Mobile Gaming Not Killing Handheld Consoles Yet

by Steve Smith, Jan 18, 2012, 11:46 AM

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Rumors of the death of Nintendo and Sony portable consoles have been greatly exaggerated, according to a new projection from International Data Corporation (IDC), which believes both companies have some game in 2012.

Analyst Lewis Ward says that the torrent of mobile gaming downloads doesn’t tell the whole story of purported erosion in handheld gaming. In 2012, he expects the overall mobile gaming market, including smartphone and tablet downloads and Nintendo and Sony physical cart and disc sales, will hit $3.6 billion in North America. “Dedicated handhelds will have 59% of that total,” he tells Mobile Marketing Daily.

The shift of game revenues from traditional dedicated consoles to smartphones has been dramatic -- but not quite as dire as many suggest. On a worldwide basis, IDC is forecasting growth in all mobile gaming software segments from $14.7 billion in 2012 to $20 billion in 2015. But the revenue split between dedicated handhelds and mobile phone and tablet platforms will move toward phones/tablets only 4% in those three years.

The handheld gaming market peaked at just about the time the iPhone emerged on the market along with an app marketplace -- 2007-2008. At that time, handhelds earned almost three-quarters of all portable gaming revenues. “It shifted significantly” since then, Ward says.

But he also argues that the demographics and business models of mobile gaming are considerably different from handhelds. If you pare the market demographically, Nintendo and Sony remain in a strong position among teens. In a worldwide survey of 1000 gamers in each of 25 countries, IDC found that among those who paid for games on smartphones, only 1.5% were in the 13- to-17-year-old demographic.

For the tablet platform, only 5% of those who pay for games are in the teen segment. But among Nintendo and Sony handheld owners, 10% are 13 to 17. Add to that the millions of youngsters under 13, and out of range of the study, and you have a very large base of players who pay for games but don’t typically have smartphones or tablets. “The handhelds have a two-to-one advantage within that demographic niche,” says Ward.

Price points in mobile apps -- while great for consumers -- challenge developers to make profitable models in gaming, Ward says. “With games that are only a few dollars apiece, it becomes pretty challenging to make a lot of money on most games,” he says. “You need to sell a lot of games.” Or to develop a vast range of titles in order to register the few hits that will pay for the rest.

Worse, he was surprised to find that even at such low prices, piracy of games on the Android platform in particular was more common than expected. “If you develop a game that is a hit, then in short order you will get a knockoff game that is available for free.”

Nevertheless, mobile gaming has forced changes to the handheld environment. The in-app purchase model that is wildly successful in smartphone and tablet gaming is certainly headed to handhelds. The big hit tentpole games on handhelds have become more sparse, and it is harder for developers to see returns on the mid-list of third-party titles that are not blockbuster successes.

While mobile platforms allow for in-app advertising that can help support game maker efforts, Ward has yet to see this stream even approach the revenues from direct-to-consumer sales, however. In 2010, on a worldwide basis, about $750 million in ad revenues was generated through mobile gaming banner ads and sponsorships.  

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