Mobile games: #1 buys #1
The cost of developing new electronic games for the Xbox or PlayStation is estimated by one source as reach $15 to $20 million. That's getting into the territory of some Hollywood movies. And if you've noticed, the TV ad campaigns for new blockbuster electronic games are beginning to match those for new movies.
All this has led to major consolidation in the console and PC-printed games market, where start-ups have little chance. As a Wall Street Journal article ("A Gold Rush for Game Makers". 10/11/05) points out:
The capital requirements of making console games and the dominance of top publishers like Electronic Arts Inc., Activision Inc. and THQ Inc. are two reasons why there's little venture capital or IPO activity in the game industry outside the mobile market.
That mobile market consists of games for cell phones and other mobile devices. It's a relatively new market, but it has already attracted over a billion dollars of venture capital. Mobile gaming has three big advantages:
- Game development is far less expensive (in the $200,000 area)
- There are no established players yet
- New color screens are making games more attractive
- The potential market is enormous, with over two billion cell phone owners across the world.
Naturally this is attracting the attention of the big game companies, who can't afford to be left out of this market. Electronic Arts, for example, just announced the purchase of Jamdat Mobile Inc., the leading mobile game company, for $680 million. Jamdat has, among other games, the cell phone version of the ever-popular Tetris. Electronic Arts has for years tried to het into the mobile market with little success' the Jamdat deal gives it instant credibility. Jamdat has a 30% market share in mobile games, while its main competitors have only a 5% share.
So it's the #1 electronic games company buying the #1 mobile games company, proving once again that small and innovative players exist mostly to be gobbled up by etsablished players. And the role of venture capital is to grow small companies that will be snapped up at a premium by the big fish.
