year. In many ways this is a golden era, harking back to the early days of the UK game developer community where small teams made great games in their bedrooms and went on to build world famous brands.

Despite the success stories, the competition is now ferocious. Stuart Dredge of iPhone Games Bulletin showed us a chart of the literally tens of thousands of games available over almost twenty genres.

The issues with discovery in the app stores caused a heated debate about whether an open (internet) model would be preferable. Some pointed out that this open competition and open platform had not worked to date and that the app store was the best way forward.  My view is that the app stores will have their day, much as AOL's walled garden did, but ultimately will be supplanted by an open model, despite Apple fighting a rear-guard campaign to protect its control of the market and its margins.

Another big discussion was around business models.  Tony Pearce, CEO of PlayerX made a strong case for a conventional pay-to-download or pay-to-play model. Nicholas Lovell, founder of GamesBrief made the case for the freemium model which is, of course, a successful emerging strategy on the internet for casual games and the like.

The reality is somewhere in the middle. AAA games such as Call of Duty: World at War, the top grossing iPhone game, commands a $9.99 price point, while there are undoubtedly many games which will benefit from the "try it, get hooked, buy the virtual canon" approach combined with mobile ads, as pointed out by Andy Smith, Sales Director EMEA at AdMob.

The VCs at the event expressed a keen desire to talk to companies in the mobile space. Venture backed companies liked Aurora Feint and Scoreloop were sponsors of the event, both providing social platforms replicating the success stories of games portals on the Internet.

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