Bucking the Recession in Mobile Gaming
In data.ai and Deconstructor of Fun’s latest collaborative report, we dive deep into a comprehensive analysis of the mobile gaming sector and which genres are defying the economic slowdown.
You can access the interactive charts and download the full report here.
After soaring to new heights during the lockdowns, mobile gaming got hit by platform privacy changes and an overall decrease in engagement as the world opened up again. Nevertheless, mobile gaming represents a whopping 61% of all games revenue, a number that would be even larger should we account for all the in-app-ad revenue.
What continues to make mobile games appealing is the unrivaled player base, established distribution platforms, and performance marketing, which enables games to scale. These three factors have traditionally made mobile gaming venture capital (VC) friendly, which brings in the capital that keeps the flywheel going. Though as the market has matured and experienced considerable privacy restrictions, VCs have had to be much more analytical in their investments.
But as said, during the last year mobile gaming has encountered headwinds for the first time since microtransactions were enabled on handheld devices. The major challenge is of course privacy changes, that have made it much more difficult to scale games on iOS. These privacy changes are expected to hit Google Play in some capacity in the near future. Another challenge looming in the perhaps more distant future is cloud gaming. As device specs and internet bandwidth keeps on improving it might be a matter of time before we start seeing certain mobile gaming genres in direct competition against the PC and Console platforms that offer outsized value through their subscription services.
The mobile gaming market is mature yet constantly evolving. During the last year or so we’ve seen Google Play becoming the preferred platform for testing and launching new titles due to the fact that they haven’t implemented as strict of privacy changes as Apple’s App Store.
Privacy changes have also contributed to vertical integration as mobile gaming publishers have acquired advertising technology to have more ownership over their data. Overall, consolidation has been the name of the game during the bear market as several top mobile publishers got acquired by larger gaming companies, which in turn will lead to more gaming IPs entering the mobile gaming market.
Other evolutions impacting the mobile gaming market are court rulings around the world, which are opening up the doors to alternative payment systems. And of course, the restrictions in China, which have nearly blocked new game launches in the market forcing Chinese companies to look for opportunities outside their home market.
The maturity of the mobile games market can be underlined in the two graphs above. Firstly the number of games launched and an overall number of games in the marketplace has been decreasing for 6 years straight. And while the number of games that can generate healthy business by making over $10M in annual in-app purchase sales has steadily increased, the fact remains that the top 150 grossing games make more in total revenue than the “bottom” 247,000.
On the bright side, 25 new games reached the top-grossing chart in 2021 compared to 19 in 2020. And the time to enter the top 100 list after launching has decreased every year. In 2021 it took only 4 months on average for a new game to shoot to the top. This may be due to games that did so having ever bigger launch budgets and strong IPs to support the spending.
THE TRENDS AND WHO ARE BUCKING THEM
During the first half of the year, all main genres on mobile in the Western markets declined in revenue while the downloads continued to mount up. The decrease in spending can be attributed to factors such as limited targeting and the global slowdown of the economy. The continued increase in downloads can be attributed to some extent to publishers finding confidence in the post-ATT performance marketing environment and the increased investment to scale on Android.
CASUAL GAMES:
In casual games, the initial drop in downloads after the privacy changes on iOS was enforced was quite steep. Yet the genre rapidly recovered and is back on the growth curve. What didn’t recover is the revenue, which still trails behind.
Who is bucking the trend:
The Merge Games genre downloads continue to decline as scaling up for these games became very difficult due to the unlimited amount of new entrants and privacy changes. Yet Merge Mansion from Metacore is going against the trend. What’s really noticeable in the Merge Mansion’s stride is the investment into the narrative in both game design and the creatives.
The Idle Games have seen renewed growth with IP-driven games like The Office and RuPaul Drag Race, which are both keeping up their revenues despite the decline in downloads. Overall, East Side Games, the publisher behind these games, has shown impressive capabilities in not only implementing IPs but also driving a healthy long-term monetization outside US and iOS. (you can find out more about East Side Games’ international growth strategy here)
HYPERCASUAL GAMES
Hypercasual games downloads have gone up to new heights every year. The number of new games that hit the top of the charts decreased compared to last year while older games continued scaling. In two years downloads on iPhone have halved while Android installs have grown by nearly 50%. Google Play’s policy on banning intrusive ads will likely impact negatively the genre. Overall, the trend toward hybrid monetization is visible as the IAP revenues are up by a whopping 30% since the beginning of the year.
Who is bucking the trend:
SuperSonic and Crazy Labs (Embracer) have shown strong growth among hypercasual publishers racing to take leadership spots from Voodoo and Lion Studios (AppLovin) who have declined the most during last year.
MID-CORE GAMES
Mid-Core games are a very diverse category. It is comprised of both high userbase games with low unit economics, such as shooters, as well as games with niche audiences and whale monetization, such as RPGs and strategy games.
Despite this very diverse group of games, launching and scaling a mid-core game has become equally difficult for all of them post-privacy changes. This has led to a broader monetization strategy instead of focusing purely on targetable big spenders. We’ve also seen the launch of PC clients for cross-platform play as well as websites offering players to top up their purchases with better-valued deals.
But perhaps the most impactful change has been around collaboration with IPs, as it has helped to expand the top of the player acquisition funnel. We’ve also seen sequels and brand extensions finding success in the market.
Who is bucking the trend:
APEX Legends Mobile from EA and Diablo Immortal from Activision Blizzard both launched successfully breaking into the top 100 grossing. This, along with other examples, shows the power of a traditional gaming IP when adapted to mobile. This is also a testament to traditional console and PC publishers’ ability to finally be able to successfully expand onto mobile with their household franchises. And consequentially it means that the quality bar for mid-core mobile games is continuing to massively increase.
Riot’s Teamfight Tactics and Wild Rift had somewhat lackluster launches in the Western markets. But just before they were written off, both games were launched in China and instantly multiplied their run rates going from failure to success in a matter of weeks.
Genshin Impact from MiHoYo bucked the trend by launching cross-platform and in all key markets on day one. Since then the game has largely redefined cross-platform as well as set a new standard for what a mobile game can look like.
CASINO GAMES
Casino games were the biggest winners of lockdowns. As real-life casinos closed down, new players flocked to mobile casino games growing the audience of this very niche yet incredibly well-monetized category.
Given the high level of competition and whale monetization that relies on extremely accurate user targeting, we were sure that the category was amongst the biggest losers of the post-privacy era. After all, the return on ad spend in this genre is counted in years.
Who is bucking the trend:
We’d say the whole genre. Not because it’s growing, but because it hasn’t declined as rapidly as we had expected. Nevertheless, the long-term effects of the privacy changes are being felt already with downloads climbing while the revenue declines. Some of the largest social casino games, such as Coin Master from Moon Active have also declined after the record-breaking COVID years.
OPPORTUNITIES
While the market as a whole is declining, there are games that continue to buck the trend and not only win market share but also increase their revenue despite the shrinking pie. The winners in the current market have three strategies:
STRATEGY #1 GET CREATIVE
For years publishers were able to allow adaptive algorithms to do a part of the heavy lifting. After the privacy changes the focus has started to shift towards a deeper understanding of the target audience, relentless marketability testing, and utilizing a diverse marketing mix.
In practice, this means making creatives that tap into players’ traits over demographics and then testing those creatives through existing marketability platforms to ensure high IPM (install per thousand impressions).
STRATEGY #2 LEVERAGE IPs
In short, IPs (intellectual property) are back in demand on mobile after a long break. Where before their benefit was outweighed by effective user acquisition, now an IP that fits with the gameplay can significantly broaden the top of the funnel. The right IP is thus a great tool for a game that has a broader marketing mix to reach its large addressable audience.
But before signing off on minimum guarantees, publishers should still be analytical in their approach. Proper market research and meticulous business case modeling are necessary. And to be even more sure, publishers should test the IP’s marketability through their chosen marketability platforms before committing to it.
STRATEGY #3 LOOK BEYOND US AND iOS
English-speaking markets are typically the most valuable, in terms of the lifetime value of a player. But typically they are also the most expensive. So it's a fine balance between these high costs and also a higher return on ad spend.
Companies who succeed outside the US and iOS Don’t think about international markets as the “rest of the world” but instead focus on growth pockets making sure to localize and sometimes even gutturalize their approach when entering and winning in these markets.
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