The mobile games market is expected to decline this year for the first time since the start of the smartphone era, as the once fast-growing sector is hit by rising advertising costs, a drop in consumer spending and the end of of the coronavirus pandemic push for player engagement.
Mobile games exist since Nokia Snake in the late 1990s, but the arrival of Apple’s App Store in 2008 launched more than a decade of extraordinary growth, turning them into a $100 billion market which now accounts for half of the gaming industry’s overall revenue.
Revenue is expected to fall 6.4% this year to $92.2 billion, according to video game data firm Newzoo, a sharp reversal from the 7.3% growth mobile saw last year and 25.6% in 2020 when lockdowns boosted consumer appetite for virtual entertainment.
Another research group, Ampere Analysis, last month lowered its forecast for the year to a decline of 6.4%, or $6 billion less than in 2021, due to weakness in the United States. , China and Japan, the largest gaming markets in the world. Ampère called it a “wake-up call for the industry”.
Some of the world’s top mobile games have seen their revenue from in-app purchases of extra lives, virtual outfits or in-game currency drop by 15-20%, according to three senior industry officials.
It comes as the wider games industry has faced a downturn this year, following a surge in demand and profits during the pandemic, as well as supply chain issues that have also held back sales of the latest PlayStation 5 console.
Presenting its latest quarterly results in November, the leaders of Take-Two Interactive – the Grand Theft Auto The publisher – which completed its $12.7 billion acquisition of mobile games company Zynga in May – blamed ‘current macroeconomic conditions’ for putting in-app purchases ‘under some pressure’ as mobile suffered more than its console titles.
While video games have proven themselves in previous downturns, this downturn is the first in which free-to-play mobile games are the industry’s main source of revenue.
This has left some executives wondering if cash-strapped consumers will continue to invest in a favorite title when there are so many free games available.
“It’s an affordable form of entertainment,” said Soner Aydemir, co-founder and CEO of Dream Games, whose Match Royal app was one of the few new hits this year. Gamers typically spend around 40-50 minutes on Match Royal each day. “It’s like a TV series.”
The slowdown in gaming has already hit the broader digital economy. Gaming has become one of the biggest sources of revenue for digital advertising platforms and mobile app stores, accounting for tens of billions of dollars in marketing spend and sales commissions.
Facebook’s parent, Meta, Apple and Google pointed to the slowdown in gaming as a drag on their latest quarterly results, when several Big Tech companies disappointed Wall Street.
Some of the mobile game companies that have benefited the most from the pandemic have been forced to make sweeping changes this year to adjust to macroeconomic conditions.
France-based Voodoo has become one of the largest App Store publishers, measured by downloads, as titles such as Helix Jump and Hole.io followed the trend of “hypercasual” games that grew rapidly, were hard to beat, and fueled by low-cost advertising.
But a 15-20% increase in advertising costs has made it more expensive to acquire new players and much more difficult to launch new games.
“We had to change our whole strategy to move towards less hypercasual games, more casual and more traditional games,” said Alex Yazdi, co-founder and CEO of Voodoo, which means fewer games with production values higher which generate more loyalty from players.
Dmitry Bukhman, co-founder of Playrix, the creator of garden landscapes and Homescapes it is now one of the largest in Europe mobile game developers, believes that last year’s “crazy period” of seed funding, particularly in e-commerce and fintech, led to a marketing frenzy that sent game companies prices crashing.
Bukhman believes that the trend is easing and that this year’s downturn is not as bad as it looks, after adjusting for factors such as exchange rates, inflation and the disappearance of the market. Russian for most foreign companies.
However, he sees a bigger problem ahead: that the mobile gaming industry is maturing and perhaps even reaching saturation. He said certain established games with a loyal following are increasingly dominating the market. “The pace of innovation has slowed.”
Others in the app industry prefer a simpler, short-term explanation for their woes: Apple’s new restrictions on targeted advertising. Last year, an iPhone software update required developers to get user consent to tracking — a policy known as App Tracking Transparency, or ATT — and most people didn’t. do.
The change wiped out billions of dollars in ad revenue across Facebook, Twitter, Snap and YouTube last year, and the gaming industry is still grappling with the fallout. Many developers who had successfully targeted gamers who were likely to spend big on their games, based on their behavior, were no longer able to do so.
“What has been lost in terms of effective marketing dollars you can invest has not been recouped through other channels,” said Alexis Bonte, chief operating officer of Stillfront, an online gaming group based in Sweden. “Games that don’t have strong IP and relied on performance marketing, they struggle.”
The biggest beneficiary of the mobile gaming crisis seems to be Candy Crush Saga, the 10-year-old puzzle title that has remained the top-grossing game franchise in US app stores for 21 consecutive quarters. Activision Blizzard, owner candy Crushbucked the industry trend with a 20% increase in mobile net bookings in the third quarter.
“When there are thousands and thousands of games coming out every day, having a strong and trusted brand has always been very valuable to us,” said Todd Green, chief executive of candy Crushalthough he said the team had done a lot of “detailed craftsmanship over several years” to improve gameplay and retain users.
Green said he was “very optimistic” about the future of mobile gaming, adding that there are many markets around the world where smartphone penetration is expected to increase significantly.
While most share this longer-term hope, few in the industry agree on how quickly the recovery will happen.
Strauss Zelnick, chief executive of Take-Two, said he expected “a further three to six months of downward pressure”. “I expect that by the end of 23 we will be in good shape.”
But Robert Antokol, co-founder and managing director of Playtika, known for his casino games such as Slotomania and Flash Bingo, estimates that the recession could last up to 18 months. Playtika said this week it would cut about 600 employees, or 15% of its workforce.
“The market, as you can see, is unpredictable,” Playrix’s Bukhman said. “It is difficult to say next year what will happen precisely. We hope we will grow.