Entertainment

For gaming’s old guard, mobile is necessary for survival

The largest game makers in the industry are pinning their growth dreams on the mobile market.

Young players at a gaming competition.​

Mobile gaming accounts for roughly $100 billion — more than half of all spending on gaming globally.

Photo: Bertha Wang/AFP via Getty Images

Speaking last week at The Wall Street Journal’s Tech Live conference, Microsoft Gaming CEO Phil Spencer made a proclamation that has over the last couple of years become a common belief among the biggest names in the game industry.

“There’s no way that you succeed as a gaming company without access to mobile players,” Spencer said in defending the company’s proposed acquisition of Activision Blizzard. In its last fiscal quarter, Activision Blizzard made more revenue from its mobile games like Candy Crush and Call of Duty Mobile than it did on console and PC gaming combined.

Spencer said it was “imperative” Microsoft improve its position in the mobile gaming market to better compete with rivals and expand its audience. “This opportunity is really about mobile for us,” Spencer said of the Activision deal. “When you think about 3 billion people playing video games, there's only about 200 million households on console."

That notion — that the console gaming audience has hit a ceiling — is not a new development, though it is rarely so bluntly said aloud. The combined install bases of Microsoft, Nintendo, and Sony amount to roughly 330 million. Yet, to Spencer’s point, many of those console owners own more than one device, while many new buyers of the PS5 and Xbox Series consoles are not fresh customers but returning ones replacing old hardware.

Mobile gaming, on the other hand, accounts for roughly $100 billion — more than half of all spending on gaming globally, according to market researcher Newzoo. This year, as other parts of the business have started to contract following the pandemic-era gaming boom, mobile is still expected to grow by more than 5%, Newzoo estimates.

Now, as the biggest names in gaming seek new revenue streams and consumers, they’re quickly realizing the biggest and most lucrative untapped market is the smartphone. Microsoft is far from alone here. FIFA publisher Electronic Arts, Grand Theft Auto maker Take-Two Interactive, and PlayStation owner Sony have all laid out ambitious plans on mobile over the past two years, often through strategic acquisitions and investments in the business models that work best on Apple and Google’s platforms.

“Mobile phones are becoming more powerful and mobile games are becoming more sophisticated,” said Dennis Yeh, the gaming insights lead at mobile analytics firm Sensor Tower. Yeh cited two other major developments that have made mobile now impossible to ignore. “Cross-platform or multiplatform play is becoming more viable and desirable, so mobile is important to reach the largest audience, especially in developing markets,” he said, while “free-to-play monetization and live [operations] are largely where the industry is moving, and mobile gaming was the original pioneer of those.”

Yeh pointed to the success of Genshin Impact, a live service game available on consoles, mobile, and PC where the experience is “largely the same” across platforms. “The game is also free to play and relies on optional in-game purchases and a ‘gacha’ system. While this itself isn’t necessarily new in Asian markets, Genshin demonstrated the viability and appetite for this in Western markets,” Yeh said.

In two years, Genshin Impact, developed by Chinese studio miHoYo, has earned more than $3.7 billion in lifetime revenue, making it one of the fastest-growing games of all time. It is so successful in both Asian and Western markets that Microsoft is using it as a template to court China-based mobile developers to build games for its Game Pass subscriptions platform, Reuters reported last week. Microsoft passed on the chance to publish Genshin Impact on Xbox, a decision Reuters says Xbox executives “regretted.”

“In developed markets like the U.S. and Western Europe, overall mobile spend is growing, and consumers are increasingly willing to spend on mobile games,” Yeh said. “In developing markets like Latin America and Southeast Asia, mobile represents access to a wide audience, especially consumers who don’t have the ability to buy a console or PC or don’t have access to stable bandwidth.”

Live service dreams

Microsoft’s interest in finding the next Genshin Impact is part of a broader industry transition to live service gaming — a model that, as Yeh points out, is dominant and thriving on mobile. Electronic Arts spent close to $4 billion last year acquiring mobile studios to strengthen its position in the free-to-play and live service sectors. Take-Two spent close to $13 billion to buy FarmVille developer Zynga in the second-largest ever gaming acquisition behind only Microsoft’s proposed purchase of Activision Blizzard for $69 billion.

“We’re excited that there are 3.5 billion players in our addressable market. It brings accessibility to our brand,” said EA mobile chief Jeff Karp in an interview with Protocol earlier this year. “It’s really an opportunity to expand our overall ecosystem for the brand, and it creates practicable recurring revenues. It also brings the opportunity to bring our games across platforms.”

Take-Two CEO Strauss Zelnick echoed those comments in a recent interview with The Wrap. “We were already a leader in the console and PC space, and we believe we had already the best collection of intellectual property in the space,” Zelnick said. “However, mobile is the fastest-growing part of the interactive entertainment business.” Take-Two plans to use Zynga’s expertise and resources to help develop mobile versions of its biggest games, including Grand Theft Auto.

In August, Sony acquired its first ever mobile studio, Savage Game Studios, and created an all-new PlayStation Studios Mobile division separate from its console game development unit. PlayStation Studios chief Hermen Hulst described the move as “additive,” saying it will help Sony provide “more ways for more people to engage with our content.” The goal, Hulst added, will be to “reach new audiences unfamiliar with PlayStation and our games.”

PlayStation head Jim Ryan has also cited an expansion to mobile as central to its growth strategy, including a plan to release 20% of all titles by 2025 on smartphone platforms. “By expanding to PC and mobile, and it must be said … also to live services, we have the opportunity to move from a situation of being present in a very narrow segment of the overall gaming software market to being present pretty much everywhere,” Ryan said during an investor presentation in May.

“Whether it be League of Legends or Fortnite, mainstream gaming has already demonstrated the lucrativity, viability, and longevity of free-to-play, live service games,” Yeh said. “Meanwhile, mobile is just a different avenue to access gamers and gain more audience attention share in different settings, such as on commutes.”

The cloud gaming opportunity

Mobile also presents opportunities for all-new business models like cloud gaming and subscriptions, something Microsoft has invested considerable resources into exploring with its Game Pass service. While native mobile games have become more sophisticated, so, too, have streaming platforms that can let you beam console and PC titles from a remote server to your phone screen.

When combined, as Microsoft does with Game Pass and its Xbox Cloud Gaming add-on, mobile presents an opportunity to tap new customer bases. Those include people who have no intention of ever buying a console, but might be interested in streaming console games on their phone — as well as people who might not be able to afford everything required of console or PC gaming, like TVs, monitors, and accessories.

“You’re faced with two larger trends. One of them is macroeconomic — inflation, to put it simply. People are going to start cutting their entertainment budget, which is not essential compared to food and heat. That’s a big transition for the industry,” Joost van Dreunen, an assistant professor at New York University and former game analyst, told Protocol.

“The second piece is that gaming has gone through this moment of transitioning from the fringes. This is not the core gamer that wants to shell out $60 to $70 [per game],” van Dreunen said. “[Game companies] have to necessarily lower the price point to reach average consumers, in the same way Spotify and Netflix do that.”

“Even with the recent shutdown of Google Stadia, accessibility in developing markets will be a key aspect for potential viability [of cloud gaming],” Yeh said. He pointed to accessory makers like Backbone, which produces controllers for smartphones apt at playing both ported games and cloud games without needing to rely on the touchscreen, as evidence the mobile market is now accommodating a far wider breadth of players.

Netflix, a relatively new entrant in the gaming industry, has found success by focusing not on costly console or PC game development — as streaming rival Amazon did to mixed results — but instead exclusively targeting the mobile market. The streaming platform, which has 55 games in the pipeline and now offers 35 titles on smartphones, said this month it was now exploring cloud gaming as a way to reach even more customers.

“We'll approach this the same way as we did with mobile — start small, be humble, be thoughtful — but it is a step we think we should take," Netflix’s gaming chief Mike Verdu said onstage at TechCrunch Disrupt. "The extension into the cloud is really about reaching the other devices where people experience Netflix.”

Mobile isn’t just a money-printing machine. Companies need expertise and teams willing to move fast, update at breakneck speeds, and also maneuver the increasingly byzantine platform structures of Apple and Google, which make a bulk of their app store revenues by collecting fees from mobile games.

Cloud gaming, for instance, is not native to mobile, and instead must be accessed through browsers — a less-than-ideal compromise of working around app store restrictions. But the opportunities, and the existential necessity of diversifying how games make money and survive in an ever-changing industry, have made mobile key to survival.

“We have to break that duopoly of only two storefronts on the largest platforms. We’ve also invested a lot in our cloud streaming,” Spencer said at WSJ Live. “But if you take a long-term bet, which we’re doing, that we will be able to get access to players on the largest platforms that people play on … we want to be in a position with content and players and storefront capability to take advantage of it.”

“Gaming is the largest form of monetization on mobile,” Spencer added, “and we’re a gaming company.”

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