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A couple of days ago we noted comments by mobile games publishers worried about the effects of carriers outsourcing the running of their gam…

A couple of days ago we noted comments by mobile games publishers worried about the effects of carriers outsourcing the running of their games portals. Tony Pearce, CEO of Player X (which has signed a couple of these outsourcing deals), sent in a response defending the deals. “It depends on the carrier and publisher. Generally, Tier 1 publishers keep the same revenue share. Player X provides services to the carrier (e.g. portal management, QA) which then passes on this cost to the publisher. This is a one-off flat fee that does not eat into the publishers’ revenue share, and hence the developers’ share,” wrote Pearce. “With Tier 2 publishers, Player X receives a revenue share that is similar to what they would have paid to go through an aggregator. Such publishers get value by having a route to market which would have otherwise been blocked altogether. Yes, they make less than having a direct deal with a carrier but the cost involved in having a sales team in place would be more than the revenue share paid to us – therefore good value to them and to the developers they work with.” As such, Pearce claims that “by Player X working this way with carriers, publishers are making more money this way then when the carrier had control of the portal. This can only be good news for the developer”.

If the companies which take the job of running the portal add value it makes sense it would be good for the industry and therefore a good thing to do — but the carriers passing on the cost to publishers is a bit disingenuous. If the carriers are passing off the job of running the portal they should also pass off some of the revenue. These deals may improve the mobile games portal and therefore be better for the mobile games industry, and it would improve even more if developers had a bit of leeway to make better games and take more risks with new IP, and that requires a higher share of the final revenue…

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  1. The earlier the operators are relagated to their true position as "dumb bit pipe" the better. For years, they tried to behave as if they were media companies – without, in most cases, ever acting as such.

    But the current situation, as described by Player X, represents an awkward intermediate step which hopefully will not last for long.

    It honours Player X if they really try to add value…. but this is certainly not the intention of most operators (and their outsourcing partner for that matter) who currently contemplate the outsourcing of their downloadable games services. And also Player X will lack the resources that are required to really have an impact on the market: they can play the game of micro-optimizing the portal revenue by good content selection, prizing, presentation etc. But they cannot overcome the basic flaw of noone seriously investing in real enduser marekting.

    This should have been the task of operators ! But they rarely ever cared about adding value – their game was mostly about syphoning value out of the chain for doing next to nothing. We remember: the revenue share to be found in place in most cases (50/50) was very often justified with the important marketing contribution of the operator. The usual argument ran: 10% for hosting, 10% for invoicing, 30% for marketing.

    As we all know, there is rarely any marketing worth this name for mobile games anymore, besides the pure existance of the portal. In particular, operators contribute next to zero in addressing new audiences. Instead, they prefer to concentrate their marketing fire power on the new fashion of the day (mobile TV, access flat-rates anyone ?).

    So the justified part of the operator in the mobile games value chain can be estimated at a generous 20% (for hosting and invoicing, that's not bad).
    But instead of going down to a value in this area ("If the carriers are passing off the job of running the portal they should also pass off some of the revenue. "), a lot of deals currently negotiated tend to go the other way:

    Give me more money for doing less !

    Cases are not uncommon where operators opt for aggregators that are willing to live on 40% of the revenue BEFORE pay-out to publishers. This means that the real pay-out to normal publishers is usually between 20 and 30% – and even Tier1 publishers would be at or below the 40% revenue share level.
    This shows the complete and entire non-interest that the subject of mobile games still has for these operators. They simply assume that they have a captive market of x downloads per month for which they are determined to maximize the part that stays with them – without investing anything in developping and extending the market.

    Well, why do the chicken cross the road ? Because they can !

    The operator assumption of a captive market is true in short term – they control the traffic and thus determine who's content is being downloaded or not.
    But it's a recipe for desaster for the overall industry – and it's high time that someone else steps in and fills the power vacuum that the operator leaves by surrendering his active participation in the value chain. As soon as there'll be someone who can offer growing mobile traffic streams and a more reasonable business model, you'll see publishers run for that door…

    Luckily, operators are working themselves towards this, pushing data access as product. Noone spends more money in ATL-spending-terms on building the brand names of Google, Yahoo, eBay or MySpace then Vodafone, t-mobile and their likes.

    With these names (plus, hopefully, some new, smart mobile start-ups), there's at least a chance that they'll act as true media companies, offering the conent industry a real, sustainable eco-system they can strive in.

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