Taking Video Games To The Next Level

Cell-phone game sales are hot -- sparking deals and the interest of big game makers

Haida Berg doesn't usually talk about her passion for Tetris, the electronic game in which interlocking blocks are stacked one upon the other. "It has a stigma attached to it," says Berg, "like it's something a 14-year-old boy would do." Yet Berg, like lots of folks with time on their hands at airports or on their daily commute, can't seem to help herself. While she and her husband drive across Nevada's wide-open spaces, making the rounds for their satellite installation business, Berg loses herself in Tetris. For just a $5 one-time download fee to her cell phone, "it really makes the time go by fast," says Berg.

Tetris, you may recall, was the popular video game that helped make Nintendo Co.'s (NTDOY ) Game Boy a hit in the late 1980s. But now the thriving cell-phone game industry is betting lots of money that there will soon be millions more like Berg out there. The latest deal: On Apr. 20, Los Angeles-based JAMDAT Mobile Inc. (JMDT ) paid $137 million to buy privately held rival Blue Lava Wireless, based in Honolulu, with its 15-year worldwide wireless rights to Tetris. The Blue Lava deal is one of a flurry of deals among little-known private cell-phone game companies with funky names like Mforma, In-Fusio, and Digital Chocolate.

It doesn't take a Tetris whiz to put all the pieces of this puzzle together: Cell-phone games are hot, and everyone in the biz thinks they're going to get a lot hotter. The global market for such games is on track to reach $2.6 billion by yearend, up from $587 million in 2003, according to Informa Telecoms & Media, a London-based consultancy.

Demand for mobile games is growing so fast it could overtake mobile content's current big moneymaker, the $3.5 billion ringtone market, according to Mark Nagel, director of premium and entertainment services at Atlanta-based Cingular Wireless LLC. In the U.S., where cell-phone games have caught on later than in Europe and Asia, the market is small but also growing rapidly. With subscribers downloading Pac-Man, MLB Baseball, World Poker Tour Texas Hold 'Em, and scads of other games, industry revenues more than doubled to $203 million in 2004, and should hit about $380 million this year.


Simple games still rule, but new games are getting splashier. Digital Chocolate Inc., based in San Mateo, Calif., is developing a game called FotoQuest Fishing, in which players can find and "photograph" various fish. They can send the snapshots to friends via their cell phones. Meanwhile, Pathway to Glory, released by Nokia Corp. (NOK ) late last year, allows players to talk to each other while firing rounds on a tiny battlefield in real time.

Now, the big guys in the $20 billion global market for video game software want in on the action. Console game publishers like Redwood City (Calif.)-based Electronic Arts Inc. (ERTS ) and Santa Monica-based Activision Inc. (ATVI ) have until now focused their energies on developing games for the likes of Sony Corp.'s (SNE ) PlayStation 2 and Microsoft Corp.'s (MSFT ) Xbox. But with their color screens and computing power that rivals desktop PCs of the early '90s, cell phones are morphing into miniconsoles. Activision says it has doubled its cell-phone gaming staff in the past year to develop 3D and multiplayer games. And John Batter, general manager of Electronic Arts' mobile unit, insists: "We can do more creative things with the games."

The console game makers also see juicy margins in cell-phone games. Because they require far less programming and use simpler graphics, they cost only a fraction of what it takes to develop a console game. What's more, most cell-phone games have no expensive packaging since they are downloaded. They're also an ideal marketing tool: The wireless version of Shrek 2 that Activision introduced last year tells players how to skip a level in the console-based version -- a big deal for 14-year-olds. And now it looks like it will increasingly be a big deal for all those grown-ups out there, like Haida Berg, with a little downtime on their hands.

By Olga Kharif in Portland, Ore.

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