Monday, September 28, 2009

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.


  1. DC is bigger than iplay for sure! AI I doubt that they make the real revenues check out the figures in detail - how much cash they have left on the bank! Also can you tell me countries where AI is big? I couldnt find them in any important markets. Perhaps they have a cash cow hidden somewhere but I cant find it.

  2. @Anonymous... I think AL is making most of their revenue from work-for-hire fees for the creation of marketing games. The cash situation has gotta be pretty bad.

  3. @Jeremy Laws
    sorry - I doubt that the revenues comes from work for hire fees. The brand owners are used to get paid not paying a publisher. If they do the revenues you mentioned and shown in their figures they should be very healthy but as you saw the cash situation says something else. Perhaps just a big bubble. Lets see.

    My guess on DC is 20-25 mil USD a normal conversation rate within the app store from free to paid is 5% more or less.

  4. @Anonymous...I'll dig into AL's 10k to get some more detail on AL's rev streams. Thanks for the tip on iTunes free/paid conversion rate!