Less Rush, More Rollercoaster for Digital Chocolate

Wow, what a difference a day makes...

Yesterday MobileGamesBlog reported that Trip Hawkins' mobile (and now social network) games publishing company Digital Chocolate had "secured several millions of dollars" in financing from Bridge Capital Holding and had upped their longtime studio chief Ilkka Paananen to President of the company (UPDATE: apparently Trip had announced this promotion back in February on his OMG Blog). The story indicated that this was an equity investment on top of the $43.8mil the company had received previously... which to my mind represented a meaningful market driven endorsement of the viability of the company and its prospects for growth. Big industry news for several reasons: 1) funding has hardly been flowing into the mobile games space; 2) insider buzz (driven in part by the company's recent, atypical, quietness in the press) is that Digital Chocolate has been struggling, like many of their mid-tier peers; 3) folks like and respect Paananen (founder of games studio Sumea in 1999, acquired by D'Choc in 2004) and his elevation seemed like a super-smart move to bolster management ranks and provide counter-balance to the venerable, but notoriously mavericky Hawkins as the company prepared for growth. All good stuff. After reading the story, I asked in a tweet (as I am wont to do),"at what valuation... anybody know?" and sent Paananen a congratulatory IM... to which he didn't respond.

Well the picture painted this morning in Mobile Entertainment's coverage of the story, and MobileGamesBlog's followup, may explain why I didn't hear back. Apparently the funding is actually a "multi-million dollar revolving line of credit" to be used for "general corporate purposes"... which sounds a lot more like a cash lifeline than an endorsement. To make matters worse, it now turns out that Paananen will not be taking a larger roll going forward, but instead will be leaving the company. I don't think either pieces of news, or how the messaging was managed, bodes particularly well for the company... and I suspect industry buzz may turn even more negative.

Of course this situation begs the question, what is the path forward for Digital Chocolate and the other key players in the struggling mid-tier of mobile gaming... specifically Glu Mobile, Hands-On & I-Play? I must say I'm pretty skeptical about them all piling into Facebook gaming... which is the popular strategy du jour. I have an idea that I'll share in an upcoming post.

Global Video Games Investment Review by Tim Merel IBIS Capital

Check out a comprehensive story on this presentation at PaidContent.

FYI - this slideshare presentation is best viewed Full Screen... which can be activated from the MENU button on the bottom left corner.

S. Korean Publisher GAMEVIL Is Hotter Than Gochujang

Seoul-based mobile games publisher GAMEVIL announced stellar earnings last week and I just gotta say that despite it being an unpopular choice *I called it* when I picked them as the Q4 revenue growth star in my recent poll (assuming no surprises from Artificial Life). Me and the other guy who voted for them are getting some crazy sick prizes, suckas! (a large boba tea and Rain's latest album).

The publicly traded company (063080.KQ) realized $7.95mil in Q4 revenue, which is a 54% gain over Q4 2008 and $4.08mil in net profit, which is 84% growth QonQ. For the full year 2009 their revenue and net were $21.33mil and $10.29mil respectively. In one year these guys have blown right past some original gaming gangstas like Capcom, I-play, THQ & Hands-On... and are gaining fast on their bigger South Korean competitor, Com2uS ($27.75mil 2009 revenue). The prominently placed line in their press release claiming they're “the first mobile game company in Korea to surpass 10 billion KRW in Net Profit” is clearly a dig at their cross-town rival (which had half GAMEVIL's profit). Actually GAMEVIL might be closer in size to Com2uS (as well as D'Choc & Artificial Life) than the numbers let on, because they only include a portion of the earnings from their profitable GAMEVIL USA, Inc. OpCo... which has 5 well received Paid titles (notably Baseball Superstars & ZENONIA) in the US App Store. For the following reasons I think these guys are really well positioned for growth...

• a powerful base in their technologically advanced, game-crazy home market;
• a studio that creates very high-quality, award winning games, conducive to smartphones;
• demonstrated competence in the new OEM app stores and;
• (this is key) lots of experience generating revenue from in-app purchases in Korea... which should give them an advantage as this develops into a significant component of app revenue streams in the West

GAMEVIL has 10 new games in their pipeline this year... which I'll begin to monitor more closely. These guys are hot and one to watch in 2010.

Latest iPhone Games Analysis Courtesy of HandyGames

Wow, Digital Chocolate continues to be really active in the iTunes App Store... but I must say that they don't seem to be getting a particularly good ROI on their volume of titles. It would be interesting to hear some updated numbers from them... Trip and crew have been uncharacteristically quiet recently.

btw - You can see Parts 1 & 2 of this analysis, from September 2009, here.

Twistbox & AMV Parent Mandalay Media Reports Quarterly Earnings

• Cash continues to be a scarce resource, the company had $2.3mil in the bank as of Dec 31, 2009
• Mandalay Media (MNDL) claims key contributors to falling revenue are "a very challenging European sales environment", the loss of a "significant on-deck advertising management agreement", "tighter regulatory restrictions" of off-deck adult content in the UK and "lower (games) revenues from U.S. carriers"
• The company reduced the costs attributed to licensing IP by 50% in the last 9mos of 2009, compared with to the same period in 2008
• The company has substantially cut development headcount/costs
• The company continues to renegotiate payments and covenants associated with a ~$20k debt obligation it has with a small cap fund called ValueAct, with the latest twist being that payments are postponed until July 31st and the minimum cash covenant has been temporarily reduced to $1.6mil until March 10, 2010... and $4mil thereafter (until the next renegotiation)
• Adult content continues to dominate revenues (see below), accounting for 88% in the last 9mos of the year and 89% in the last 3mos

Check out all my posts about Mandalay Media by clicking this link.

Is Snackable Earning More Than Glu From Mobile Games?

If the claims of NYC based Snackable Media CEO Eyeal Yechezkell, as reported on TechCrunch and MocoNews, are to be believed then that text-based gaming company made $85mil in revenue last year. That's slightly higher than Glu Mobile's last 4 quarters (Q4 08 - Q3 09) and would make Snackable the #4 mobile games company in the world by revenue on my chart... perhaps even #3 if my Namco Mobile estimate is inflated. Apparently there's still a healthy business in $9.95 monthly recurring subscriptions for text-base quizzes and versions of "Deal Or No Deal". I wished I was more shocked that consumers continue to sign up for these kinds of subscriptions... but I've come to realize in my old age that there's more than one sucker born every day. However, the overall numbers discussed here do shock me and, as usual, I'm more than a little skeptical. What do you guys think?

Is This How Gameloft's 10mil iPhone Game Sales Break Down?

CLICK ON IMAGE TO ENLARGE

Jon Jordan at PocketGamer.biz had a story today covering Gameloft's announcement that they've sold 10mil iPhone (and iPod touch) Apps since the App Store opened 18mos ago, in which he points out that the French publisher "didn't reveal any per title sales figures." Well, considering my recent fascination with correlating User Ratings with downloads, I thought I'd take a stab at decoding this... just for kicks. In my post on Dec 16th I told y'all that based on some conversations with publishers I was getting comfortable with the notion that each User Rating on a Paid App accounted for 75 downloads as a rule of thumb... I then went on to perform some calculations on iTunes Rewind 2009 to support my thesis. This seemed to work pretty well, as long as I adjusted the numbers to show that casual games downloaders have a lower propensity on average to post a User Rating and that those who downloaded games for gamers have a greater propensity to post one... which made intuitive sense to me.

Well, in looking at the total reviews of Gameloft's 56 Paid App titles as they relate to their 10mil download claim, assuming their title mix is typical of all Paid App games in the store, then it looks like my average number of 75 may have been a little high. Gameloft games have received a total of 163,931 User Ratings and if I divide 10mil by that number I get 61... so maybe that's the right correlation. I still think adjustment for casual and gamerly games are required, but for the spreadsheet above I simply decided to apply the number equally across all titles. The spreadsheet is sorted by downloads and the estimated revenue is based on today's price (so take that with a grain of salt), as opposed to the Estimated Average Price over the game's lifetime I'd use if I had more time (remind me to hire a staff when I get rich off this blog... right). One thing that this does seem to show (if this is correct) is that Gameloft actually does have 1 title with over 1mil paid downloads... "Hero of Sparta" which launched in December 2008.

Is Glu's de Masi Move Part Of A Hands-On Hook-Up?

I've been racking my brain for the last couple of days trying to make sense of the news that Niccolo de Masi is leaving Hands-On Mobile, after just 3mos as its CEO, to run Glu Mobile. My first thought was that Hands-On was in such disarray, and so late to the smartphone game, that the restructuring I hoped was afoot turned out not to be worth pursuing in the end. My second thought was that Glu got so desperate in their protracted CEO search that they put more money on the table than a 29 year-old could possibly refuse... 'til I read their latest 8-K. Then I had a conversation today with an industry veteran who posed a novel, and ultimately, more interesting theory. What if de Masi is bringing Hands-On with him? What if this move is the precursor to a merger between the two companies?... now that's juicy!

From Glu's perspective this could be attractive because Hands-On allegedly still has a pile of cash left in the bank from the $29mil sale of its Korean division to EA in May 2008. For public Glu, with a depressed stock price vacillating on either side of $1 and a healthy appetite for cash, this could be an attractive fix. Glu would also benefit from Hands-On's valuable World Poker Tour license, which has been a cash cow since 2005, and its legacy Guitar Hero licenses (also big earners), which would be a nice complement Glu's newly launched Guitar Hero 5 title. For the investors in Hands-On, including Executive Chairman Dan Kranzler, this could finally be a way to go public... like they've been planning since the mobile paleolithic. It would also give Hands-On much improved smartphone capability (an area where Glu is finally getting its shit together) and restore its once impressive international distribution capabilities. Moreover, this move could create a real competitor, another $100mil+ (or close to it) game publisher, in an industry segment that's recently looked a lot like a two horse race between EA Mobile and Gameloft.

What do you readers think?

10 Most Read Cabana Mobile Posts of 2009

1. How Much Money Do Mobile Ad Networks Make?
2. KongZhong Got It Goin' On
3. Fish Broth: The Plot Thickens In GetFugu Investment Drama
4. If The Top 10 Generate $700mil Can Mobile Games Really Be A $5.4bil Business?
5. Palm Pre Demo From D7 Is Better Than Porn
6. Updated: Top 10 Mobile Games Publishers WW
7. MOBshop Speculation Is Red Hot
8. Update: GLUU Volume Stays High As Boards Buzz About Changyou & Other Theories
9. Will de Masi & Kranzler Finally Get Hands-On To Realize It's Potential?
10. Report: At AT&T Motricity is Jen & Amdocs is Angelina

Updated: Movie & TV Paid Game Apps For iPhone

Click on the eye chart above for a clearer image of my latest version of this list. I've sorted this iteration by the product of the number of reviews and average score. Also, I've added a CatRnk column which shows in-category ranking from Mobclix. Highlighted titles are those that are either Top 100 Paid, Games or Grossing Apps on iTunes. You'll notice some new titles and some titles that I missed (oops...thanks for the feedback!) in previous versions... notably the #1 performer "The Price is Right" from Fremantle and #2 "Star Wars: The Force Unleashed" from Lucasfilm. Please keep the feedback coming. So, based on this list, who would you say is the most successful entertainment company in terms of iPhone games?

Mandalay's Gotta Shake It's Money Maker

Mandalay Media (MNDL), the parent of mobile adult content and games companies AMV & Twistbox, reported earnings and guidance yesterday for their fiscal Q2 2010. Revenue increased more than 100% from the year ago period... but that growth is almost entirely attributable to the AMV acquisition. A look at recent consecutive quarters and company guidance to full year revenue "in excess of $40 million"... indicates the company is running super-flat. I've posted a lot about Mandalay and my lingering concerns continue to intensify. They've gotta deal with their content identity crisis. I contend that they should focus on the adult content market, which provides 87.5% of their revenue, and in which they're a major player (remember Twistbox used to be Waat Media). However, I'm not at all convinced that's the direction they're headed following the appointment of Ray Schaaf as President and their recent Hail Mary attempt to buy World Poker Tour. More immediately, they've got to deal with their deepening cash crisis... as of September 30th they've dwindled their reserves down to $2.8mil, which won't last them 6 months at current burn rates.

Is Activision Using Zombie Publisher To Relaunch Mobile Ambitions?

Activision Blizzard (ATVI) announced yesterday that they've stepped directly into the iPhone Game App publishing fray with the release of Call of Duty: World At War: ZOMBIES, based on Treyarch's uber-successful console franchise. The 3-D, multi-player, Nazi zombie killer (is zombie it's own sub-genre yet?) was built by quality UK developer Ideaworks and retails in the US for $9.99. Initial user ratings are pretty good, but there aren't enough of them yet for it to be meaningful and we'll have to wait to see what the professionals say. I think there are 2 significant things to takeaway from this release:

1) This move makes it pretty clear that Activision licensee Glu Mobile (GLUU), which just released their Call of Duty: World At War: Force Recon mobile game on other platforms, is not going to be publishing Activision titles on iPhone anytime soon. Moreover, while this may just be a toe in the water, I think it probably means that Activison Blizzard is re-ramping their mobile publishing ambitions.

2) Assuming I'm right on the point above, then its super-ironic that Activision is using the account of the mobile games publishing unit they briefly had post-merger with Vivendi Games, and summarily dismantled last year to focus on licensing. Currently, in the App Store, Call of Duty: World At War: ZOMBIES appears as a Vivendi Games Mobile title. The good news is that under that moniker COD is in great company... VGM's only other title Crash Bandicoot Nitro Kart 3D continues to rock the Top 100 more than a year after release and is one of the all-time top grossing Apps on iTunes! The bad (sad) news is that Activision's lack of foresight (or patience) resulted in their losing a high-quality global team and to the extent they are rebuilding, it will inevitably cost them much more than if they had left Vivendi Games Mobile intact.

Stuck In Low Gear: Glu Mobile Q3 2009 Underwhelms

Ask any of my former employees at Universal Pictures... I used to anticipate Glu Mobile (GLUU) quarterly conference calls like an 8 year old kid looks forward to Christmas morning. With Glu being one of the few pure-play mobile entertainment companies publicly traded on a US exchange, with all the concomitant reporting that requires, this event provides a rare, clear lens into the health of the industry. That's exciting, right? The Q3 2009 call was no different... but I must say it was a disappointing Christmas and the patient don't look so healthy. Here's why:

• Uh.... where the heck is the new CEO? Didn't Greg Ballard announce his resignation back in July? Either no one wants this job (I haven't been asked, btw) or the board is fighting over what kinda leadership this company needs
• There was no acknowledgment that longtime, lynchpin exec (and quarterly call participant) Jill Braff left the company last month. Tacky like...
• $19.6mil in Q3 09 represents the 4th consecutive quarter of declining revenues (down 18% from Q3 08)... so much for being part of a growth business
• The company lost $4mil during the quarter and expects to lose between $13.1mil and $13.4mil in 2009
• Next generation platforms, including iPhone, Android and their experiments with social networking games only yielded $500k or about 2.5% of revenue... either iPhone hype is out of control or Glu isn't a meaningful player
• Royalty payments of $5.8mil, or 30% of revenue, in the quarter is still crazy high... this cost has gotta come down either through development of more original IP or the negotiation of better deals with content owners (did I just say that?)
• The Q4 title roadmap looks pretty good, and reviews of early titles have been pretty good, but I don't see anything that looks like a mindblasting breakout hit
• Verizon Wireless still represents 20% of Glu's business worldwide. As VZW's ecosystem opens up, and the #1 US carrier embarks on its experiment with an "app store", Glu will need to fight harder than ever to maintain share at that operator
• Only 1 analyst asked a question during the conference call (kinda sad)... have they all lost interest?
• On a positive note, the company did generate $2.7mil in cash... which they can use to lure a new CEO

Updated: Movie & TV Paid Game Apps For iPhone

Click on the image above to see updates to my post from last Monday. I added Cirque du Freak: The Vampire's Assistant and America's Next Top Model by request (thanks for the feedback!), and highlighted the 7 titles that are in the Top 100 Paid Games Apps... but otherwise there isn't much change. Let me know if I'm still missing any titles or if you have anything in the queue for which I should keep an eye out.

Movie & TV Paid Game Apps For iPhone

I've recently been looking at games based on entertainment industry brands in the iTunes App Store. I've been paying particularly close attention to Paid Apps, because they're generally much higher quality and less ephemeral... and contribute directly to those oft-discussed, yet oft-elusive digital revenues the old media companies crave. The most striking thing I've noticed is how few of these Apps there are on iTunes. I could only find 40 (let me know what's missing from my list below), which is a measly 0.29% of the 14k Paid Games Apps that Mobclix claims are available in the App Store. Remember, back in the day, when all the operators had Movie/TV categories on their game decks that were chock full'o titles?

Does this mean that entertainment brands are less important on this platform? That seems counter-intuitive considering how cluttered the store is and how critical off-channel marketing is to gaining awareness... and when you consider that 4 of these 40 titles are currently in the Paid App Top 100, these brands can legitimately claim that they over-index in terms of popularity. Perhaps it's that a lot of the smaller developers, who are directly publishing game apps, can't afford licenses for premium brands. Perhaps it's that ongoing perception in gaming circles (some, but not all of it warranted) that games based on entertainment brands are crap. Whatever the reason, it looks like the studios seriously need to step up their distribution into the App Store via licensing or self-publication... to the extent they believe it's important place to own mindshare and a real opportunity to make money (it is and it is, btw). Let me know what you guys think.

When you click on the eye-chart above you'll see that I've sorted this list of 40 by the number of reviews... which gives an indication of popularity over lifetime. The most important thing to look at the star rating in relationship to the number of reviews. Currently the highest rated title is the Twilight Scene It? from RealArcade/Summit Entertainment with 4.5 stars... but it's only been out for a week and I'm sure most purchasers so far are delirious Twilight fans.

Where Is EA Hiding Their 8lb Gorilla?

Back in July, gaming behemoth EA (ERTS) quietly opened a small studio called 8lb Gorilla (8PG) to create smaller, casual, cheaper-to-build, cheaper-to-buy (sub $3) games for iPhone and iPod touch. Their first release, "Zombies & me", debuted in the App Store on July 10, 2009 at a 99¢ price point. In a review touchArcade called this initial effort "good, but not great" and to date, on iTunes there have only been 376 user reviews with an average rating of 3 stars. Nevertheless, I think the general perception was that this was a decent first foray and that EA's strategy behind 8PG was fundamentally sound... industry folk were generally eager to see what they came up with next. The plan, according to touchArcade, was that the studio would launch new games (under the EA banner), like a little factory, on a "near-monthly" basis... provided there were no snafus in the App Store submission process. Uh...so, what happened? It's been 3 months and no new games, no updates to their website and no updates to their Twitter feed since the end of August. Has EA killed this initiative as quickly and stealthily as they launched it? If so, why? That's hardly giving a brotha a chance. The only explanations that I can come up with, at my current caffeine dosage, are the following: 1) 8PG's games are getting reject by Apple, 2) EA is reshuffling personnel at the unit or, my favorite... 3) the rumors about Playfish are true and EA is going to use those guys to build their casual mobile games. Any other theories out there?

Will de Masi & Kranzler Finally Get Hands-On To Realize It's Potential?

PocketGamer.biz is reporting, and the company's website is confirming, that Hands-On Mobile's President (and former Monstermob wunderkind) Niccolo de Masi has taken over as CEO of the San Francisco based mobile games publisher, replacing David White. I've also heard rumors recently that Dan Kranzler, who founded the company back in 2001 (when it was known as Mforma), may be planning to take a more active role in its management, after years of being a very passive Executive Chairman (and peacing out with the Dalai Lama).

Does this mean there's a massive restructuring in the works? Hopefully... because Hands-On, the poster child for unrealized potential in mobile entertainment, is long overdue for a shake up. This is a company that raised $63mil in venture funding in 2004, was on an IPO path in 2005, was an early content rockstar in China and at various times over its 5 year history has employed some of the smartest folks in mobile and controlled some of the most powerful brands in gaming (Marvel, Guitar Hero, World Poker Tour, etc.). Hands-On could have been, should have been, a global mobile gaming powerhouse like Gameloft or EA Mobile, but instead in 2009 they're a tertiary player that doesn't even make my Top 10 Mobile Games Publisher list.

So what's to do? According to PocketGamer they've been diversifying into platforms like PSP Minis, DSiWare, Facebook games and, get this, iPhone (where they currently have 8 Paid Apps, none in the Top 100)... hmm, but that sounds like what all the other kids are doing. Perhaps they should be really alternative and focus on the carrier business... oh, and while they're at it change the company name back to Mforma (which is cooler and more potential-ly). We'll see. Let's just hope the re-emergence is in process, the rumors about Kranzler are true and that he and de Masi have a few more rabbits (and a bunch of cash) in their hats.

ROK Expands Games Push With Player One Purchase

WirelessGamesBlog.com is reporting this morning that ROK Entertainment (ROKE) has acquired veteran UK mobile sports games publisher Player One for an undisclosed sum. ROK, which has been primarily focused on mobile streaming video services since it's launch in 2004, has recently been bolstering its ROK 8 games subsidiary... in August the company announced a distribution agreement with Inspired Gaming Group. With regard to the Player One purchase ROK Chairman and CEO Jonathan Kendrick, said “Mobile gaming is proving to be evermore popular worldwide, so we are delighted to add Player One to our portfolio of revenue-generating mobile products and we look forward very much to the successful deployment of their existing library of world-class mobile games as well as developing new games, going forward.” In theory this diversification strategy isn't a bad idea, since games do continue to have the best business model in the mobile entertainment space (and video might have the worst one, frankly). The challenge here is that Player One isn't exactly on the bleeding edge of mobile gaming... they're a very UK-centric, old-line Java games house (they have 1 title in the US iTunes App Store).... and they've been pretty quiet lately. So for ROK to maximize the financial potential from this acquisition they absolutely must invest some money to make Player One more relevant in the post-carrier-dominated, smartphone app store, world. Overcoming this challenge will be a non-trivial task for ROK, since the company is definitely not rolling in cash.

Does App Store Claim Make Digital Chocolate A $35mil Publisher?

Stuart Dredge posted an interview last Friday on Mobile Entertainment with Trip Hawkins, in which the Digital Chocolate CEO pontificated about the state on the mobile games industry. Great read, but due to my ongoing obsession with valuing the size of this business and that of its individual companies, I must say I fixated on one particular statement. Hawkins said, "suddenly Apple has one handset, we put out a handful of games, and voila – it's suddenly 20-25% of our business.” Wow, that's a pretty big chunk of business and impressive considering Hawkins' own admission earlier this year that they were a latecomer to the platform. So how much money is this and how big is Digital Chocolate?

When I did an analysis of Gameloft's iPhone (inc. iPod touch) business in early September, following their claim to have sold 6mil games on the platform, I estimated that their games had sold at an average price of $3.75... which yields $15.75mil back to Gameloft, or 9% of their revenue for the last 4 quarters. Now Gameloft was not a latecomer to the platform and they have been one of the better publishers at maintaining higher price points for their product, so I think we can comfortably assume that D'Choc's iPhone business is quite a bit smaller than that... right? Currently, Digital Chocolate has 35 paid game titles in the App Store, with an average price of $2.08. Typically their prices have been 20-30% lower than those of Gameloft, which currently has a average App Store price of $3.06. Today Gameloft has 5 titles in Top 100 Paid Apps (out of their 41 Paid Apps), and Digital Chocolate has none, but that's somewhat of an anomaly. Digital Chocolate titles have consistently performed pretty well, and as you can see from my June 29th App Store survey they had 3 in the Top 100 at a time when Gameloft also had 5, with many fewer titles in the store. That said, given the average pricing differential, Top 100 performance and slower ramp-up I think that Digital Chocolate's App Store business over the last year is, being generous, about 50% of Gameloft's... let's call it $8mil in revenue. I can get to the same number if I make some fair assumptions about Hawkins' other claim in the ME interview... that they're "a few weeks away" from 40mil downloads on the platform. If 10% of those downloads are paid and their blended average price is $2.80 (75% of Gameloft's), that's very close to $8mil (after Apple's share). OK, so if that platform represents 22.5% of their overall business, then Digital Chocolate is a $35.5mil publisher. According to my Top 10 Mobile Games Publishers list, that would put them in Capcom territory... and makes them bigger than both I-Play and Artificial Life. Do you guys think that's right? If so, I'll update my list accordingly.

HandyGames: Top 20 iPhone Games Analysis

Here's a couple of nice SlideShare presentations courtesy of our friends at veteran German mobile games publisher HandyGames... enjoy.