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The 'End of the Beginning' at E3

The 'End of the Beginning' at E3

As a platform for games and entertainment, the mobile phone seems to have ascended to a position that now demands serious attention. At the E3 convention in Los Angeles this past May, it seemed that an entire generation of growth and development had occurred in less than 12 months.

E3 (Electronic Enter-tainment Expo) is the video gaming industry's largest gathering, and it is now clear that traditional game developers and publishers not only recognize the potential of mobile entertainment, they are ready to embrace it.

At this time last year you didn't see video game giants like Sega, UbiSoft, and THQ with mobile aspirations. At E3, these traditional console game publishers were showing off the results of their partnerships and newly formed wireless divisions. By this time next year, it's likely that every major game developer will have a wireless strategy to push their brands onto the newest wireless handsets. But it is still a parallel universe of opportunity. Most recognize that offering revenue-generating entertainment on the handset requires not only a different skill set, but also a different thought process.

Brands may be portable from one medium to the next, but technical and business competencies in the wireless realm can be worlds apart. At a standing-room-only E3 press conference hosted by the Mobile Entertainment Forum (MEF), a panel of today's thought leaders shared their opinions on the divergent operating procedures of individual mobile operators. Considering the myriad forms that entertainment can assume, such as SMS trivia and dating games, Tamagotchi virtual pets, downloadable ringtones and graphics, location-based games, combat and action sports, and their multiplayer combinations, it's no wonder that it's still a brave new world of opportunity...and confusion.

Successful games on DoCoMo might not be transferable to Cingular, SK Telecom, T-Mobile, Nextel, Orange, or Verizon. Then again, they might. Throw FOMA, J2ME, BREW, Symbian, and Microsoft's SmartPhone into the equation and you'll need to speak to some of the trailblazers that I caught up with at E3.

An International Lineup of Exhibitors
Boost Mobile was there. Mark Fewell, director of media, describes his company as a lifestyle-based mobile phone company directly targeting the youth market. The company will launch in the U.S. with Nextel later this summer after successful debuts in New Zealand and Australia. "We are presently working on a range of games that Boost Mobile customers will be able to download over the Internet," he says.

Konny Zsigo, president of WirelessDeveloper, was there. He estimates that there are 1,500 active developers creating mobile entertainment applications today, though only a third have seen any real revenue. And he sees a dramatic disparity among developers in the wireless entertainment space. "Some developers barely scrape by while others rake in revenues of six or even seven figures per title. It all comes down to 'who you know.'"

It's increasingly difficult for new developers to navigate worldwide distribution channels for their applications, and WirelessDeveloper serves as an agent in this capacity.

Korean companies made some noise at the show, as a part of the Korean Pavilion, hosted by Game Infinity (the Korean Game Development & Promotion Institute). MTaff showed off their RING (Real-time Interactive Network Graphics) media system for 3D graphics on mobile devices. The company was created by Taff System (Kosdaq:TAFF) of Seoul, and now has a U.S. subsidiary (3d4W) to handle licensing.

GameVil, armed with investment capital from Hyundai and Samsung, has seen their revenue double over the past six months. One of their hottest offerings is "The Great Merchant of Venice," which is a mobile trade simulation and among the most popular games on the SK Telecom network. They also serve LG Telecom and KTF, and the company expects to see worldwide distribution increase as more robust networks are launched outside of Asia.

WiderThan.com, also of Seoul, showed off their cross-platform content in the form of "real-time" Chinese chess, bingo, and poker, which could be played across wired and wireless networks simultaneously. They are also active in incubating content developers, as well as VoiceXML and messaging applications.

While Korean mobile endeavors haven't received the same degree of attention in the worldwide press as those in Japan, they are equally groundbreaking. Just three weeks after E3, Nokia Venture Partners announced they had opened an office in Seoul and pumped $5 million into WiderThan.com, their first investment in Asia.

JAMDAT Mobile (profiled in WBT, v.1, issue 7) continues to sail along and now seems to have joined the short list of companies that you must consider doing business with, whether you're a mobile operator or a game developer. Now well beyond the WAP "Gladiator" phase, they offer a wide array of entertainment for new color handsets and well-branded content such as "Yahtzee," "Scrabble," and "Boggle". They even had QUALCOMM representatives in their booth, showing off the latest entertainment applications that are a part of Verizon's new BREW-enabled service.

Scotland's Digital Bridges has been a front-runner in this space since 1998. Their partnerships with leading media publishers allow global brands such as "Star Trek," "Men in Black II," and "Scooby Doo" to migrate to the handset, along with classic arcade games like "Space Invaders." They also announced at E3 that they had received a strategic (undisclosed) investment from Openwave (Nasdaq:OPWV), adding to the $26 million in venture capital they've raised since 2000.

Kevin Bradshaw, the founder and former CEO of Digital Bridges, resurfaced earlier this year with his strategic advisory, management, and investment group MTGP (Machines That Go Ping). He moderated the MEF panel at E3 and counts several startup mobile entertainment ventures among MTGP's current portfolio of clients.

In order to create sustainable revenues from an increasing variety of entertainment options, wireless operators need "to have clear control and measurement ­ over both the user experience and the services provided ­ along with unified subscriber and billing interfaces, and a containment of costs," says Gary Roshak, VP of business development at Seattle-based Mforma. To date, his company has over 500 registered developers and 170 applications in all formats including: WAP, SMS, EMS, MMS, J2ME, and VoiceXML.

Mforma also provides the platform for the delivery of games to operators such as Cingular, which launched Animobile's "Spider-Man" just as the movie ascended to number one at the box office. Impressive accomplishments for a company formed just over a year ago, with four acquisitions under its belt: Indiqu, Inc., NearMe, Inc., Cosant, and HandsOn Network, Inc.

Another trailblazer making the rounds at E3 was Rann Smorodinsky of Netanya, Israel-based Cash-U, who also serves as the chairperson for the MEF. "The wireless games sector is slowly maturing and a clear value chain is formed ­ developers, publishers, distributors, ASPs, operators, and technology providers," he says. His company's mobile entertainment platform, called Pecan, has carved out a significant position in the value chain and attracted over $18 million in recent funding from Greylock, Fidelity Ventures, Pitango, Intel Capital, Chase Capital Partners, and Aroquest.

Montreal's Hexacto has hitched their wagon to Microsoft's SmartPhone and showed off their high-resolution sports portfolio on a Sendo handset. Gameloft displayed their new games for Motorola's color handsets. You didn't have to look far to find wireless apps among the 400+ E3 exhibitors. Next year there will be three times as many.

We are at the "end of the beginning" of this sector's development, according to Matthew Bellows, cofounder and publisher of Wireless Gaming Review. He feels strongly that "the pieces for a sustainable industry segment are now in place."

Coming out of E3, there is a high degree of new interest in mobile entertainment, polyphonic ringtones and image sharing (in the form of MMS), and a new leading class of companies that is sure to swell as more vendors seek a share of future revenue.

Mobile entertainment's heyday is fast approaching as the combined forces of new world multimedia handsets, robust new data networks, investment capital, and developer interest in wireless apps converge.

More Stories By Tim Bresien

Tim Bresien is WBT's VC editor, the principal consultant with infraStar, Inc., and a freelance writer covering investments in the wireless communications sector. He is a former research analyst with the telecommunications consulting firm of Bond & Pecaro, Inc., Washington, DC, and a cofounder of the Telecom Investor Forum, held annually at SUPERCOMM.

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