Game On

The business of making video games is about to become even bigger business.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

July 12, 2007

U.S. video game makers are fighting back to win market share from foreign competitors who have a strong head start in the sizzling hot segment of Internet games for wireless devices. The stakes are impressive: Wireless games played on mobile devices will be the the fastest-growing segments of the the U.S. video game market over the next few years, second only to Web-based games played on a game console or PC.

Coming up strong are EA Mobile, a division of Electronic Arts, the top U.S. game publisher of hit games which include Madden NFL, The Sims and Need for Speed. Also, Glu Mobile, based in San Mateo, Calif. Last month, the six-year old firm unveiled a Transformers game to tie in with the summer blockbuster film. And San Francisco-based Greystripe, which sponsors a Web site, Gamejump.com, that allows users to download games from 40 different developers for free. The site is supported by advertising that runs on players' cell phones at the start of downloaded games.

But foreign competition is formidable. Early adoption of third-generation phone networks in Europe and Asia, which let gamers using handsets download better graphics, has long spurred local game production -- and sales. U.S. firms are now trying to outmuscle established foreign players in the wireless game industry. These firms include Japan's G-mode, South Korea's Com2uS and Entaz, China's Shanda Interactive Entertainment and France's Vivendi Games Mobile.

In the U.S. alone, sales of wireless game subscriptions will balloon nearly 70% to $1 billion in 2011 -- 8% of the total game market -- compared with $600 million this year, or 6%, according to PricewaterhouseCoopers.

In Europe and Asia, wireless game subscriptions will expand at a similarly rapid pace -- jumping to $3.1 billion in 2011 from $1.9 billion in 2007 for the collective Europe, Middle East and Africa region (with the bulk concentrated in Western Europe) and to $4.4 billion in 2011 from $2.5 billion in 2007 for the Asia Pacific region (chiefly Japan, South Korea, China and Australia).

As in other segments of the entertainment industry, traditionally distributed video games will lose out to online and wireless competition. Growth in the industry-leading segment of console and handheld games will slow dramatically. U.S. sales will increase to $7.9 billion in 2011 from $7.4 billion this year -- a 6.8% increase, compared to a 68% growth for wireless game subscriptions in the same timeframe. Sales of PC-based games are expected to peak worldwide this year. U.S. sales will drop to $840 million in 2011, down from $1 billion this year. European, Mideastern and African sales will shrink to $1.4 billion in 2011 from $1.5 billion this year, while Asia Pacific sales will contract to less than $1.3 billion in 2011 from $1.4 billion this year.

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