June 11 (Bloomberg) -- The runaway success of an iPhone game created by two brothers on a laptop is pressuring video-game makers Square Enix Holdings Co. and Capcom Co. to reboot their strategies and appeal to mainstream players.
New York-based Lima Sky struck gold with “Doodle Jump,” a game downloaded 4.7 million times from Apple Inc.’s iTunes Store, ranking No. 4 among the top 100 paid applications for the iPhone, iPad and iPod Touch. The 99-cent game has more than 170,000 Facebook followers.
Making hit games for Apple’s mobile devices has proven difficult for major Japanese publishers, which typically devote millions of dollars, large creative teams and several years to develop games. Square Enix has no entries in Apple’s top 100, while Capcom’s 99-cent quiz game ranks 98th. Activision Blizzard Inc., the world’s largest video-game publisher, has two.
“The success of Apple’s devices is the biggest source of concern in our packaged-software business,” Haruhiro Tsujimoto, president of Capcom, Japan’s fifth-largest game maker, said in an interview.
“Demand for the iPhone has spread to the casual user demographic, a trend likely to be amplified with iPad’s release, making it a gaming platform in its own right and a market that cannot be ignored.”
The top-selling paid application in the iTunes Store is the 99-cent “Angry Birds” by Rovio Mobile Ltd., a Helsinki-based developer with 17 employees.
The iPhone and iPod Touch captured 5 percent, or about $500 million, of the U.S. video-game software market last year, a five-fold increase from a year earlier, according to San Francisco-based researcher Flurry. Application sales may exceed the equivalent of $760 million this year, according to a report by Tokyo-based researcher Enterbrain Inc.
The new iPhone going on sale later this month features a higher-resolution screen, faster processor and more sensitive motion-control mechanism, making it better for games.
Apple Chief Executive Officer Steve Jobs earlier this week forecast that global sales of the iPhone, iPod Touch and iPad will reach 100 million units this month, overtaking Nintendo Co.’s Wii console and exceeding the combined sales of Microsoft Corp.’s Xbox 360 and Sony Corp.’s PlayStation 3 gaming systems.
The average price of an application on Apple’s platform is $2.90, according to Scottsdale, Arizona-based In-Stat LLC. That compares with about $60 for a PlayStation 3 or Xbox 360 game and $35 for a Nintendo DS handheld game.
Igor Pusenjak, 34, created “Doodle Jump” while teaching part-time at Parsons The New School for Design in New York. His brother, Marko, 32, handled programming on a laptop. They formed Lima Sky in 2008 and released the game in April 2009.
The title, in which players guide a four-legged creature up an endless series of platforms, was the most-downloaded paid application in the U.S. in April and topped paid game rankings in January, according to Utrecht, Netherlands-based market researcher Distimo.
“We started working on the iPhone apps in our spare time - - nights and weekends,” Igor Pusenjak said in an e-mail. His two-man company has “practically no overhead and the ability to quickly adjust to any changes in the marketplace.”
Activision, of Santa Monica, California, had 7,000 employees on Dec. 31. Capcom employs about 3,550 people and Square Enix about 3,338.
‘Guitar Hero’ App
Activision ranked No. 2 in the iTunes chart with its $2.99 “Guitar Hero” and No. 38 with its $9.99 “Call of Duty: World at War: Zombies II.” The company, which recorded $4.28 billion in revenue last year, first developed the titles for the PlayStation 3 and Xbox 360.
Major publishers need to focus on quality and “deeper game play” to compete against smaller rivals, said Karthik Bala, who heads Activision’s Vicarious Visions studio in Albany, New York. The studio developed “Guitar Hero,” which was released for the iPhone on June 8.
“Anybody with talent can jump in and start developing for it and have a method of distribution to get it out there,” Bala said. “There are titles that come out of nowhere and capture attention.”
Square Enix, Japan’s second-biggest game publisher, has 22 titles for Apple devices. Its flagship “Final Fantasy” role-playing game sells for $8.99 in the iTunes Store.
The Tokyo-based company estimates that content for mobile devices will generate 6.9 percent of revenue this fiscal year, compared with more than half of sales coming from packaged software for gaming consoles and PCs.
Square Enix in May forecast revenue will fall 17 percent to 160 billion yen ($1.7 billion) in the 12 months ending in March, after releases of major titles bolstered earnings last fiscal year.
“The days of selling things the traditional way are numbered,” said Akihito Shoji, a senior general manager at Taito Corp., a unit of Square Enix. “We are witnessing a paradigm shift and it’s not difficult to imagine established companies losing their competitive advantage overnight.”
Capcom’s classic “Street Fighter IV” sells for $9.99 on iTunes and “Resident Evil 4” for $4.99.
Sales of content for mobile devices, including the iPhone and iPad, will account for 4.2 percent of revenue at the Osaka-based company in the year ending March 2011, compared with 75 percent from consoles and handheld players, Capcom said in May.
“Fixed costs at the bigger publishers force them to price their games higher, and they’re being undercut by smaller developers,” said Saurabh Singh, a game software analyst for CLSA Asia-Pacific Markets in Singapore.
“It used to be that only select companies could make content for game consoles, but what Apple did was to transform that market into a bazaar, which means anybody can get in.”
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