It looks like the mobile gaming business may be starting to top-out. Mobile game revenue of six publicly listed companies combined (DeNA, EA, Glu, Gree, King, and Zynga) grew a paltry 1 percent from a year ago during the second quarter of 2015, compared to 25 percent during the second quarter of 2014 and 367 percent during the second quarter of 2013.
Not only has revenue growth slowed down, but the cost of doing business has also risen substantially over the last few years. During this same period, cost of distribution has increased drastically, ad revenue/mobile daily active users (DAU, a reliable indicator of distribution cost) for Glu and Zynga was up 28 percent from a year ago and 36 percent from a year ago, respectively, during the second quarter of 2015.
The story of slowing growth and rising costs for mobile game companies shouldn’t be a surprise, as we have seen this story play out several times in the past. Recall the gold rushes for PC, console, and Facebook games, in the ’80s, ’90s, and 2000s, respectively, that attracted hordes of developers.
Subsequently, slowing growth and rising costs led to consolidation with a number of “also-ran” companies that got acquired or, worse, went belly up (e.g., Midway Games, THQ, Realtime Worlds). The result was a handful of “at-scale” companies dominating each of the platforms, such as Blizzard on PC, Activision and EA on consoles, and Zynga on Facebook.