Glu: iPhone will evolve like the carrier business
And smaller developers will become less important
We have all witnessed the ability of small games shops and one-person developers to be successful on the iPhone with a well executed game idea, he said during the publishers analyst call last night, following the announcement of its Q4 2008 results.
Given the sheer number of players at this early juncture, we dont believe that success on the iPhone should be measured by market share. Even single-digit market share can generate profitable and sizeable revenues in 2009.
However, over time, Ballard expects this to change. The companies that stay focused on this opportunity will become increasingly successful, and frankly those companies without the resources will likely become less important players, he continued.
In this sense, we believe that the iPhone will evolve in a manner not dissimilar to the evolution of the carrier-based mobile business, or for that matter nearly every entertainment content business in the last 50 years.
The big problem with this line of thinking is that, while squeezing out the little guys has been good for Glu, Gameloft and EA Mobile in the carrier space, its not been a barnstorming success in terms of the overall size of the market.
However, Ballard puts this down to other problems - specifically low revenue shares - and says this is one area where he sees the carriers evolving to be more like the App Store.
Were beginning to see movement by some carriers towards better margin splits, he said, citing the 70-30 split offered by Apple and Google as the key spurs.
Changing the economics of the carrier business will be essential to maintain publisher support. We are increasingly insisting on better margins before committing to support new initiatives, and even older platforms going forward.
Ballard also talked about Glus refocused publishing strategy, which is placing more emphasis on iPhone, Android, N-Gage and BlackBerry smartphones. Specifically, he announced that Glu will be launching four new iPhone games in the next couple of months.
Two Glu original-IP titles, based on franchises weve already developed in the carrier business, and the hit online title Build-a-Lot, said Ballard. And the fourth will be an original Glu title specifically designed for the iPhone, and about which there is significant internal excitement at Glu.
He also said the publisher has learned that to deliver meaningful revenue and profits on the App Store, a game released by a firm like Glu has to rank in the top 50 App Store chart for some time.
However, he revealed that in some ways, the company is being forced to look to original IP for iPhone success.
The console companies and even some of the casual online game companies, are developing their own titles for the iPhone. So we will not have the full range of brands for this platform, that we have for the carriers and other smartphone devices, he said.
Interestingly, Ballard said theres a difference between which brands Glu can take to iPhone and to other smartphone platforms.
While many licensors have held back licences for iPhone, the language of most of our existing contracts gives us the rights to Android, he said, while admitting that Googles platform is likely to require more customisation (i.e. porting), along the lines of BREW and Java, to make games work on a wide range of handsets.
Its telling that rather than complain about this, Ballard claimed it plays into Glus existing porting strengths in the BREW and J2ME space - and he claimed that this handset fragmentation is already appearing on Windows Mobile and BlackBerry too.
However, Ballard was keen not to give the impression that Glu is walking away from its traditional carrier business (unsurprising, given that its top four carrier channels account for 42 per cent of its revenues, with Verizon Wireless generating 23 per cent of Glus Q4 revenues alone).
The carrier market is contracting, but by no means going away, said Ballard. We have a strong line-up of titles for the carrier decks in 2009, and we will be launching these titles into a market with even fewer established players... leaving the opportunity for the remaining players to gain market share.
He cited the recent decision by THQ Wireless to focus purely on high-end devices as an example of ongoing consolidation in this way. Ballard says Glu expects to see growth in the carrier-based games market in 2009, although much of it will come from smartphones.
There was time for a note of regret, too, about Glu not jumping onto iPhone and these other high-end mobile platforms earlier.
In retrospect, we should have shifted our focus and highest level of investment away from the established carrier business to the newer platforms earlier in 2008, he said. With Gameloft in particular making hay from the App Store, it remains to be seen if Glu can play catch-up this year.
Finally, there were some more figures divulged during the conference call by Glu CFO Eric Ludwig. The publishers headcount now stands at 560, following its round of layoffs in December.
Glus top ten titles accounted for 31 per cent of its Q4 2008 revenues of $21.6 million - up from 28 per cent in Q3 2008, but down from 52 per cent in Q4 2007.
The average revenue from each of these top ten titles was $664,000, down 30 per cent from Q4 2007. Meanwhile, original-IP games accounted for 24 per cent of Glus Q4 2008 revenues, up from 11 per cent in Q4 2007, although down slightly from Q3 2008s 28 per cent.
Geographically, 54 per cent of Glus Q4 2008 revenues came from North America, 27 per cent from EMEA, and 19 per cent from the rest of the world. Thats a shift from Q3 2007, when the split was 49-29-22 between those two territories.
Ludwig restated Glus intensions of being cash-flow positive from operations in 2009, and said the publisher will take whatever measures necessary to achieve this.