Apple takes big bite in games market

Apple Inc.'s iPhone has shaken up the cell phone business. Its next target: Nintendo Co. and Sony Corp.

The iPhone and its sister device the iPod touch, which feature big screens and powerful graphics, are emerging as serious competitors to Nintendo's DS handheld and Sony's PlayStation Portable.

Established game publishers such as Sega Corp. and Id Software Inc. are devoting more resources to Apple's devices while firms dedicated to making iPhone games have sprung up. Already, nearly 2,000 iPhone games are available.

Developers are being lured by Apple's online method for delivering games, which has lowered distribution costs and made it possible to profit on games that sell for just a few dollars or are given away with advertising.

Apple keeps 30 percent of the proceeds of software sales through its App Store clearinghouse. But even with that split, “games sold via the App Store are the most profitable in terms of any of the formats we work on,” said Simon Jeffery, the U.S. president of Sega.

Sega has sold more than 500,000 copies of a $10 game called Super Monkey Ball for the iPhone and iPod touch.

The game, in which a player navigates a rolling orb around mazes by tilting the device, has reached a sales level that Sega says would be considered a hit for a DS or PSP game, which can cost up to $40.

“It feels to me like there's a real threat to their (Sony's and Nintendo's) business from the iPhone,” said Neil Young, a longtime executive at games publisher Electronic Arts Inc. Young quit EA this year to form a startup, Ngmoco Inc., dedicated to publishing iPhone and iPod touch games.

Apple, which has sold more than 13 million iPhones so far, has attacked the mobile games market in recent months by wooing game-industry executives, hosting technical meetings with game developers and touting games in a new iPod touch commercial.

“I think the iPhone and iPod touch may emerge as really viable devices in the mobile games market this holiday season,” said Steve Jobs, Apple's chief executive and co-founder, in an interview.

Of the more than 200 million copies of programs that have been downloaded through the App Store, Jobs said about a quarter were games. Most of these downloads are free software that Apple hopes will feed demand for its devices.

Even before Apple moved into games, Nintendo saw itself competing with them, said Reggie Fils-Aime, president and chief operating officer of Nintendo's U.S. division. “Whether you chose to play on your DS or listen to music on your iPod, we're already in the same competitive space for time,” Fils-Aime said.

Sony doesn't consider Apple as big a threat because gaming is secondary to its devices, said John Koller, director of hardware marketing for Sony's PSP. “The consumer is using the mobile gaming on the iPhone and iPod Touch as a time waster,” he said.

Still, some game developers are choosing Apple over Nintendo or Sony because there are no pricey game cartridges to manufacture for the iPhone and there is no need for a retail distribution network.

“The barriers to entry are such that anyone with a great idea can efficiently bring them to market,” said Bart Decrem, a Silicon Valley executive who formed a company called Tapulous Inc. to make iPhone games earlier this year.

So far, Decrem has had more than 2.5 million downloads of a free music game called “Tap Tap Revenge,” where players tap and shake their devices to the beat of popular tunes.

This story was originally published November 13, 2008 at 12:00 AM with the headline "Apple takes big bite in games market."