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Games

F O R U M N O K I A

Version 1.0; March 20, 2003

Introduction to the Mobile Games Business



Copyright © 2003 Nokia Mobile Phones. All rights reserved. Contents

Contents

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1. Introduction ................................................................................................................................5

1.1 Purpose and Scope..................................................................................................5

2. Market Size ..................................................................................................................................6

3. Business Models ........................................................................................................................7

3.1 SMS Games ................................................................................................................7

3.2 Browser Games ........................................................................................................7

3.3 Interpreted Language Games..............................................................................7

3.4 Native OS Games......................................................................................................8

3.5 Rich Nokia N-Gage™ Device Games ..................................................................8

4. Value Chain ..................................................................................................................................9

4.1 Value Chain with Operator....................................................................................9

4.2 Value Chain without Operator ..........................................................................10

4.3 Rich Game Value Chain........................................................................................11

4.4 Representative Financial Analysis ..................................................................11

5. Business Opportunities with Nokia ..................................................................................13

5.1 Club Nokia................................................................................................................13

5.2 Tradepoint ..............................................................................................................13

5.3 Nokia Software Market........................................................................................13

5.4 Nokia OK Testing ..................................................................................................13

5.5 The Nokia N-Gage Game Deck Publishing Program ..................................14



Introduction to the Mobile Games Business Disclaimer

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Legal Notice:Copyright © Nokia Corporation 2003. All rights reserved.

Reproduction, transfer, distribution, or storage of part or all of the contents in this document in anyform without the prior written permission of Nokia is prohibited.

Nokia, Nokia Connecting People, and Nokia N-Gage are registered trademarks of Nokia Corporation.Other product and company names mentioned herein may be trademarks or trade names of theirrespective owners.

Nokia operates a policy of continuous development. Nokia reserves the right to make changes and

improvements to any of the products described in this document without prior notice.

Under no circumstances shall Nokia be responsible for any loss of data or income or any special,incidental, consequential, or indirect damages howsoever caused.

The contents of this document are provided "as is." Except as required by applicable law, no warrantiesof any kind, either express or implied, including, but not limited to, the implied warranties of merchantability and fitness for a particular purpose, are made in relation to the accuracy, reliability orcontents of this document. Nokia reserves the right to revise this document or withdraw it at any timewithout prior notice.



Introduction to the Mobile Games Business Glossary Definitions

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Glossary Definitions

Term Meaning

Bluetooth A local-area wireless networking protocol that allows the transfer of data amongdevices that are Bluetooth-capable. It provides much lower latency than cellular wide-area air networks (typically ~50 milliseconds, by contrast to several seconds), but ismuch more limited in range (~10 meters). Many high-end mobile phones are nowBluetooth-enabled.

Hot-sync A method of transferring data to or from a mobile information device such as a PDA ormobile phone, by “synchronizing” the phone with a desktop computer.

HTML-C Sometimes rendered CHTML. Compact HTML, a somewhat modified version of HTMLused with the browsers provided for NTT DoCoMo's i-Mode service.

J2ME™ Java™ 2 Platform, Micro Edition. The version of Java 2 technology for use with smalldevices such as PDAs and mobile phones. See also MIDP and MIDlet.

J2SE™ Java 2 Platform, Standard Edition. The flavor of Java technology that runs on desktopcomputers.

MIDlet Sun's name for J2ME applications (by analogy to applet). See also J2ME and MIDP.

MIDP Mobile Information Device Profile. A set of extensions to J2ME specifically designed fordevices such as mobile phones.

MMS Multimedia Message Service. A technology that allows mobile phone users to exchange(or send to and receive from a game server) messages that can include text, images,and other media. It is an extension of SMS technology. See SMS.

OTA Over the Air. “OTA provisioning” means the download and installation of applications

over the air, rather than via hot-sync or some other method.

PDA Portable Digital Assistant. A palm-top computing device.

Series 60 A set of extensions to Symbian OS, initially developed by Nokia but available to allmanufacturers as an open standard, that provides additional functionality of specificutility for mobile phones.

SMS Short Message Service. A widespread technology that allows users to send each other(or a game server) short text messages. See MMS.

Symbian OS An operating system designed for small, portable devices such as PDAs and mobilephones. It is an open OS, available for license by any manufacturer, and supported bymost major mobile phone manufacturers, including Nokia. It is an evolution of theEPOC PDA OS, and is developed by Symbian (www.symbian.com).

WAP Wireless Application Protocol. The technology that underlines the “browser” function-ality of mobile phones in Europe, North America, and most other regions. The markuplanguage used with WAP is Wireless Markup Language (WML), but recent WAPbrowsers can also display XHTML/Mobile Profile, a more fully featured markup lan-guage based on XML. See also HTML-C.



1.1 Purpose and ScopeThe following document is intended primarily for use by business people, marketers, and producerswho are either currently involved in the business of mobile games, or considering becoming involved.It provides an overview of the current and projected market size, business models currently in place,and the value chain.

While the information contained herein is current as of the date of publication, all three factors continueto change rapidly.

Most analysts maintain that in 2001, the mobile games market produced around $400 million in revenuesglobally. Frost & Sullivan stated that it was a $436.4 million market; the Shosteck Group maintained that it

was 458 million euros; and DFC Intelligence/Themis Group offered a more pessimistic figure of $110 million.(One reason for this disparity: The first two analysts looked at overall volume for the market, whileDFC/Themis looked at revenues derived by developers, as distinct from the share of revenues achieved byoperators or other components of the value chain.)

Virtually all of the analysts stated that Asia (primarily Japan and South Korea) is responsible for 80 to 90percent of current mobile games revenues, with Europe responsible for most of the remainder.

Projections for revenue growth range from the enormous ($17.5 billion in 2006, Datamonitor; $9.34 billionin 2008, Shosteck Group) to the more sober (1.114 billion euros in 2005, Shosteck Group; $1.5 billion, 2006,DFC/Themis).

Outside of Japan and South Korea, the mobile games market is still at an early stage. However, severaloperators in both Europe and North America have recently launched Java™ or BREW game services, andearly reports indicate that these services are generating substantial revenues for both operators andgames providers. Nokia believes that as advanced handsets such as its Series 40 and Series 60 devicesbecome more widely used, the market for mobile games outside Asia will increase rapidly. Nokia is work-ing to ensure widespread deployment of such mobile phones, and expects to ship 50 to 100 million Javatechnology-enabled Series 40 devices by the end of 2003, and 10 million Symbian OS Series 60 devices.

It should be noted, however, that outside Asia, the market is still relatively small, and investment inmobile games should be considered an investment in future growth, rather than a move that is likely

to generate large returns in the near term. It is also a tremendous opportunity to establish earlymarket leadership.

Introduction to the Mobile Games Business 1

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1. Introduction

2. Market Size

Version 1.0; March 20, 2003

Introduction to the Mobile Games Business




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The business models in use today vary with the enabling technology.

3.1 SMS Games

For SMS games (and games using MMS or other evolutions of SMS technology), operators normally chargeusers a premium SMS fee—that is, a slightly higher fee than for normal messages. They share a portionof this premium SMS revenue with the game provider—typically 20 to 50 percent. The game provider

must have a business relationship with the carrier to ensure that a “short number” is provided, to whichplayers may send messages.

Thus, developers often make deals with aggregators that have existing business relationships withcarriers—wireless portals or mobile game publishers—to share revenue from SMS games.

3.2 Browser Games

For browser games—using WAP technology, XHTML under the WAP 2.0 standard, or compact HTML (overDoCoMo's i-Mode network)—operators typically share a portion of air-time revenue or (for packetized airnetworks) a share of data-transfer revenue. This share can range from the meager (typically 10 percent inNorth America) to the substantial (89 percent for i-Mode). Because inputting URLs on handsets is difficult,

game providers achieve substantially higher revenues by ensuring placement of their game on the WAPdecks served by operators—or with manufacturers, wireless portals, or game publishers who themselveshave revenue-share deals with operators. This ensures that the game is exposed to many more potentialcustomers.

3.3 Interpreted Language Games

Interpreted language games, such as those coded in Java 2 Platform, Micro Edition (J2ME™), normallygenerate revenues on an application-sale basis. That is, the user agrees to pay a one-time fee to down-load and install the game on his/her handset. The download is normally over the air (OTA), although insome cases it is downloaded to a PC and hot-synced to a handset.

In Asia and North America, the operator normally serves a WAP (or other browser) deck to the user, whoselects games from that deck. Thus, developers achieve higher revenues by partnering with operatorsand sharing revenues with them (typically, developers receive 20 to 50 percent of the revenues).Because most operators prefer to deal with a handful of mobile game partners, many developers workwith mobile game publishers or other aggregators to achieve placement on the operator's deck.

In Europe, where handset sales are not controlled by operators, operators cannot always ensure thatthe first deck a user sees when s/he makes a wireless data connection is controlled by the operator (e.g.,for users of Nokia phones, it is often the Club Nokia home deck). Thus, game developers frequentlyagree to revenue-share deals with handset manufacturers or mobile portals to achieve access to largenumbers of potential gamers. Billing is typically through the portal, rather than through the operator'sphone bill.

Note that some games access the air network to enable multiplayer games, or to upload high scores orthe like. At present, few operators are willing to share the air-time (or data-transfer) revenue that thisgenerates for them, although that may change over time.

3. Business Models




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3.4 Native OS Games

Games programmed to run on handsets that support an operating system such as Symbian OS are alsogenerally provided on an application-sale basis. Because they tend to be much larger applications, theyare normally transferred to a handset via hot-sync, rather than over the air. An additional security issuearises, because most such handsets provide an IR port, and many a Bluetooth port, allowing users to“beam” each other games (or e-mail an application to another user's PC, from which s/he can then hot-

sync it). Thus, developers need to provide some copy-protection scheme to maximize revenues.

Since users must go to a Web site to find these games, the operator does not control access to thegames in any market, and games are normally distributed by handset manufacturers, wireless portals,or other aggregators.

3.5 Rich Nokia N-Gage™ Device Games

Nokia has adopted a different model for "rich games" that run on its Nokia N-Gage™ mobile game deck.The Nokia N-Gage game deck is a Series 60 device, running Symbian OS, which supports a copy-protected,proprietary memory card format. The device itself is designed primarily to support mobile, multiplayernetworked game play, as well as solo play games, with controls optimized for two-handed game play

rather than one-handed use as a mobile phone (though it can be used as a mobile phone).

Rich games for the Nokia N-Gage game deck are supplied in the form of 8 MB (or larger) memory cards, soldthrough retail channels, which the user can insert into the device. Nokia N-Gage device copy-protectedmemory cards cannot be used in other Series 60 devices. Nokia publishes games in this format, and alsoworks with other major game publishers who publish their own titles for the Nokia N-Gage game deck onthese memory cards.

The business model for rich games is the same model used by the games industry for other consolegames: Only authorized developers can produce rich games for the Nokia N-Gage game deck; Nokiaworks to ensure a consistent level of quality for such games, and publishers of such games must pay a

"platform royalty" on each copy of the game to Nokia. Nokia uses this royalty to defray marketing costsfor the Nokia N-Gage game deck, ensuring widespread deployment of the device and a substantialinstalled base of users, thereby increasing the overall market size for the benefit of both publishers anddevelopers. As a publisher of Nokia N-Gage device titles, Nokia will often provide recoupable advancesagainst royalties to the developers with which it works, to fund the development of games for theNokia N-Gage game deck.

Nokia defines a "rich game" as a multi-megabyte game application, typically programmed in C++ andsuitable for distribution and sale at retail. Because the Nokia N-Gage game deck is a Series 60 device,it is possible to produce smaller J2ME™ or Symbian OS games for it, and distribute them in the samefashion as other games for Series 60 devices—via over-the-air installation, or download and hot-sync. No platform royalties are due on such games, nor does Nokia provide development funding forthem, and such games are typically far smaller and less fully featured than rich games distributed onmemory cards.




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4.1 Value Chain with Operator

For SMS games, browser games, and interpreted language games in Asia and North America, the valuechain typically looks like the diagram in Figure 1:

Figure 1: Value chain with operator

The consumer pays for access to the game. In the case of SMS games, it is generally a premium SMS

charge for each message sent to the game server. For browser games, the consumer pays an air-timeor data-transfer charge. For interpreted-language games, it is a one-time application fee.

The operator passes on a portion of this fee to an aggregator. The aggregator may be a mobile gamespublisher, a wireless portal, a handset manufacturer, or some other intermediary. The portion of revenues passed to the aggregator varies widely depending on game type, region, and operator, andcan range from 5 percent to as high as 89 percent.

The aggregator passes on some portion of its revenues to the game developer. The portion passed onalso varies widely, but is generally in the range of 10 to 50 percent of the aggregator's revenues.In some cases, it is 0 percent—if developers provide games to aggregators on the basis of a one-time

development fee, with no ongoing revenue share.

Note that some aggregators, such as wireless game publishers, develop some or all of their gamesinternally, rather than through third-party developers, removing one link in the value chain.

Also, in some cases the operator does not bill the customer directly, instead using a third-party billingsolution provider, which typically takes 3 to 10 percent of revenues.

4.2 Value Chain without Operator

For native OS games and for interpreted-language games in Europe, the value chain looks more like thediagram in Figure 2:

4. Value Chain

Developer

Aggregator

Operator

Consumer

Developer

Aggregator

Consumer

Figure 2: Value chain without operator




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In this case, the consumer pays, typically, a one-time fee to download and install the application, eitherover the air or via hot-sync.

The aggregator can be a handset manufacturer, such as Nokia, a game publisher, a wireless portal,or a Web site that offers games to consumers. Typically, the game is a download—over the air forinterpreted-language games; via hot-sync to a desktop computer for native OS games.

The aggregator generally assumes the cost of dealing with credit card or other billing providers as partof its expenses.

The aggregator passes on a portion of its revenues—typically 15 to 50 percent—to the developer.

4.3 Rich Game Value Chain

For Nokia N-Gage game deck rich games (and console games in general), the value chain looks like thediagram in Figure 3:

Figure 3: Value chain for rich games

The consumer purchases the game at retail; the retailer bought the game from a publisher (sometimesthere is an intermediate distributor). The portion of the retail price paid to the publisher varies widely.Sometimes it is as high as 80 percent, but often it is much lower, particularly when product-placement feesare taken into account. The publisher pays a platform royalty to the device manufacturer, and passes on aportion of net revenues to the developer.

Typically, the publisher provides development funding to the developer, which is considered arecoupable advance against royalties, meaning that the developer does not earn any additional moneyuntil the advance is paid off by accrued royalties. Royalties to developers are based on the publisher'snet revenues, and range widely, too—typically around 15 percent for new developers, to as high as 50percent for accomplished developers who provide their own development funding and participate inmarketing efforts.

4.4 Representative Financial Analysis

Let us say that you have developed a J2ME game at a cost of $20,000 in expenses, which you expect tosell to consumers for $5. You make a deal with an aggregator—a mobile games publisher, for example—that offers game downloads from its own mobile games portal, and also partners with operators to offergames to their customers.

Developer

PublisherManufacturer

Retailer

Consumer




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Let us also say that the mobile games publisher offers to pay you 30 percent of its revenues from thegame. Therefore, for games sold through the publishers' portal, you earn $1.50 per game sold.

The publisher has various arrangements with carriers, but let us say that it receives 50 percent of revenues for game sales through operators, on average. The publisher earns $2.50 for each game soldthis way, of which you receive 30 percent, or 75¢.

Assume that the publisher has relationships with operators with a total of 10 million subscribers, of whom 15 percent have Java technology-enabled phones. That means that your potential market is 1.5million people. Let us assume that 25 percent of them are interested in playing games on their Javatechnology phones (a reasonable assumption, since gamers are early adopters of new technology). Thatleaves you with 375,000 potential customers.

Of course, those customers have a choice among many competing games, and only a portion of the 375,000 consumers will download and install your game. But let us assume that your game ismoderately successful, and that 10 percent do. That gives you 37,500 sales, netting you 75¢ apiece, fora total of $28,125.

Now, let us say you achieve additional sales through the publisher's own portal; if a mere 100,000 peoplefrequent it, and 5 percent choose to purchase your game, that's an additional 5,000 sales, at $1.50 each,bringing your net revenues to $35,625, for a gross profit of $15,625 above your development expenses.

The scenario is all highly hypothetical, but from this analysis, you can see that the key factors affectingyour revenues are:

• Unit price. Higher is better, but you encounter consumer resistance at some price.• Total audience exposure, that is, the number of customers you can reach through your distribution

partners.

• The proportion of the audience with handsets that can run your game.• The proportion of the audience that is interested in playing games.• The percentage of those whom you can interest in your particular game.• And, of course, the specific deal terms between you and the aggregator, and between the aggregator

and its operator partners.

Various potential aggregators and partners exist to bring your game application to market—and Nokiais one potential partner for you to consider. Currently, Nokia offers game applications provided by third-party developers in a number of different ways.

5.1 Club Nokia

Club Nokia is an online community and loyalty program that offers terminal-optimized digital servicesto owners of Nokia mobile phones in Europe, the Middle East, Asia, and Africa. Club Nokia Web and WAPservices can be accessed once a user has registered as a member of Club Nokia. Club Nokia currently hasmillions of members.

Club Nokia offers high-quality J2ME and Symbian OS games to its members, and is looking for additionaltitles that meet its standards. More information can be found at http://www.forum.nokia.com/business.

5. Business Opportunitieswith Nokia




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5.2 Tradepoint

Tradepoint is a business-to-business marketplace that connects application developers to operators,service providers, and enterprises. It's one way of putting your application in front of operators andother potential partners for the game. One of the components of Tradepoint is the Java Broker Service,which is specifically designed for the distribution of MIDlets, including games. Many operators haveworked with Tradepoint to acquire mobile games for the launch of their mobile game service.

More about Tradepoint can be found at http://www.forum.nokia.com/business.

5.3 Nokia Software Market

Nokia Software Market is a business-to-consumer market that connects you directly to Nokia phoneusers. At present, it concentrates on applications for the Nokia 6310i, Nokia 7650, and Nokia 9200Communicator series. It offers both Java and Symbian OS applications. You set the price of yourapplication, and 65 percent of the revenues are passed on to you.

More about Nokia Software Market can be found at http://www.forum.nokia.com/business.

5.4 Nokia OK Testing

In the above-mentioned Nokia distribution channels (Club Nokia, Tradepoint, and Software Market),preference is given to applications that go through Nokia OK testing. The Nokia OK process is designedto ensure a consistent look-and-feel for applications offered for Nokia mobile phones, as well as toensure that the product has been tested on target devices. Once a product is tested, third-party part-ners can use the Nokia OK logo to inform customers and partners that they can use the product withNokia phones with confidence. There is a modest fee to defray Nokia's costs in testing your product.

More about the Nokia OK program can be found at http://www.forum.nokia.com. Click on the Nokia OKlink under the Business Opportunities link, in the right-hand column.

5.5 The Nokia N-Gage Game Deck Publishing Program

Nokia and other publishers publish rich games for the Nokia N-Gage game deck in the form of memorycards sold at retail. The first step to Nokia publication is to become a registered Nokia N-Gage devicedeveloper.

The process for doing this is described in the document Getting Started with Nokia N-Gage™ Game Deck ,which can be found at www.forum.nokia.com/games.



Build > Test > Sell 8

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Build Test Sell

Developing and marketing mobile applications with Nokia

1Go to Forum.Nokia.com

Forum.Nokia.com provides the tools and resources you need for content and application developmentas well as the channels for sales to operators, enterprises, and consumers.

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Download tools and emulators

Forum.Nokia.com/tools has links to tools from Nokia and other industry leaders including Borland,Adobe, AppForge, Macromedia, Metrowerks, and Sun.

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Get documents and specificationsThe documents area contains useful white papers, FAQs, tutorials, and APIs for Symbian OSand Series 60 Platform, J2ME™, messaging (including MMS), and other technologies.Forum.Nokia.com/devices lists detailed technical specifications for Nokia devices.

Forum.Nokia.com/documentsForum.Nokia.com/devices

Market through Nokia channels

Go to Forum.Nokia.com/business to learn about all of the marketing channels open to you, includingNokia Tradepoint, an online B2B marketplace.

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Reach buyers around the globe

Place your applications in Nokia Tradepoint and they're available to dozens of buying organizationsaround the world, ranging from leading global operators and enterprises to regional operators andXSPs. Your company and applications will also be considered for the regional Nokia Software Markets aswell as other global and regional opportunities, including personal introductions to operators, on-device and in-box placement, and participation in invitation-only events around the world.

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Test your application and get support

Forum Nokia offers free and fee-based support that provides you with direct access to Nokia engineersand equipment and connects you with other developers around the world. The Nokia OK testing

program enables your application to enjoy premium placement in Nokia's sales channels.

Forum.Nokia.com/supportNKN.Forum.Nokia.comForum.Nokia.com/ok

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