The Companies to Watch in the Profitable World of Mobile Gaming

By Stephanie Taylor Christensen The high-tech gaming market used to be dominated by a few major players: Nintendo, Sony (SNE), and Microsoft (MSFT). Thanks to the uprise in smartphones (Nielsen estimates by the end of 2011, one in two Americans will have one), mobile gaming on a smartphone has leapfrogged over gaming on a console or computer, in just two short years. PopCap Games recently conducted a survey among respondents in both the United States and the United Kingdom in which more than half of the nearly 2,500 adults surveyed responded that they had played a mobile game at least once.

(To read why tablets will continue to be a niche product according to Evan Koblentz, click here.)

In the same study, 83% of smartphone-owning respondents said they had played at least one mobile game in the past week. Half of all gamers in the survey reporting that they upgraded a free trial game to the full or paid version in the past year. Granted, the emergence of cheap, less-than-sophisticated gaming technology has seriously lowered the customer barrier to entry to experiment with mobile games; many smartphone-powered games can be accessed for less than $1. In early March, the Associated Press reported that Nintendo President Satoru Iwata provided a bit of verbal smackdown on the mobile gaming industry at his speech delivered at the Game Developers Conference, stating that cheaply made smartphone games have "no motivation to maintain the value of gaming.”

(to read Scott Redler's piece on why it is not a time to be bearish, click here.)

Regardless of the business impact of cheap mobile games, the trend represents a huge opportunity. Smartphone owners are the fastest growing segment in the mobile industry. Recent activities prove mobile leaders are clearly resolved not to be outdone. Here are some companies to watch when it comes to the high-speed growth of mobile gaming. On March 8, Bloomberg reported that “Deutsche Telekom AG has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. (S) in exchange for a major stake in the combined entity.” If it comes to fruition, the move “would combine the third- and fourth-largest US wireless providers behind Verizon Wireless (VZ) and AT&T Inc. (T).” In February, AT&T announced a new social gaming platform on its Android phones, in partnership with the OpenFeint video game network. The social gaming community also provides a platform for game developers to create content.

(To view James Kostohryz's thoughts on why we will see positive surprises fiscally, click here.)

Qualcomm Incorporated (QCOM) recently announced an agreement with Gameloft, an industry leader in digital and online video games. (The company produces titles like SpiderMan Total Mayhem HD, Real Football 2011 HD, and GT Racing: Motor Academy HD.) The move is intended to optimize Gameloft's selection for Android-based devices, with potential for further expansion, according to the official Qualcomm release. In late February, Sony Ericcson announced the release of Xperia PLAY, called “the world's first PlayStation certified smartphone.” The device, which features a 4-inch touchscreen and slide-out controller reminiscent of Sony's PlayStation Portable controls, is a Google (GOOG) Android-based smartphone. Focused on providing the ultimate smartphone gaming experience, it includes about 50 games from leaders in gaming like Electronic Arts (ERTS), Glu Mobile (GLUU), and Gameloft. In early March, it announced a partnership with Major League Gaming, the largest professional video game league and provider of cross platform online video game competition. Later this calendar year, the company expects to expand the value of the Xperia PLAY by offering users access to an entire suite of PlayStation games, currently under development by Sony Computer Entertainment.

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