No doubt you've seen a few of them already. At the bus stop, aboard a train, or at the mall, the kids are hunched over, pecking furiously at their cell phones, letting out occasional yelps or groans. Is it some kind of hypercharged text messaging?
Look closer. These youngsters are joining the fastest-growing craze in the wireless world: playing video games on their handsets. Whether punching their way past a gang of thugs in Shado Fighter or escaping a booby-trapped castle to rescue seven brides in Prince of Persia: Harem Adventure, they're feeding a booming business for mobile operators.
There are already more than 65 million mobile game players across the planet, with thousands more piling in every day. Telecom researcher Strategy Analytics Inc. figures wireless carriers will take in $1.44 billion this year from sales of mobile games -- 88% more than in 2003. "This thing is really taking off," says Nitesh Patel, senior analyst at Strategy Analytics, who predicts mobile gaming will be worth $3.7 billion by 2007.
Chalk up a high score for France, home to two of the top mobile gamemakers. The largest, privately held In-Fusio of Bordeaux, has sold 19 million games and booked revenue last year of $14.2 million, thanks to hot sellers such as Shado Fighter. Nipping at its heels is Paris-based Gameloft, with a portfolio of 35 titles offered by 110 mobile operators around the world and revenues of $12.8 million last year.
These are still pittances compared with the $21 billion PC and console video-game business. But the growth potential is much higher. The surge in mobile games, which cost only $3 to $7 apiece and download in just a few seconds, is being fed by the rapid emergence of color-screen handsets that can run programs written in Sun Microsystems Inc. (SUNW )'s Java software or a similar technology from Qualcomm Inc. called BREW. There are an estimated 250 million Java- or BREW-compatible handsets already in use, and by 2007 the number should top 1 billion.
Mobile operators are eager for new revenue streams to offset sagging income from voice. They keep about 50% of the price paid for a game, handing the rest to the game publisher. France Telecom (FTE )'s Orange wireless unit has sold more than a half-million games a month for the last year.
The payoff could get bigger. Today, revenues from game downloads are usually a one-shot deal. But game developers are starting to add features that drive additional airtime use, such as the ability to upload scores to a game board. They're also introducing "turn-based" games such as poker or chess that can be played by two or more people simultaneously over the airwaves. The Holy Grail: interactive games such as car races. Those will require the bandwidth of 3G networks but should hit the market in a few years.
Venture capitalists are pouring in cash. They have invested $145 million in mobile gaming startups this year, including $27 million in In-Fusio in August. "Our aim is to be the leading mobile games service provider in the world," says co-CEO Gilles Raymond. The company signed a blockbuster deal in February to adapt for mobile phones six top-selling Xbox titles developed by Microsoft Game Studios.
France's mobile game startups could face more serious competition in the future. Video-game giant Electronic Arts, until now a bit player in mobile games, signed a distribution agreement with British-based mobile gamemaker Digital Bridges Ltd. in September, and others are circling. For gamemakers, the business could soon get even gorier than their hit titles.
By Andy Reinhardt in Bordeaux, France