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.

Is Insurrection The Future of Mobile Gaming?

Mark Cuban just sent an enthusiastic tweet about Paranoid Games' location based iPhone title Insurrection, that's releasing on the App Store July 4th (check out the backstory video). I have to agree this looks pretty interesting, particularly in light of rapid smartphone consumer adoption of services like Foursquare and Gowalla... which are inherently much less fun.

However, this is hardly an original idea. 10 years ago a Swedish company called It's Alive! created and deployed a location based game called BotFighters in several European countries, that used WAP & SMS. As has been typical in this space, the It's Alive! guys were way, way ahead of their time and their company, which eventually (ironically?) merged into another called Daydream, was soon gone but not entirely forgotten.

I think Paranoid Games has the timing right, so now it comes down to execution and marketing. I wish them luck.

The Good The Bad & The Ugly In The Mobile Content Ecosystem May 2010

This segment, which covers my current perception of the state of select companies and business sectors in mobile entertainment, will be a recurring feature on Cabana Mobile. You'll notice dynamism in terms of the companies covered and where they fall within these categories, over time, as my inputs change. Let me know if you agree or disagree with my opinion... and tell me what other companies/categories you'd like to see on this list.

THE GOOD

• DeNA - Japanese powerhouse, fueled by the uber-successful Mobage-town social mobile games portal, has over $500mil in annual revenue, $125mil in profits and over $350mil in cash. These guys could roll-up several major western games publishers in a heartbeat if they were so inclined.
• Gameloft - the French publisher, always a high quality player, has been on its iPhone game from the start and now derives a full 21% of their revenues come from the AppStore... which is (for better or worse) the only game in town in terms of paid mobile content. Gameloft is proof that you can turn a super-tanker in rough seas.
• GAMEVIL - South Korean game publisher has 2 things going for it... great capabilities with micropayment model games in its home market and a focus on high-quality builds that are conducive to smartphones. These guys regularly deliver solid profits and have a market cap that must make many of their bigger competitors very envious.
• Millennial Media - It's no secret that I've always had a healthy level of skepticism about the value of the mobile ad networks. That said, there ain't no denying that the biggest, and one of the best managed, of the independents is in a super-sweet spot in light of Google's $750mil acquisition of AdMob and Apple's $275mil acquisition of much smaller Quattro. Rumors have been swirling for months that Microsoft is in the hunt.
• Firemint - smart, lean Australian games developer, turned iPhone publisher, is one of my favorite content success stories of the smartphone revolution. Flight Control and Real Racing have been true phenomena on both the iPhone & iPad. The big question is, of course... what's next?

THE BAD

• Glu Mobile - this quality mobile games publisher, that I once called the "barometer of the health of the mobile entertainment space", has been struggling to evolve from a carrier-focused, licensed IP based company, into a smartphone savvy developer of original game franchises. They're currently going through a painful right-sizing process and experiencing declining quarter over quarter revenues. Cash is a severe pain point and their market cap (under $40mil) is currently 11% of rival Gameloft's.
• Carrier Decks - remember way back when (2years ago) when Get It Now! and MEdia Mall (and their ilk) used to be like WalMart and Target for mobile content? Well unfortunately the smartphone revolution and Apple's retail smarts have shifted that paradigm... big time. Publishers now routinely report alarming declines in their carrier-based revenue. I doubt the tide will turn back, unless operators focus their efforts on curating and facilitating billing for paid Android apps... 'cause that's a growing mess they're in a position to fix.
• Motricity - back in January this veteran, Bellvue, WA based, carrier content platform management company made its intentions known to the SEC that it wanted to go public. Lots of folks in the industry were shocked by the timing, considering the the general state of the IPO market, current conditions in the carrier deck business, the very substantial losses Motricity has racked up over the last few years and the fact that 74% of its revenues come from 2 companies.

THE UGLY

• GetFugu - when your stock price is under a penny, you have to take a bridge loan for $170k & after 6 months your one app has only 333 mostly poor ratings in the AppStore, that's kinda ugly. Even the micro-cap day trader crowd is way over it. It's hard to believe that this company will survive the summer.
• NeuMedia (f/k/a Mandalay Media) - the owner of Twistbox & AMV has always had an identity crisis; is it an adult entertainment or a games company? Recent exec & board defections and a cash-balance triggered notice of default indicate to me that they may not have to struggle with this issue too much longer.
• Off-Deck Mobile Portals - before the smartphone revolution this was a red hot space, with power-players like Thumbplay, Flycell & Jamba/Jamster vending recurring ringtone & graphics subscriptions, to under-supervised kids. After paying $120 bucks over a year for those 3 Young Jeezy tones and a blingy pot leaf screensaver, most suckers (or their parents) got a clue.

THE QUESTION MARKS

• Zed - the Spanish personalization giant has been like The Borg for the last couple of years, sucking up companies left & right, and diversifying into myriad content plays... including TV production. Though privately held, they used to brag about being the biggest mobile content company in the world, claiming revenues over $800mil!... but I haven't heard a lot of bragging recently.
• Buongiorno - this Italian mobile personalization & services goliath still has revenues in the $300mil range, but their revenue has been on a downward trajectory as the company's content offerings get a little long on the tooth and it tries to figure out how to be relevant in a smartphone world.
• Index - this longtime Japanese content powerhouse, whose mobile group is perennially in my Top 5 by revenue, seems to be faltering a bit. Their one time bid to be a global player, by virtue of a North American & European buying spree, flamed out and now they're fighting to stay relevant in a home market where the iPhone and Android are gaining traction.
• Android Paid Apps - as I alluded to earlier, this is a mess. Considering how quickly Android handsets (and soon to be tablets) are proliferating across carriers, this should be a huge opportunity. However, Google's disinterest in managing their store & consumer resistance to setting up Google Checkout accounts, have really stifled Android's paid app potential. I think it'll be up to the carriers to fix this problem.
• Ovi - Considering Nokia's 2.7% marketshare in the US this won't be a factor here for a long time. In the rest of the world there's more hope, especially considering some recently promising download numbers, and the appointment of industry vet Bryan Biniak (a guy who I know understands content) to run Ovi Publish. Frankly I'm more bullish on Ovi now than anytime in the last year.
• Augmented Reality - Boy, I was really excited about this space for awhile, particularly apps like Layar... but I'm definitely not feelin' it right now. AR still seems more like a novelty than a necessity.

Pocketnow Finds Flash Slows Otherwise Fast Android 2.2 Froyo Web Browser

Google Phone With Whisper Ads

Updated Enterprise Values of 15 Public Mobile Entertainment Companies

What a difference a week makes. I'm already updating this spreadsheet with some new data. Here are some notable changes:

• Buongiorno posted Q1 2010 earnings
• Velti filed updated earnings with the SEC as part of their bid to go public on the NASDAQ (they're currently listed on LSE)... their numbers are pretty impressive (more on that soon)
• Mandalay Media, parent of Twistbox & AMV, changed its name to NeuMedia, Inc. & announced a notice of default related to a cash balance provision from a key creditor
• ROK Entertainment's stock is down over 50% today (guessing they'll be more news to follow). Btw - did y'all know the biggest shareholder in ROK is the DeJoria family, which controls the Paul Mitchell salon product empire? Always thought the guy in the ads was Paul Mitchell... but that's actually John Paul DeJoria (Mitchell was his founding partner). Anyhoo, probably hasn't been a great investment no matter how you cut & color it

Select Data From Buongiorno's Q1 2010 Earnings

Gameloft Gets Some App Store Promo Love

Wow! Gameloft got one of the six rotating feature "bricks" at the top of the iTunes App Store. That's some pretty sexy real estate for publishers trying to break through the insane clutter of Apps in the store. What's fascinating is that Gameloft elected to tag the ad with it's company name and link to their catalog of iPhone & iPad titles. Clearly they must believe (or want to test the theory) that Gameloft has become a recognizable endorser brand with consumers who buy games... and not just folks who attend MWC & CTIA. Hmm, I wonder if that's really the case. I've always considered the games business analogous to the film business with respect to marketing... wherein the emphasis is always on the title, because it's assumed that the consumer is generally agnostic about the company releasing it. What do you guys think?

Big 3 Mobile Game Publisher Revenue Comparo

Stories I'm Watching From The Road

I'm traveling on business with a client, so I haven't had a chance to work on a post for the last couple of days. I'll have some new stuff by the end of the week. In the meantime, here are the stories that have caught my attention this week:

• EA Mobile posted another strong quarter ($55mil) & fiscal year ($212mil), reinforcing their revenue leadership position mobile gaming (mocoNews story)
• GAMEVIL continues to be red, red hot & profitable (earnings release). Glu Mobile execs must fantasize about this South Korean game publisher's financial statements
• Nokia continues to obsess over their own structure and re-orgs for the 2nd time in 6mos (Mobile Entertainment story), losing one-time heir apparent Rick Simonson in the process (NY Times story)

Latest Enterprise Values of 15 Public Mobile Entertainment Companies

• Data for Velti & ROK Entertainment should be taken with a grain of salt, since they haven't released financials in recent quarters
• It looks like a couple of these companies should consider giving their cash back to the investors, and calling it a day. Some of them shouldn't be public at all (and are barely going concerns)
• I think the shining stars of this lot are the mobile games publishers Gameloft, GAMEVIL & Com2uS
• I look forward to adding Motricity into the mix, once (if?) they go public
• Let me know your thoughts on this and if there are any other public mobile entertainment companies I should be tracking

Glu Mobile Still Struggling With Smartphone Traction & Cash

Glu Mobile (GLUU) reported earnings after the close of markets today. Here are some highlights from their conference call:

• Revenue was above guidance, but still down 17% compared with the Q1 2009
• Glu Mobile is still only deriving 9% of its revenues from smartphones, which looks pretty weak compared with Gameloft, which generates 21% of its revenues from iPhone OS alone
• They are putting a big stake in 4 new original "mass-market persistent" game franchises that will launch before the end of 2010
• Forecasting Q2 2010 between $13.6mil & $14mil
• Revenue by region: 52% NA, 27% EMEA, 21% rest of world
• Avg revenue per Top 10 title in quarter was $791k
• Largest title accounted for 9% of revenue
• Verizon accounted for 18% of revenues
• 80% of revenues came from licensed titles
• Even though the company realized a positive cash flow of $1.6mil in Q1, ongoing payment obligations related to their $30.5 acquisition of MIG for in 2007 continue to drain their resources... currently they've got about $7.5mil in the bank
• CEO Niccolo de Masi & CFO Eric Ludwig plan to announce a solution to ongoing liquidity concerns by the Q2 2010 earnings call
• There was only 1 question from an analyst at the end of the call (after a long awkward silence)... kinda sad really

Glu Mobile Stock Trading Volume Over Last Year

Gameloft Q1 2010 Revenues | iPhone 21%

Gameloft announced Q1 2010 revenues earlier today, here are some highlights:

• €33mil ($43.59mil) in revenue
• 7% increase from Q1 2009
• 21% of revenue came from the iTunes AppStore... basically flat with the 22% in Q4 2009
• Revenue from North America is growing relative to Europe
• Company believes Smartphone releases & the iPad will facilitate continued growth in 2010

Poll Results: Sexiest Upcoming Handset

BlackBerry Eyed Peas: Check RIM's Sixy New OS

Android Market 50k Apps & Growing

This is a good sign, but I'm hearing from a lot of publishers of paid apps that sales in this channel are still insignificant and there's a lot of concern that it's over-cluttered with low quality CrApps. On the free advertising front I'm hearing more enthusiasm. Also, word is that the nascent carrier curated and billed tabs in the Android Market are performing very very well... let's hope that trend continues.

Check out all the juicy Android Market stats at AndroLib.

Mossberg Talks About The Rise of the Super-Smartphone

Nokia Rev & Net Chart | Key Challenges

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Here are some key challenges that came out of Nokia's Q1 2010 earnings report today:

• Although Apple only sells 40% as many smartphones as Nokia, their sales grew much faster in Q1 (131%) compared with Nokia's (50%)
• CEO Olli-Pekka Kallasvuo: "We continue to face tough competition with respect to the high end of our mobile device portfolio, as well as challenging market conditions on the infrastructure side."
• According to mocoNews Nokia's content service revenues declined 12% compared with Q1 2009
• NAVTEQ sales were up 41% compared with Q1 2009, but down 16% compared with Q4 2009
• US market share has dropped to a paltry 2.7%
• The first Symbian^3 device has been delayed until Q3 2010
• Nokia expects revenues in Q2 2010 to be between €6.7bil & €7.2bil, which is either a 28% or 22% decline from Q2 2009
• Nokia (NOK) stock was down more than 15% in early trading today

Apple & The Balkanization of Content

Andrew Seybold wrote a great piece on FierceMobileContent this morning bemoaning how Apple has taken us back to the future by creating their own version of the walled garden from the bad ol' days (not that long ago) when the only way to get content for mobile devices was through a carrier deck. The smartphone revolution was supposed to liberate us all from those proprietary, AOL-esque environments, and give us access to a universe of content available across devices... right? Well Apple apparently didn't get that memo and/or think that was a good idea, at all... and instead took the opportunity to Think Different.

The crux of the matter, and content owners and creators need to understand this, is that (big headline) Apple is not in the content business... at least not the way most folks think they are. As I'm very fond of saying (eyes roll collectively) Apple is in the reverse razorblade business. Despite having a huge ecosystem of 185k Apps, thousands of movies & TV shows and millions of songs, they run iTunes, as Peter Kafka recently pointed out, as a pretty much a break even business. Content is a means to an end for Apple. Their interest is in creating a hyper-competitive market featuring proprietary, low-priced Apps and other entertainment content, that makes consumers excited about buying every form-factor of their high margin devices... and upgrading them regularly. You know all your friends who are crazy-passionate about Apple products? They've bought into this hook, line and sinker and now that they've spent a significant chunk of their disposable income on music, movies and Apps for their iPhones and iPads, (guess what?) they're never gonna switch to an Android device or a BlackBerry... but in the next year they'll probably spend what's left in their wallets on a new a sexy new razor to show off all those blades.

Content owners and creators who are hoping Apple will winnow the field of Apps or move prices higher in the market, so they may realize better margins, are deluding themselves. The model is all about you fighting for your very life, against hundreds of others, so Apple customers get the best content at the lowest price (why not free). They definitely don't want any one provider getting too much pricing power within their ecosystem. Oh yeah, and remember you're playing in Apple's sandbox... so that tech innovation leveraging their platform, that's giving you some competitive advantage... Apple might just decide one day to roll that out to tout le monde.

For some small companies this highly manipulated, low-price, high-volume market provides a real opportunity. Moreover, the sheer scale of it, the shopping experience and the elegant billing mechanism makes it an important place to play for all content providers. But iTunes is a very dangerous market in which to place all your bets. In terms of closed markets, content owners should ultimately be favoring those in which the owner's interests are more closely aligned with their own. More importantly, if we hope to see a healthier mobile content ecosystem, content owners and creators need to support, and advocate for, more open standards and markets.