When the video game industry’s leading execs converge at E3 later this month, they’ll be able to choose from no fewer than five seminars on how to start producing games for cell phones. And it’s easy to see why since this could be a watershed year for the US$2-billion global mobile gaming biz.

Sales are doubling annually; and in the U.S. alone, Framingham, Massachusetts-based research firm IDC is forecasting the market to expand from US$345 million in 2004 to more than US$1.5 billion by ’08. Rapidly advancing mobile phone technology and bigger data pipelines established by the wireless carriers are delivering a richer game-playing experience that’s attracting new dedicated gamers to the space.

The big three console players are also beginning to devote development and marketing dollars to the medium because, as Larry Shapiro, executive VP and GM of Disney’s Internet Group, puts it: ‘500 million people are walking around with portable, network-aware gaming computers in their pockets. That used to be something console companies could only dream of.’

But the over-riding question for kids entertainment players thinking about getting into mobile games still remains: Is it a worthwhile space to be in? In seeking the answer, it’s important to keep in mind that the mobile market functions quite differently from the traditional video game arena. But that caveat aside, the bottom line is that kids are turning to their cell phones for games.

It’s been established that phone ownership among tweens and teens is rising rapidly. According to market researcher The NPD Group’s recent Kids & Consumer Electronics Survey, 22% of U.S. kids ages nine to 11 own their own phones, and that number spikes up to 54% with 12- to 14-year-olds. Wireless entertainment producer Sorrent’s second annual consumer research report reveals that kids between the ages of 10 and 13 are the heaviest users of mobile games. A full 84% of Sorrent’s tween respondents say they play mobile games more than once a day, compared to 64% of the larger test group of 10- to 35-year-olds. And 20% play five times a day, adds Jill Braff, VP of marketing for the San Mateo, California-based company.

In terms of broader mobile game usage across North America and Europe, casual gamers looking to kill 10 or 15 minutes are the most active downloaders. They tend to grab games from their wireless carrier’s deck for US$5 on average, and for the most part, these are fairly simple JAVA offerings based on puzzles, card games and activities such as pool and bowling. In fact, the most popular mobile game so far is the console classic, Tetris. More complicated, data-heavy action-adventure games are starting to appear on phone decks, but they still represent a sliver of what’s available.

Just as consumers of mobile games differ from consumers in the traditional vidgame space, so do mobile’s development and distribution models. On the plus side, mobile games are relatively cheap and easy to produce. A typical JAVA title costs between US$50,000 and US$100,000 to develop and can go from drawing board to delivery in about three months. By contrast, it can take as much as US$20 million and several years to develop original games suitable for consoles.

Distribution-wise, because mobile games live in the digital realm, there’s no physical product to manufacture and ship to retailers, whereas video games have to slug it out for mass-market shelf space.

While bleeding-edge high-tech models continue to come out of Japan, the majority of phones in the market right now have limitations. It’s important to remember that mobile phones are designed and marketed primarily as phones; internet-surfing, gaming and sound features still take a backseat to core functionality, so screens are small and game controls are sometimes awkward to operate. There are also hundreds (if not thousands) of phone models available, so a mobile producer will often have to work from a master game file and publish 100-plus versions to achieve widespread distribution. Because of this, most games can’t currently make the most of the intrinsic characteristics of each and every mobile phone.

4Kids Entertainment CEO Al Kahn says these are precisely the reasons why he hasn’t licensed any properties from the company’s impressive library into the mobile space yet. ‘I think things have to be designed for the platform,’ explains Kahn. Once you have games constructed specifically to fit the small screens and technical parameters of the phones, the business will really take off with kids. Kahn adds that when licensors are looking at kid mobile gamers in particular right now, their phones are likely to be on the less expensive, lower-tech side, making it even harder to offer them the level of gaming sophistication they’re used to getting from their consoles.

Braff notes something else that seems to bear out Kahn’s line of reasoning. When Sorrent researchers asked respondents what they wanted to see in new mobile games, Braff says features such as 3-D graphics, more sensitive controls and action-oriented, multiplayer content that mirrors console and PC games were mentioned repeatedly.

Device technology is catching up (see ‘Are handsets and handhelds on a collision course?’ on the opposite page). But Peter Walkins, VP of marketing and sales for the U.S. arm of French mobile content producer IN-Fusio, says kids will buy simpler games in the meantime, especially if they’re designed specifically for them. IN-Fusio’s best-selling game SKUs are those that can play on the low-end, low-tech handsets kids typically own. Walkins says School of Rock Audition, based on the 2003 feature film starring Jack Black, is a good example. This simple game could be mastered by anyone, but kids really dug the free wallpapers and ringtones they received as prizes for winning.

Successes like School of Rock also point to another market reality: Branded and licensed games are becoming increasingly important in the mobile space worldwide, and this bodes well for licensors with hit properties.

Braff, Walkins and THQ Wireless director of global marketing Jeff Nuzzi all note that mobile game publishers aren’t working with tons of time or space in their quest to attract business. ‘If you’ve tried to download from the deck of a phone, you’ll know that consumers only see about 18 characters describing the content,’ says Nuzzi, so they tend to gravitate towards licensed properties they know.

To tap into this usage pattern, THQ Wireless has published mobile games based on SpongeBob SquarePants, Hello Kitty and various professional sports leagues, and it plans to release a whole suite of Star Wars mobile games and activities this month. For its part, IN-Fusio has licenses for Tomb Raider and South Park, and Sorrent recently released games, ringtones and wallpapers based on Fox’s Robots and holds rights to several Cartoon Network shows. All three companies are actively hunting for licenses with global potential, and they’re keen to connect with companies willing to enter into multi-property partnerships. The most common deal structure sees game revenues split evenly between licensor, publisher and carrier.

Looking down the road into 2006 and putting an emphasis on moving beyond the stand-alone game model, some mobile publishers are also looking for brands and licenses that lend themselves to a multiplayer, community-based gaming experience. But the Gamecrew division of Madrid, Spain’s Zinkia Entertainment has already forged ahead with just such a game.

Targeting users ages 10 to 30, soccer game COPA Coca-Cola Mobile will launch with Spanish wireless provider Telefónica Móviles this month before moving to Europe’s Vodafone service later in the year. The two-player title centers around a wireless community where players can square off against each other and chat via text-messaging. Gamecrew project manager Miguel Aldasoro says COPA will be a free download, but users who choose to pick it up are automatically signed on to a subscription service, for which their carrier will bill them US$1.95 a month.

Zinkia also plans to launch its own mobile game community on Telefónica in the next three months, and director of business development Maria Doolan says she’s after entertainment licenses to apply to the company’s proprietary, mutliplayer game technology.

IN-Fusio is also betting on community to fuel its next evolution in mobile. In Q3, the company is bringing the Neopets on-line phenomenon to mobile users. The five-year-old website boasts 25 million registered users worldwide, 40% of which are tweens. The new wireless-to-web application will let kids monitor their virtual pets by cell phone, as well as buying and selling virtual items on their web-based Neopian storefronts. Multiplayer and real-time strategy games will play a big role in the mobile offering too, and the plan is to develop exclusive titles that contain codes for unlocking hidden features on the website and for interacting with on-line users. Any NeoPoints earned by playing the mobile games will also be transferred automatically to the user’s on-line account.

Are handsets and handhelds on a collision course?

Looking at the newest mobile phone technology coming down the pipe, you may find yourself asking if there’s anything a phone can’t do these days. Take the Motorola E680, for example. It has a full-color VGA display that measures four inches and can be held sideways for gaming, and its browser keys sit on the side and function more like the buttons and toggles on a console game controller. But the bells and whistles don’t stop there. The E680 has video capture and playback apps, stereo speakers, an integrated MP3 player, expandable memory and a built-in camera.

Phones like this can support rich 3-D graphics and have enough horsepower for super-quick gameplay. And they are inspiring new forms of mobile games that incorporate GPS, Blue Tooth and camera functions.

Of course, kids aren’t likely to adopt these cutting-edge phones until production goes mass and retail prices come down, but you have to wonder what this means for the future of portable handheld gaming devices. Gameplay on these high-tech phones still can’t compete with new handheld systems such as Sony’s PSP and Nintendo’s DS, which are primarily dedicated to video games. At typically US$50 a pop, these portable players’ game cartridges are certainly more expensive than mobile game downloads, but they are currently sating the on-the-go needs of the hardcore gamer crowd. They’re also Wi-Fi enabled, so realtime multiplayer games over the internet will soon be possible for users in wireless hotspots found in urban centers. But what about 18 months from now?

Clint Wheelock, VP of wireless research for NPD, says cell phones and handhelds are headed for convergence. Imagine what wireless capabilities that allow you to connect to the web from anywhere could do for multiplayer gaming on a platform like the PSP. Admittedly, Wheelock says the first iteration of such a device, the Nokia N-Gage, has failed to catch fire. Nicknamed ‘the Taco’ by some game aficionados because of its size compared to today’s tiny phones, 2003’s N-Gage functions as a phone and uses game cartridges. It’s a decent gaming device, but not especially useable as a phone, says Wheelock. Nokia is expected to launch a next-gen N-Gage at E3, but the company’s keeping mum on details right now.