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IPhone changes dynamics of game software industry

After years of building large, graphics-intensive blockbusters, developers are starting to make shorter, less expensive games for the iPhone and its phone-less sibling, the iPod Touch.

April 13, 2009|Alex Pham

SAN FRANCISCO — Only a few years ago, bigger guns, badder enemies and louder explosives mattered most in video games.

Now, small is beautiful, and Apple Inc.'s iPhone is largely responsible.

The surprising emergence of the iPhone and its phone-less sibling, the iPod Touch, as hand-held game consoles has started to change the dynamics of the $40-billion game software industry. In addition to making titles for the iPhones, publishers are studying the thousands of games already available, figuring out what works and applying those lessons to more traditional games.

After years of building large, graphics-intensive blockbusters that come out every few years, developers are starting to make shorter, less expensive games that are released in more frequent installments. They're also making iPhone versions of major franchises that tie into the version for the console or computer.

"The iPhone has changed everything," said Neil Young, a game developer who last year left one of the industry's largest publishers, Electronic Arts Inc., to found Ngmoco, a San Francisco maker of iPhone games.

It's not just the device that's having an effect. It's also Apple's App Store, an online marketplace where users can browse through 25,000 software applications from thousands of publishers.

Many are games that take advantage of the multitouch screens, accelerometers and Web connections featured in the iPhone and iPod Touch. On a typical day, six to eight of the 10 bestselling apps are games.

One-third of all iPhone owners who use apps had downloaded Tap Tap Revenge by February, research firm ComScore said last week. That made the music game, which is free in some versions and $4.99 in others, the most-owned app. Twelve of the top 25 -- and five of the top 10 -- listed by ComScore are games.

After shoppers submit their credit card information once at Apple's online iTunes store, they can start buying apps through a computer or directly on their devices with a single click.

Since July, consumers have downloaded 800 million apps. Some are free, but many others cost 99 cents to $10 (Apple takes a 30% cut).

Video games that cost less than $10 are a big change. A typical title for a console or PC typically sells for $30 to $60. For hand-held games on Nintendo Co.'s DS, games cost $20 to $35.

Nintendo recently announced that owners of its upcoming DSi hand-held console would be able buy downloadable games for as little as $2. Nintendo executives said their pricing strategy was formed independently from the App Store, and they were quick to point out how their business was different from Apple's.

"Are we intrigued by the iPhone? Yes," said Reggie Fils-Aime, president of Nintendo's North American business. "But our approach is fundamentally different. We want to give our customers high-quality, innovative and captivating entertainment. A storefront with 10,000 pieces of content doesn't do that."

Analysts see a different story.

"Nintendo is definitely paying attention," said Billy Pidgeon, an analyst with IDC. "It's pretty obvious from their pricing that Nintendo studies what Apple does."

Other game companies are also paying attention. Electronic Arts, which is releasing 14 iPhone titles this year, is starting to explore how iPhone apps can be an extension of its larger games, said Travis Boatman, the Redwood City, Calif., company's vice president of mobile studios.

EA's Spore Origins game for the iPhone was a stand-alone title meant to boost the visibility of its much bigger sibling, Spore for the PC. But the two games didn't connect, so players couldn't export virtual creatures from the iPhone game to the PC version. Boatman said future projects were more likely to have those types of crossovers.

"There's potentially a lot of money to be made from those connections," he said, noting that there are more than 17 million iPhones and 13 million iPod Touches in the market. "You will see this happen more because there are very good business reasons for doing it."

Pidgeon said big publishers such as EA were carefully watching the experiments of small studios that had made top-selling games for the iPhone, such as Subatomic Studio's Fieldrunners, Secret Exit's Zen Bound and Steve Demeter's Trism, which generated $250,000 in sales in its first two months.

"They're seeing that small shops with one or two people can make a hit game," he said. "IPhone has taught them that small bets can pay off big."

The iPhone is also giving developers reasons to rethink their creative approach to designing games. Instead of spending two years and more than $25 million to develop a title, some developers are looking at releasing multiple episodes over time.

The idea of smaller, cheaper, faster game development isn't entirely new.

Decades ago, the Sims, from EA, pioneered the notion of selling expansion packs that contained several dozen virtual items such as outfits, pets and furniture, said Bing Gordon, partner with Kleiner Perkins Caufield & Byers, a venture firm in Menlo Park, Calif.

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