Gonzague de Vallois looks ahead to 2010.
2009 was a good year for Gameloft, it's fair to say. The company's revenues were up 11% to €122 million, with iPhone alone accounting for €17.6 million of those. Equally importantly, the company expects its operating margin to be between 8% and 9%.
iPhone was driving this growth, then, but Gameloft's Gonzague de Vallois admits that the traditional J2ME and BREW side of the business took a hit.
“Q4 was the first quarter where we saw it hit year-on-year,” he says. “The 40 million iPhones on the market are beginning to take effect. For us and EA, the drop is slower than for the others, but it is still a real drop.”
The industry is in a transition period, in other words. As Glu's recent financials showed, the speed of that transition is taking some companies by surprise. For that reason, Gameloft plans to continue its aggressive investment in smartphone gaming in 2010.
“People said that the iPhone was an exception, but no,” he says. “Yes, it's an exceptional device and store, but people will be able to replicate this type of gaming and shopping experience. We are really happy with our results on the Palm Pre in the US, for example. They are selling 200MB games in significant numbers.”
Vallois also points to the increasing number of handsets packing 1GHz processors, backed up by application stores – Samsung's Wave and bada platform being the latest example. However, he warns that devices are only half the story.
“If you have the right device but a bad store, you don't sell,” he says. “You have to make sure the delivery and billing is behind the rich gaming experience.”
Which brings us neatly onto Android. Last year, Gameloft caused something of a stir when CFO Alexandre de Rochefort made critical comments about Android Market during a conference, which spurred reports that Gameloft was scaling back its investment in Android games. A few days later, the company publicly restated its support for Android, presumably after a rocket from Google.
So, what's the score now? “This year is Android's year in terms of volumes, from what we see of the roadmaps of many carriers,” says Vallois. “But then there is this question of monetisation of the content...”
However, he says that Gameloft is pleased with improvements to Android Market made by Google, such as allowing apps to be stored on memory cards (which enables larger file-sizes), and separating free and paid apps on the store itself. “It's true that you don't see that many big publishers developing for Android Market, which is very specific to the gaming side. But we hope that will change – as I said, Android will be a big volume driver through 2010.”
One of Gameloft's successes on iPhone in 2009 was creating its own brands, even if they were often heavily influenced by existing console brands. Games like N.O.V.A., Gangstar: West Coast Hustle and GT Racing: Motor Academy were expensive to develop, but have been successful on the App Store.
“We think it's the right time to create brands if you want to sell content on the App Store,” says Vallois. “N.O.V.A. Is really a very big investment on our side, but we're targeting experienced gamers – it's not the same kind of guy who plays Block Breaker Deluxe on his N95. It's a strategy to invest more and more to help create the brands.”
Like all publishers on iPhone, Gameloft has switched its marketing strategy from the predominantly B2B relationships of the carrier world, to more B2C marketing, including heavy use of social media including Facebook, YouTube and Twitter. Vallois says Gameloft will be using this to build on its new iPhone IPs, releasing several sequels, as well as more new IPs.
What about competition from the console industry? Activision, Rockstar Games and Ubisoft have all moved into iPhone publishing in recent months – with the latter's decision having added spice, given its publishing relationship with Gameloft.
Vallois thinks that the decision for a console firm to move into iPhone isn't as no-brainer as it might seem, though.
“We did 17 million Euros on the App Store, from 40 titles,” he says. “For a traditional video-game publisher, that's ridiculous. It's half a million Euros [sales] per title, yet Ubisoft will do 15 million Euros with one good title on the PSP. Also, they'll have five IPs a year, so they won't do big business on the App Store unless they create more new IPs. It's a challenge for them. It's a business they have to be in, because it's hyped and growing, but it's still small compared to their existing business.”
Vallois is also interesting on the pricing side of the business, with Gameloft having tried hard to kick back against the flood of 99-cent games that hit the App Store in 2008 and 2009.
“Nine months ago, the charts were really filled with 99-cent games, but we've managed together with companies like EA and Activision to create a very strong segment of $4.99 - $6.99 games,” he says. “I think we've found a good spot.”
However, one area Gameloft hasn't rushed into is virtual items and in-app payments, other than the music being sold in its Guitar Rock Tour 2 game. Vallois says the publisher has remained cautious, as it's keen to see if there's a genuine demand from gamers for micropayment-based models outside markets like Japan and South Korea.
He suggests that VC-funded publishers like ngmoco and SGN have been able to be more aggressive with freemium models because their backing enables them to take risks, while Gameloft as a public company has to be more careful.
“There are some games where it can work,” he says, citing Guitar Rock Tour 2 as an example. “But on the App Store, people are zapping a lot – they like to play things but then try something else. To drive people into buying additional packs for a game they have already purchased is hard, when their natural path ...
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But we come back to the subject of increasing competition from the console world, and in particular Ubisoft, which recently took back its Assassin's Creed franchise from Gameloft. How big a threat is this to the company?
“We believe we can really compete on the quality side,” he says. “We have established Gameloft as a high quality brand for iPhone games, so we are pretty confident. Ubisoft launched Assassin's Creed 2, but we have Assassin's Creed 1 live, and it's very successful while Assassin's Creed 2 is falling in the chart. Our game was better rated, yet they were a bigger publisher than us. People thought that when they came with Assassin's Creed 2 they would kill Gameloft, but that's not the case.”
It's a fascinating insight into the competitive tension between the two companies, who are still partners in the mobile space after all.
As a last question, ME asks what the status is of Gameloft's non-mobile ambitions. The company got out of the boxed console and handheld games market early last year, but has released games on digital stores such as Xbox Live and WiiWare.
Yet with new smartphone platforms like Android, BlackBerry and Windows Mobile to conjure with, is there a temptation to revert to being a mobile-focused games firm, rather than stretch too thinly across platforms?
In short, no. “You always have to anticipate,” says Vallois. “The new generation of smartphones in 2010 and 2011 will be more powerful, so you have to be ready – to train your teams to develop on higher performance platforms. So the console business is interesting for us for R&D. But there is also a convergence between the smartphone business and the console business, when you look at the cross-platform strategy from Microsoft.”
In other words, Gameloft will continue to invest in making games for any digital distribution channel, be it on mobile, handheld or console. That will include taking some of its new iPhone IP to consoles, to compete against the games that inspired them.
“We want to build these new franchises, and a good way to build franchises is to put them on many platforms,” he says. “We will be spreading our key IPs to console.”
