Smartphones Sucking Dollars Out of Portable Games

Despite the best efforts of Nintendo and Sony (s sne), mobile games are taking a bigger chunk out of the portable gaming market, with one in every three dollars of U.S. portable gaming revenue going to smartphone and tablet games, according to new analysis from mobile analytics firm Flurry.
The company, which analyzed its own data and information from NPD and others, said iOS (s aapl) and Android (s goog) game sales hit $800 million in revenue in 2010, up from $500 million in 2009. That put mobile games ahead of PC games for the first time with PC games’ $700 million in revenue last year, Flurry said. In 2010, mobile games commanded 34 percent of all portable game revenue, up from 19 percent in 2009. That jump in market share has come at the cost of Nintendo, which saw its share drop from 70 percent to 57 percent, and to a lesser extent, Sony, whose market share dipped from 11 percent to 9 percent. Overall, the portable gaming sector has shrunk from $2.7 billion in revenue in 2009 to $2.4 billion in 2010, as consumers downloaded cheaper mobile games over buying pricier handheld games.
When looking at the larger $10.7 billion video game market including consoles, but not PC games, mobile games grew to 8 percent of the market, up from 5 percent a year ago. Portable game sales on dedicated handhelds, meanwhile, dropped from 24 percent of the market to 16 percent, thanks to surging mobile game sales and console games, which grew their share from 71 percent to 76 percent.
2010 was the first year Flurry began calculating the impact of revenue from Android games, which was not “meaningful” in 2009. Flurry also took revenue from the iPad into account, adding it to the iPhone and iPod Touch numbers it used for its 2009 analysis. Flurry said it tracks more than 12 billion anonymous, aggregated user sessions per month across more than 80,000 applications. Games make up nearly 40 percent of all consumer app sessions, the company said. 
Peter Farago, VP of marketing at Flurry, said Nintendo is facing a “burning platform,” moment, referencing Nokia (s nok) CEO Stephen Elop’s memo about the pressing need for change at his company. He said Nintendo must deal with spiking mobile game sales, which are eating into its revenue and marketshare. The situation is only expected to get worse with the launch of the iPad 2 and Verizon iPhone along with more Android game offerings and in-app billing, which should help lure more developers to Android with the promise of making more money. “Mario may indeed be standing on a burning platform,” Farago said.
The portable gaming market is changing rapidly, but Nintendo and Sony aren’t sitting still. Nintendo recently launched the 3DS, which sold almost 400,000 units in its first week, a respectable number that still fell short of some analyst expectations. Sony is working on new portable hardware and moving closer to the mobile market with plans to make its PlayStation software available on Android devices. We’ll have to see how the two gaming giants fare in their efforts to kick-start their businesses, but it’s clear mobile games are posing a huge challenge with their cheap (or free) pricing and easy digital distribution. It’s still too early to say Mario is on a burning platform or the market for games on dedicated systems is going away completely. It’s also still got a healthy console business in the Wii. But the way mobile game sales have been going in just the last couple years, Nintendo is feeling some heat.