Free’s a Crowd
Philip Lau is an expert at wrangling cats—for the small screen. A creative director at Animoca Brands, he has helped the Hong Kong-based startup produce several popular mobile games starring famous felines. Among them, Doraemon, a blue robot cat that’s one of the biggest stars of Japanese anime, and Garfield, the overweight tabby that’s a regular in the comics section of U.S. newspapers. Like most kitties, they set their own rules. According to Doraemon’s brand guidelines, for example, games featuring the character cannot have killing or violence. The latest title, like its two predecessors, is carnage-free. Says Lau: “You don’t see any explosions, any blood, so it’s all right.”
With a crew of 70 employees, Animoca releases three to five titles a month. Like the vast majority of games on app stores, Animoca’s are free to download. The company makes money from advertising and from getting customers to make in-game purchases that endow their characters with special powers or outfit them in new clothes. Animoca boasts a string of hits in Asia: Doraemon Gadget Rush, the newest game in the series, surpassed 1.8 million downloads less than two weeks after its release in early February, according to the company; its Garfield titles have been downloaded more than 30 million times.
There are now about 1.2 million free-to-download mobile games available on both Google Play and Apple’s App Store, estimates Animoca Chief Executive Officer Robby Yung. And that number is growing: According to a January report by researcher AppFigures, the number of games at Google’s app store increased more than 250 percent in 2014.
The competition is about to get even more brutal. On March 17, Nintendo announced it was teaming up with another Japanese company, DeNA, to make games for smartphones and tablets that may feature Mario, Zelda, and other characters from its popular games for consoles. Nintendo’s stock price has climbed 41 percent since the news. The bigger companies “have scale and can afford the costs,” says David Gibson, an analyst with Macquarie Group in Tokyo. “The middle guys, the ones that are not big enough yet, will get squeezed.” Among those potentially at risk are game studios like Animoca, Kiloo, the Danish outfit responsible for the highly popular Subway Surfers, and Miniclip, the Swiss shop behind Berry Rush. Four-year-old Animoca has yet to turn a profit. In the first half of 2014, it posted a loss of $505,000 on revenue of $2.1 million.
Companies like Electronic Arts and Activision Blizzard spend tens of millions of dollars to develop a console product, targeting hard-core gamers who are willing to spend $60 or more for the most popular titles. Mobile games are much cheaper to produce but must reach a large and diverse audience to succeed. Makers of so-called casual games actively court female customers—an audience video and console developers largely ignore. Animoca’s Yung says young mothers especially have become important. “They have time; they have high purchasing power,” he says. Consumers in low-income countries, who cannot afford to splurge on a Microsoft Xbox or Sony PlayStation, are another important audience.
“If you want a feather in your cap, you want to get to No. 1 in the U.S., Japan, or Korea,” says Yung. “That’s the badge of honor.” Most developers of free mobile games have a goal beyond millions of downloads: They have to get players hooked. That’s because they’re dependent on advertising and in-game purchases of accessories for revenue. “It’s very easy to lose the consumer,” says Gibson. If users have “made no money commitment,” he says, they’re less likely to stay loyal.
Lau’s team typically spends the weeks after a new release analyzing the gaming habits of players. How long do they stay with the game? Do they return the next day and play some more? Do they uninstall the app after just a few sessions? Their research has revealed that small things can make a difference. Downloads of Little Farm: Happy Times, an agriculture simulation game introduced last year, improved after developers redesigned the game’s app store icon. A cartoonish farmer was replaced with a smiling cow, proving once again that when it comes to the Web, animals, even cattle, trump humans.
Giving away product has a cost—and it’s rising. Game developers must pay a site like Facebook each time somebody clicks on an ad to download a game. The fee has soared in Japan, the world’s biggest mobile gaming market: In mid-2013, the cost per installation on Apple’s Japanese store was $1.35; by the end of 2014, it had risen to $2.98.
Animoca is branching out from cartoon characters by embracing a female-centric trend in the industry. In February it announced a partnership with the heiress-celebrity Paris Hilton. It’s part of an industry shift that began last year when Glu Mobile introduced a mobile game called Kim Kardashian: Hollywood. It contributed 38 percent of the company’s revenue in the fourth quarter. Earlier this year, Glu revealed it’s working with singer Katy Perry on another title. Yung, who hopes to unveil the first game with Hilton this summer, is betting that players of the fashion-themed app will be eager to fork over money for all sorts of extras, from red-carpet-worthy outfits to the ultimate extravagance, impersonating Paris herself. “If you want to be Paris in the game, that would be an upgrade,” says Yung. “You would have to pay for that.”
The bottom line: Makers of free-to-download mobile games face growing competition, as a console game maker joins the fray.