The mobile games market is set to decline this year for the first time since the dawn of the smartphone era, as the once fast-growing sector is hit by rising advertising costs, falling consumer spending and the end of the coronavirus pandemic’s acceleration to. player engagement.
Mobile games have been around since Nokia Snake in the late 1990s but the arrival of Apple’s App Store in 2008 sparked more than a decade of extraordinary growth, turning them into a $100 billion market that now accounts for half of gaming’s total revenue.
Revenues are expected to fall 6.4 percent this year to $92.2 billion, according to gaming data firm Newzoo, a sharp reversal from the 7.3 percent growth mobile saw last year and a 25.6 percent increase in 2020 as lockdowns led to an increase in consumer spending. appetite for virtual entertainment.
Another research group, Ampere Analysis, last month lowered its forecast for the year to a 6.4 percent decline, or $6 billion less than 2021, driven by weakness in the United States, China and Japan, the world’s biggest gaming markets. Ampere 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 costumes or in-game currency drop by 15-20 percent, according to three senior industry insiders.
This comes as the entire games industry has faced a slowdown this year, following a surge in demand and profits during the pandemic, along with supply chain issues that have also slowed sales of the latest PlayStation 5 console.
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Reporting their latest quarterly earnings in November, executives at Take-Two Interactive — the Grand Theft Auto publisher – which completed its $12.7 billion acquisition of mobile company Zynga in May – blamed “current macroeconomic conditions” for putting in-app purchases “under some pressure”, with mobile suffering more than its console titles.
While video games have proven resilient during previous recessions, this downturn is the first in which free-to-play mobile games are the dominant source of revenue for the industry.
It has left some executives questioning whether cash-strapped consumers will continue to invest in a favorite title when there are so many free games available.
“This is an affordable form of entertainment,” said Soner Aydemir, co-founder and chief executive of Dream Games, whose Royal Match program was one of the few new successes this year. Players usually spend about 40-50 minutes Royal Match every day “It’s like a TV series.”
The downturn in gaming has already hit the wider digital economy. Gaming has become one of the biggest sources of revenue for digital advertising platforms and mobile stores, accounting for tens of billions of dollars in marketing spend and sales commissions.
The parent of Facebook, Meta, Apple and Google pointed to the slowdown in gaming as a drag on its most recent quarterly results, as several Big Tech companies disappointed Wall Street.
Some of the mobile gaming companies that have benefited the most during the pandemic have been forced to make radical changes this year to adapt to macroeconomic conditions.
French-based Voodoo became one of the largest publishers on the App Store, measured by downloads, such as titles such as Helix Jump and Hole.something rode the trend for “hyper-casual” games that were quick to develop, hard to beat and fueled by cheap advertising.
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But a 15-20 percent increase in advertising costs made it more expensive to acquire new players and much more difficult to launch new games.
“We had to change our whole strategy to less casual games, to casual and more traditional games,” said Alex Yazdi, co-founder and CEO of Voodoo, which means fewer games with higher production values that generate more loyalty from. players
Dmitry Bukhman, co-founder of Playrix, the creator of Garden landscapes and Home landscapes that is now one of Europe’s biggest mobile developers, believes that last year’s “crazy period” of start-up funding, especially in e-commerce and fintech, has led to a marketization that has priced out game companies.
Bukhman believes that this trend is diminishing and this year’s decline is not as bad as it looks, after adjusting for factors such as exchange rates, inflation and the disappearance of the Russian market for most foreign companies.
However, he sees a bigger problem ahead: that mobile gaming is maturing and perhaps even reaching saturation. He said some established games with a loyal following increasingly dominate the market. “The pace of innovation has slowed.”
Others in the app industry prefer a simpler, short-term explanation for their problems: Apple’s new restrictions on targeted advertising. Last year, an iPhone software update required developers to get users’ consent for tracking — a policy known as App Tracking Transparency, or ATT — and most people opted out.
The shift wiped out billions of dollars in ad revenue from Facebook, Twitter, Snap and YouTube last year, and the games industry is still struggling with the fallout. Many developers who thrived on being able to target players who were likely to spend heavily on their games, based on their behavior, were no longer able to do so.
“What has been lost in terms of effective marketing money that you can invest has not been regained from other channels,” said Alexis Bonte, chief operating officer of Stillfront, a Sweden-based online gaming group. “Games that don’t have strong intellectual property and have relied on performance marketing, they’re struggling.”
It looks to be the biggest beneficiary of the mobile gaming shakeup Candy Crush Saga, the 10-year-old puzzle title that has remained the top-grossing game franchise in US app stores for 21 quarters straight. Activision Blizzard, which owns Candy Crushbucked the industry trend with a 20 percent increase in mobile network bookings in the third quarter.
“When there are thousands and thousands of games coming out every day, having a strong, trusted brand has always been extremely valuable to us,” said Todd Green, CEO of Candy Crushthough he said the team has done a lot of “detailed craft work over several years” to improve gameplay and retain users.
Green said he is “very optimistic” about the future of mobile gaming, adding that there are many markets in the world where smartphone penetration will grow significantly.
While most share that long-term hope, few in the industry agree on how soon the recovery will come.
Strauss Zelnick, the chief executive of Take-Two, said he expected “three to six more months of downward pressure”. “I expect by the end of ’23, we’ll be in good shape.”
But Robert Antokol, co-founder and chief executive of Playtika, known for its casino games such as slotomania and Bingo Blitz, believes the recession could last as long as 18 months. Playtika said this week it would cut about 600 jobs — 15 percent of its workforce.
“The market, as you can see, is unpredictable,” said Playrix’s Bukhman. “It’s hard to say next year what exactly will happen. We hope we will grow.”
