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Owen Mahoney was bored at the Electronic Entertainment Expo (E3) this year. As the chief financial officer of Nexon, he is immersed in digital gaming — social, mobile, and online — that is much more popular in Asia. More than a decade ago, Nexon pioneered free-to-play downloadable online games in Korea. But there was very little mention of new business models and new ways to play games at E3, from Mahoney’s point of view.

Mahoney helped steer Nexon through an initial public offering that raised $1.2 billion in 2011. His company has doubled down on the massively multiplayer online game market with a majority investment in NCsoft. And it is figuring out how to spread its success in digital games through the rest of the world.

We sat down with Mahoney this week. Here’s an edited transcript of our interview.

GamesBeat: What did you think of E3?

Owen Mahoney: I found less than I hoped that was really interesting. The whole discussion of $399 versus $499 for the consoles is sort of a non-issue. People are making a lot of noise about it, but it doesn’t seem very important to the future of the industry. Whatever mistakes or tactical errors that someone makes — if they are mistakes at all, especially on a pricing decision like that — they can always reverse them later.

What matters to me is, are there a lot of fun games to be played on these new platforms? What do the new platforms provide? I saw very little that I was excited about as a consumer. It felt a lot like it did 10 years ago. We were pushing more pixels as an industry. I don’t find that particularly interesting. When I think about the games that I’m playing and that my kids are playing, it has nothing to do with all that stuff. I see more and more people playing Minecraft on their laptops sitting in front of a turned-off 60” plasma display with a console attached to it. They’re sitting there playing an online role-playing game instead, or a mobile game. I’m not sure everyone’s clued into that. When I think about the convergence that’s happening in platforms right now, I think everything’s going to get turned upside down within a couple of years.

I remember at this point in the last console cycle, there was a lot to talk about from a technology perspective. It wasn’t all about pricing. It was about much more interesting stuff.

GamesBeat: We haven’t seen much about digital gaming from the big folks. Microsoft is defending its used-game policy, but they’re not talking about putting up a whole library of games for you to access, or somehow making use of digital in a way that’s new.

Mahoney: Yeah. [Sony's] Gaikai and OnLive weren’t a discussion topic this year. We have this perspective at my company, which is informed by the world we live in, which we continue to believe is the future of North America. I don’t envy my former colleagues at EA trying to figure out how to get the consumer to spend $60 on a piece of entertainment software. That’s a hard job. You’re going to be in for tens of millions of dollars.

While all this noise is happening and all these billboards are all over and there’s all this TV advertising, there’s a few companies around the world that are very quietly picking up all the dollar bills lying around the industry.

Did you ever see the movie Moneyball? You remember the scene when all the scouts are spitting and chewing and talking about what they think of various players? Then there are two guys there, Billy Beane and his numbers guy, saying, “No, these are the stats you need to worry about.” It feels like one of those things where there’s a real disconnect in the industry between what matters for consumer fun, what matters for profitability and growth, and then what everybody’s talking about.

Again, I have these conversations sometimes and people say, “My God, I had no idea about your company’s growth and profitability.” Once again, last year we grew 25 percent year-on-year — more than $1 billion U.S. Our operating margin was more than 46 percent. When I was at EA, you couldn’t dream of 46 percent in the thick of a console cycle, much less at the transition. We’re not the only ones. Look at Tencent’s business. Lots of companies in Asia have our model. I’m not talking about casual games that explode and then go away. We’re talking about games that are consistently huge earners. It’s because of online connected synchronous multiplayer and free-to-play.

Another interesting stat comes from NCsoft, the Korean game company. We’re the biggest shareholder there now. Their game Lineage, which came out in 1996 I believe, just hit a new peak in the last month and a half. It’s still growing. That tells you a lot. Even Activision can’t imagine a game that old that’s still growing.

GamesBeat: It’s always surprising to me how many games are out there in Asia that westerners know nothing about. Puzzle & Dragons is just now finding some awareness here. Same with CrossFire.

Mahoney: CrossFire’s the number one game in China, or number two at least. Dungeon Fighter, our game, which is also up there, nobody’s heard of it here. It’s interesting. Again, what are we all in business for? We’re in it to make money by delivering fun stuff. It’s a great business. But you have to do both of those things. One defines the other. We want big audiences and to be profitable and grow. Everybody in this room would like that for their company, and a few companies around the world are doing it. Somehow, though, that’s not what we’re talking about as an industry here.

GamesBeat: How do you guys take your success and use it to expand in the west?

Mahoney: We think there’s a huge opportunity that we’re pursuing, certainly over the course of the year through the next E3. We’re taking what we know about free-to-play — which is very hard to do, and very misunderstood in the west — and combining it with great IP, great physics, great graphics, and gameplay that’s popular in the west. We already have some experience of doing this and partnering this way in the east, and we’d like to make those same combinations here.

For example, we have a very close relationship with Valve, which we think is one of the best, if not the best, western developers. We had a viewpoint several years ago as to how to makes Counter-Strike into a free-to-play game. We created Counter-Strike Online. They essentially allowed us to use the assets – the technology, the art – and make a free-to-play game out of it. It worked beautifully. It’s one of our biggest games in Korea and Japan.

We’ve picked up the FIFA Online relationship with Electronic Arts. That game originally was created with another company in Korea, where EA provided the FIFA engine while their other partner provided the front-end and handled free-to-play. The lead developer in that company was actually a former Nexon employee who’s come back to us. He started a company that we’re an investor in. It worked beautifully. Now Nexon is the publisher of that game in Korea. We want to do more of that and do it here as well. There’s a lot of great IP in the west.

The challenge for us is, great developers like Valve and EA and Crytek and so on, with their physics engines and graphics engines and so on, they’ve spent a lot of time and effort and money to develop these great games. That’s a great strength. It beats a lot of what you see in Asia. It’s not that Asia has bad graphics, but they’ve got things that work well in the west, that are very advanced. What we have is the knowledge of free-to-play.

There’s a massive misunderstanding of what free-to-play is. You play a lot of free-to-play games, especially the casual type on Facebook, they’re not free-to-play at all. They’re pay-to-play in the guise of free-to-play. What we’ve learned from experience from more than a decade ago is that if you make it impossible to progress in a game without paying, it’s not a free-to-play game at all. You alienate your users and you lose them over time. You have no longevity in the end. We have 10-year-old games that continue to grow.

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The game market on mobile devices is volatile. At least, that is what we always hear. The common wisdom is that ideas that worked a year ago don’t work anymore, and the ideas that work now won’t work in six months. Apparently, someone forgot to tell that to the developers of Candy Crush Saga, Clash of Clans, and Puzzle & Dragons.

For the last several months, these three have continued to rake in massive revenues on both iOS and Android, according to market-tracking firm App Annie. In April, Candy Crush Saga was once again the most-downloaded title on each platform. It also generated the third-highest revenue for each app market.

“Over the past month, we’ve seen a few trends,” App Annie vice president of global communications Marcos Sanchez told GamesBeat. “Publishers who are employing a freemium strategy attached to in-app purchases are doing incredibly well, showing a growing sophistication in how apps are monetized. Games in the casual gaming category that have a social component have also fared well, largely because they are easy to consume, have the potential to be shared on a massive scale, and can acquire new users through major social networks such as Facebook. This trend has been reinforced by many of the top ranking games on App Annie’s Games Index, including King’s Candy Crush Saga and Supercell’s Hay Day and Clash of Clans.”

Puzzle & Dragons, while not in the top 10 for monthly downloads, was the highest-grossing game on both mobile operating systems. We reported earlier this month that the hit puzzle role-playing game is making around $3.75 million every single day, which is an enormous sum.

Clash of Clans isn’t available on Google Play, but it was the second-highest grossing game on the App Store.

All three of those titles have maintained or grown their dominate market positions since the last quarter of 2012. This reveals that the mobile gaming market heavily favors the most popular games. The rich keep getting richer while everyone else fights over the scraps.

On that front, several games popped up in the most-downloaded chart for the first time (or the first time in a while).

On Google Play, the racer Toy Truck Rally 3D from developer 3dinteger moved up 288 places to take the number four place on the top games by monthly downloads list. Platformer Manuganu had an even more impressive surge. Developer Alper Sankaya’s running game moved up over 1,000 spots and was the tenth most-downloaded game on Google Play in April.

On iOS, the big movers were Sonic Dash, Hardest Game Ever 2, and Fruit Ninja. Halfbrick Studios’ Fruit Ninja is experiencing a resurgence after falling to 431 on the most-dowloaded charts. Hardest Game Ever 2 moved up 302 places from March to April, and Sonic Dash jumped from 34 all the way to number two.

The rest of the top 10 most-downloaded titles on iOS were all new games outside of King’s Candy Crush Saga and Electronic Art’s Real Racing 3. That includes fighting game Injustice: Gods Among Us from Warner Bros. and Gameloft’s Iron Man 3 – The Official Game.

It’s interesting to note that of all these games that are acquiring the most players each month, only Candy Crush Saga and Injustice also made it on the highest-grossing chart’s top 10.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Kristian Segerstrale, the co-founder of social gaming firm Playfish and former executive vice president in charge of digital gaming at Electronic Arts, has joined Supercell as a member of its board. Helsinki-based Supercell is one of the hottest mobile game companies around thanks to the popularity of two hit games, Clash of Clans and Hay Day. These games are earning millions of dollars per day, and they enabled Supercell to raise $130 million at a $770 million valuation in April.

Segerstrale saw great success with Playfish, a social gaming firm on Facebook, and sold it to Electronic Arts in 2009 for more than $300 million. He eventually became the head of digital games at EA, a retail gaming giant which has been investing heavily to adapt to the new world of social, mobile, and online games. He left EA in February to return to his startup roots, and his move to the board of Supercell is the first part in that plan.

Ilkka Panaanen, chief executive of Supercell, said in a blog post, “What makes Kristian great for Supercell is his unique mix of product instinct in platform transitions and his operational experience growing companies big and small. Kristian’s track record speaks for itself….Very few individuals move as seamlessly between startups and large scale public companies as Kristian, and I would be hard pressed to find someone with a more valuable and relevant set of experiences to help us in our decision making as we navigate the challenges that lie ahead.”

At Supercell, Segerstrale said he will help the team deal with the hyper growth that the company is seeing in mobile games. We interviewed him earlier this week and this is an edited transcript.

GamesBeat: Why are you joining the board at Supercell?

Kristian Segerstrale: Initial Capital, the seed investment fund of the Playfish founders, actually led the first investment round in Supercell. We hold a significant stake. It’s natural for me, having left EA, to take up a board seat. What I’ll be focused on moving forward is helping with growth across the board. Supercell is in this amazing position right now, on the back of these successful games and an amazing set of talent across the company. They have very large ambitions. They want to build the company for the long term. Having grown a couple of startups as well as overseen matters of scale, at EA most recently, I’m hoping to contribute some of that experience in helping to guide the company through the long term, in an industry that is more dependent on more personal screens, like tablets and smartphones.

GamesBeat: This is not going to be an executive role at the company, right? You’re going to remain a board member as far as your participation goes?

Segerstrale: That’s correct. But what they’re doing is so much fun that I’m going to have a hard time keeping away.

GamesBeat: What stage are they at? What is your understanding of how big they are now and how many opportunities they have?

Segerstrale: It depends on how you measure it. They released a fairly detailed set of metrics six weeks ago. In revenue terms, in the first calendar quarter of this year, I think they made $179 million in revenue and just over $100 million in profit. It’s fairly significant. In employee terms, I don’t know what’s publicly available, but I believe they have said that they’re less than 100 people.

I just met with the company four days ago at a retreat in Barcelona. The thing that impresses me so much about them is how resourceful and mature they are for an organization that is so young. They’re being very thoughtful about their opportunities. All of their success so far is based on two games on iOS, and it’s much more focused on the Western market. Ultimately, their opportunities span Android, new games, and especially new territories in Asia.

One of the things I found impressive about Supercell is that unlike many teams in recent history, especially in Silicon Valley, they’ve been judicious about what they pursue and what they don’t. They haven’t embarked on some crazy headcount explosion. They continue to be more judicious than ever about hiring and focusing on the company’s founding principles. What Supercell is about is trying to attract the best talent and give them the creative freedom to express themselves.

GamesBeat: It’s an interesting turn of fortune for Supercell. It’s astounding that it could make so much revenue out of just two games. It has also tried it with a number of other games before. It seems to have culled its herd quite ruthlessly.

Segerstrale: That’s right. It’s a combination of having a talented set of creators as well as a thoughtful internal approach to game development and understanding of the business. Sometimes projects aren’t successful. What’s beautiful about how they operate compared to many other places I’ve seen is that they don’t have any kind of greenlight process. It’s novel. What they do is that they trust the folks that they hire to create the best product possible. Then they get it out to real players and they see if the metrics hold up with real players. If they do, it’s ready to go. If not, then they might try again from a different angle, but they’ll celebrate that mix of failure and learning. They’re very transparent about all their learnings.

In some ways, despite the team being quite young, they exhibit a very mature approach to the industry. They’re not taking success for granted. They’re almost paranoid about providing the best experiences for players, and understanding that to deliver the greatest product, you have to take creative risks. Some of them will work out and others won’t.

GamesBeat: How do you help them get into the hard part here, having something like a more regular release schedule, a broader base of hits, all the sorts of things a bigger publisher does? Rovio looks like they’ve had a hard time making the transition. It’s still very successful, but Angry Birds still looks like a one-hit wonder situation. It hasn’t followed it with something as big.

Segerstrale: I think Supercell’s north star on this is talent, trying to find the best talent and creating the best possible environment for it. I’d say that things like schedules are not as important to them. If you hold and retain the best talent and create long-lasting relationships with your players, then the quantity of game releases perhaps isn’t as important as quality.

That said, one of the things that is difficult, as you say, for any company, is how you follow such great success with additional titles. How do you make sure you keep setting the bar at a higher level? But everything I’ve seen says that the planning effort, the focus, the talent, the way that the company goes about thinking through its options moving forward, is incredibly prescient. Between the initiatives for different games and new platforms and new geographies, we’ll see some pretty exciting things this year.

GamesBeat: Do you see them operating in a way that’s very different from EA Mobile?

Segerstrale: It’s a pretty stark contrast across the board. In part, a small company will always operate differently than a big one. But I would say one of the most endearing things about Supercell is how humble everybody is here. The creators of a game like Clash of Clans that’s been so successful are still humble. They’re very ambitious, but very transparent, very interested in feedback from every direction.

In an environment where there isn’t a greenlight process–If you think about Clash of Clans and the updates and new things that happen in that game all the time, there is not an internal approval loop of any kind for that. It enables the company to move quickly, and it creates an environment that’s genuinely creatively led.

Probably the biggest point of difference, of course, is that Supercell’s studios are all in Helsinki. Everyone’s effectively in one place. They have an office here in San Francisco, but it’s more focused on marketing and acquisition and those sorts of things. It enables a flatter, faster culture.

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Few things are as profitable as digital monsters — just ask Puzzle & Dragons developer GungHo Online Entertainment.

The Japanese studio made $118 million in April alone, according to its latest financial report (as first spotted by GamesIndustry International). That’s a 1,142 percent increase from the same period in 2012.

“If there is one mobile game out there right now that people in Japan will remember in 10 years, it’s Puzzle & Dragons,” Japanese analyst Dr. Serkan Toto wrote in his translation of the report.

Puzzle & Dragons is generating $3.75 million a day. That astonishing figure is only matched by the fact that 13 million people in Japan have registered for a game account — that’s nearly 10 percent of the nation’s population.

Puzzle & Dragons is a smartphone game that combines puzzle-game elements with role-playing features. It also has monster-collecting and card-game mechanics.

For the quarter, GungHo posted a profit of $183 million. That was enough to boost the company’s stock price by nearly 29 percent. Shares are currently trading at $13,202.17, according to Bloomberg.

The company’s market capitalization also reached $15.1 billion. It has more money on hand than Nintendo ($15 billion), Electronic Arts ($6.7 billion), or Zynga ($2.6 billion). Toto also points out that GungHo has a higher market cap than Nikon, Fujitsu, or Mitsubishi Motors.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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The mobile gaming world is getting bigger and bigger. Just take a look at Japan’s Gree, which reported revenues of $1.6 billion and has set up a huge U.S. headquarters just outside of AT&T Park in San Francisco. The company has 450 employees working in the long building, which features a cafeteria on one end and a long set of desks leading to a bunch of glass offices at the far end. They are the foot soldiers in Gree’s expansion into the U.S., where the competition is fierce but the riches are waiting. To find more developers, Gree is investing $10 million in third-party games.

Source: Dean Takahashi

The view of Giants stadium from Gree’s HQ

Within the building are hundreds of mobile game developers, headed by Naoki Aoyagi (pictured above), chief executive of Gree International, the overseas subsidiary of the Japanese parent company. Some were part of acquired companies such as Funzio, maker of games like Kingdom Age, Modern War, and Crime City. Those games have been out for months but have been steadily producing revenues in the top grossing charts on the app stores. The hope is to one day have games that generate $100 million a month in revenue.

Last year, the company experimented with new games and heavy advertising. It spent heavily on user acquisition, driving up costs for its rivals. And it acquired, expanded, and then shut down the OpenFeint social mobile gaming platform. While Gree started as a social network for mobile gamers in Japan, it is now driving deep into content.

And it has set up an enticing headquarters — with sofas, arcade machines, and a fancy kitchen — to recruit more developers. The goal is to recruit and retain employees in the fiercely competitive San Francisco gaming market, which is ground zero of the digital gaming revolution. The goal is to come up with a billion-dollar game and stay ahead of rivals such as DeNA, Electronic Arts, Supercell, Rovio, Zynga, and GungHo Entertainment. Gree is moving into all sorts of game genres, including the social casino slot machine business and hardcore titles like the upcoming War of Nations.

Will the company come out on top? It’s Aoyagi’s game to win or lose. We took a tour of Gree’s headquarters recently and interviewed Aoyagi there. Here’s an edited transcript of our interview.

GamesBeat: What are your priorities?

Aoyagi: We’re working on some different games. We have the existing games from Funzio (which Gree acquired for $210 million last year) — we’re upgrading the engine – and we’re also working on new stuff. War of Nations was the game we showed at the Game Developers Conference. It’s our hardcore strategy game. I think that the hardcore gaming users in the tablet market are going to be the hot topic coming up. Everybody’s working on mid-core stuff, as well as the next Clash of Clans (Supercell’s hit game, which is generating $2.4 million a day in revenue), but what we’re doing is different from the others.

GamesBeat: By “hardcore” games, do you mean games that play for a much longer time than mid-core?

Aoyagi: We still want to capture both the mid-core and hardcore. We see a lot of potential in the iPad and the Mini. Hardcore users are going to play more games on tablet. That’s our bet. Still, for the mid-core, we have games from Funzio that are doing pretty well. We can do more with those engines.

GamesBeat: So more hardcore than what Funzio does? More hardcore than mid-core?

Aoyagi: Still mid-core to hardcore. We’re also working on some casual games, casino games. Our strength, from acquiring Funzio, was more mid-core, but now we’re trying to expand on both the hardcore side and the casual side.

GamesBeat: How many of your games are created here in San Francisco?

Aoyagi: Our titles for the western market are mostly developed here at this studio. We’re working on some titles at our Vancouver studio that we set up last year, but most of them are in development here. Our portfolio studios are mostly focused on their local markets. The Korean market’s gotten pretty big now. It makes sense to focus on those local markets.

Part of that will be working with partners who fall under our partners fund, like IUGO, the developer of Knights & Dragons. That game’s climbing up the charts. It’s around 40 or 50 right now. That was a publishing deal with IUGO. We did an investment and worked together with them on the title, introducing them to monetization techniques while they developed the game.

GamesBeat: We had our mobile summit last weekend. A lot of people were talking about the Asian mobile messaging services, like Line and Kakao. WeChat may at some point add games. A lot of people have some hope that those will take off in the U.S.

Aoyagi: Yeah. That’s an interesting topic right now. In the past, social networks became a huge market for game developers. Based on what happened in Asia, that might be the next market. But still, in the western market, we don’t see those services taking hold yet. I know Kakao is trying to expand, and so is Line.

The most successful case, in terms of combining a messaging app with games, is Kakao. Line is still focusing on expanding its user base. Kakao did a great job creating a market. Most of the Google Play titles are actually on Kakao’s network. That’s pretty impressive.

GamesBeat: Yeah. The top-grossing worldwide titles are all there.

Aoyagi: Right. Puzzle & Dragons from Gung Ho, games on Kakao’s network, and WeChat, those are the three big things in Asia over the last three or six months.

Source: Dean Takahashi

Gree HQ

GamesBeat: Those platforms seem a little heavy on the taxation, though. Half of the revenues go to the platform owner.

Aoyagi: Yeah. 30 percent to the store, and then half of the 70 percent, so the developer only gets so much. But the distribution power of Kakao is pretty strong. It still makes sense for those app developers. It might limit the potential market. In the past, NTT Docomo did a great job. They only charged 10 or 15 percent, and because of that, the market expanded to an incredible size in Japan. If Google or Apple or Kakao were to do something like that – jointly, even – it would be a great thing for the ecosystem.

GamesBeat: If Puzzle & Dragons succeeded all by itself, without the help of those networks, it might change something.

Aoyagi: At the same time, we’ve seen the power of the platforms and the networks in those games. We have some games – mid-core games and casino games – where we’re building in a lot of cross-promotion. That’s been really powerful, even with a smaller number of games. If we can form those alliances, like Kakao is doing, or like ChartBoost is trying to do, that’s powerful. It can generate a lot of traffic for free.

GamesBeat: It might be nice to have the game-focused mobile messaging networks take off in the U.S., but it will take a while.

Aoyagi: Right. Or it might never happen. This market is more competitive than the others. Europeans and Americans never got into the Asian market. Only those local Asian companies had a chance to grab market share. They’re good at that combination of social networking and games in general from back 10 years and more, like Gree, DeNA, and Tencent.

GamesBeat: I didn’t hear any games stuff in the Facebook Home announcement. Did you pay much attention to that?

Aoyagi: No, I didn’t, but I should have.

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One of the biggest mobile games in the world is coming to Nintendo’s 3DS handheld.

Developer GungHo Online Entertainment will port its popular Puzzle & Dragons match-three puzzle role-playing game to the 3D portable under the name Puzzle & Dragons Z, according to Japanese-centric gaming blog Gematsu. The title is due out on the Nintendo system later this year.

Puzzle & Dragons is one of the fastest growing games around the world, but it is especially lucrative in Japan. The mobile title is generating roughly $2.5 million a day in revenue from in-app purchases. That’s a massive number that has Puzzle & Dragons on its way to bringing in $1 billion in total revenue. It would be the first mobile-only game to reach that figure.

We’ve contacted developer GungHo to determine how it plans to monetize the title on Nintendo’s handheld. Puzzle & Dragons is free-to-play on iOS and Android. The developer makes money solely from microtransactions. That doesn’t jive with how Nintendo deals with games on 3DS, where most titles sell for $30 to $40 each and in-game purchases are rare.

The magazine story also doesn’t clarify if the title is due out in the states or if it is a download-only or a physical product. Again, we’ve asked GungHo for these details, but the Japanese developer has yet to respond.

The 3DS version will come with 200 collectible monsters, which each affect how the puzzle gameplay works. Puzzle & Dragons Z will also introduce new special elements like explosions that clear much of the play area.

We’ll update this story with any new information.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Attention Japanese developers: San Francisco startup Kabam wants to help bring your games to American and European markets.

Kabam announced today that it set up a $50 million fund designed specifically to bring Japanese mobile games to those large markets, according to the Wall Street Journal. Under the deal, Kabam will pay for localization, marketing, and distribution in exchange for a percentage of the revenue.

Kabam CEO Kevin Chou told the Journal that he believes Japanese developers can double their revenue if they work with his company.

This initiative will have Kabam butting heads with Japanese companies Gree and DeNA over the same pool of developers.

Japan is a hotspot for mobile game development. The free-to-play movement has caught on in a major way in that market and is sparking games like Gung Ho Online Entertainment’s Puzzle & Dragons, which is on its way to generating $1 billion in revenue.

Kabam also has expertise in the free-to-play sector with world-sim games Kingdoms of Camelot and The Hobbit: Kingdoms.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Ben Cousins made the move from AAA console games to mobile entertainment. But he refused to leave first-person shooters behind, even though it’s exceedingly hard to make a shooter that can be controlled with a touchscreen on a smartphone or tablet. But at DeNA’s Scattered Entertainment studio in Stockholm, Cousins’ team of former Battlefield game developers has done just that  with a title that they call The Drowning.

The Drowning uses some unique controls that make it simpler to play a shooter game on a tablet. You tap on the screen with two fingers, and that lets you fire a bullet at the mid-point between your fingers. You tap with one finger to move to a location on the screen. And you swipe to turn your head. That simplifies the way you shoot a bunch of zombies at the same time. After more than a year of development, The Drowning is nearing its launch date.

We caught up with Cousins at the recent Game Developers Conference in San Francisco, where he gave a talk on The Drowning and showed us how the game monetizes through its random scavenger reward system. The game is looking quite polished, and it has been tailored to mobile devices in a clever way. Here’s our edited transcript of our interview with Cousins, which included an in-depth demo. And be sure to check out the video at the end.

GamesBeat: Is there anything in particular you learned  from making this game?

Ben Cousins: A lot of the decisions were made before I even had a team in place. It goes through my journey of deciding what type of game I should work on. Should I work on PC? Should I work on mobile? What sort of game should I create? What sort of audience should I target? My bible for all these decisions was Clayton Christensen’s The Innovator’s Dilemma, which is something I always talk about. I think he’s a genius. This concept of disruptive innovation is important at the moment in the games industry.

What we’re seeing happen is what happened hundreds of times in other industries. It’s been codified and analyzed and proven by Christensen. People who followed his writings are going to be successful in the current games industry and the tech industry as a whole. Steve Jobs was a big fan. Apple’s trajectory since 1997 is very much informed by The Innovator’s Dilemma.

The talk is about The Drowning and The Innovator’s Dilemma and how that book influenced a lot of my high-level decisions. It’s not really about the development of the game, but it’s about those decisions. I want to show the game as well. I’m proud of it.

GamesBeat: What if you didn’t do some of these things you tried here? Like if you didn’t have the two-minute limit for the battles with the zombies in the limited-size arenas. This limits make the action play out in a very short time. If you didn’t have these limits, it would be a very different kind of game then.

Cousins: Yeah. I go into this in my talk. We decided to play to the strengths of the platform. Rather than try to create a direct competitor with a Call of Duty or a Halo, we decided to create a shooter you can play in the moments when there isn’t an Xbox around. We think we’ll be able to compete with them in the future, but at the moment, the two-minute game rounds, the inventory management, the simpler story, the 2D cutscenes, all of those elements try to play to the strengths of the platform. We’re creating a game you can play when you’re waiting for a meeting or when you’re on the train or when your kids have capsized the TV.

We’re very influenced by other mobile games. Some of the biggest influences here, as I mentioned, are games like Angry Birds or Bejeweled Blitz, or the DeNA mobile games like Blood Brothers and Kaito Royale.

GamesBeat: You know Puzzle & Dragons? I’ve been thinking over why it’s so addictive. It’s got that Bejeweled gameplay in it.

Cousins: Puzzle & Dragons actually has one of the same mechanics as our game, which is you’re spinning a gacha to collect sets of things. Kenji Kobayashi, who’s one of the top guys at DeNA in Japan,  played our game and said, “Ah, it’s a bit like Puzzle & Dragons.” It’s a really addictive game. You have fun gameplay in the puzzle element, but there’s also that addictive gacha mechanism (sort of like a slot machine wheel) mixed in. The great Japanese games are about excitement, chance, the unexpected, and taking risks. The monetization is all around those emotions, unlike a western game, which is about going to a store and buying a better gun to go be powerful. It’s a very different approach.

GamesBeat: The violence level doesn’t seem as high as some of the other zombie games. It’s not so much of a splatterfest. Is that because of the platform again, because this is a broader platform?

Cousins: I wanted a game that would not be rated mature on iOS, because that reaches a broader audience. This game was on the expo floor at SXSW, and it was great to see kids playing the game. They loved it. But also, a lot of it just falls out of our intention not to make a typical zombie game. We didn’t want to have viruses and a city environment and a guy in a business suit with blood dripping out of his mouth. We wanted to break some of those clichés and hopefully have some of the stuff that’s exciting about zombie and post-apocalyptic settings, but without the, “Oh, okay, here we go again. It’s a George Romero game.” That ended up giving us a different violence level.

Things are still being destroyed and blowing up into parts, but there isn’t any red blood. It isn’t someone who was obviously previously a human being. It feels quite good to have a violent game, but not a gory or gross kind of game.

GamesBeat: It seems like zombie games got into that kind of arms race, trying to be…

Cousins: …the most outrageous, yeah. More blood, more exploding body parts.

GamesBeat: Do you have a sense for what the market is like for an action title? Is it going to appeal to different crowds?

Cousins: It’s probably going to see the most success with the audience in the west. I’m excited about the potential of China and Korea for a game like this, though, because shooters are big over there. I’ve done games that were released in Korea with EA. Guns and zombies and shooters are really popular in those markets. In Japan, not so much, but maybe the gacha elements and the collection elements might appeal to a Japanese audience. The Japanese guys at DeNA are split down the middle on this game. Some of them are like, “That feels a little more western,” but some of the guys in Japan really love the game.

GamesBeat: Is the touch screen doing everything you want it to do, or are there some improvements that could still be made?

Cousins: The touch screen itself is great. We’re not missing gestures or dealing with latency or anything like that. It’s a nice interface. I’m excited to do more touch screen games. We just want more powerful tablets. The team being who they are, they want the biggest CPUs and the biggest GPUs.

GamesBeat: Do you think the graphics level hits a mark where you could compare it to console or PC games?

Cousins: We’ve got high-dynamic range lighting. We’ve got color grading. We’ve got bloom. We’ve got normal maps and specular maps. Most of the techniques that you would use on a console are here, although maybe not a high-end PC game. It’s just that we’ve got less geometry. If you fit an Xbox game on this screen, it would be taking that many pixels. I’m not exaggerating. These are sub-720p games, so we’ve got to balance things out a bit.

GamesBeat: Is it harder to move fast, then?

Cousins: Things like fill rates, that particular computational task, are more difficult if you’ve got lots of pixels. At the same time, this has got more RAM than a PS3 or Xbox, so we can have high-resolution textures. It swings around and around. What we’re looking for, and I think we’re quite close to it — a game like Real Racing is close to it as well — is the point at which you say, “This is alright. This is okay. This is what I need. I don’t need a PS4. I don’t need an Xbox. This is good enough. This is more convenient and it’s free.” We want a certain console consumer to be thinking in that way.

We believe that there is an opportunity there. To see a game like Real Racing be a success—That’s the biggest download size for a free-to-play game. This is a 600 or 700 megabyte download like they are, and there haven’t been many freemium games on mobile that are that size. We feel like there’s a group of developers all moving in the same direction. We’re excited about everyone that’s going there, whether it’s NaturalMotion or Chair and Epic. We’re starting to see many more of these games coming through. It’s about time, I think.

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GungHo Online Entertainment has moved from obscurity to becoming one of the major players in mobile games this year thanks to the enormous success of its free-to-play Puzzle & Dragons game, which has dominated the top-grossing app store charts on a worldwide basis for months. It’s generating $2.5 million in revenue a day, with downloads above 11 million. It combines casual Bejeweled-like gameplay with a hardcore role-playing game.

Five months ago, GungHo’s stock was worth $280 million. Now its value is $4.5 billion, or more than Zynga ($2.8 billion). The company is about to become a majority-owned subsidiary of Japan’s telecommunications giant SoftBank, headed by Masayoshi Son, whose brother, Taizo, is chairman of GungHo. To players, that success isn’t a surprise. One woman, who shall remain nameless, told me she had spent more than $300 on the game.

A game built by just six people.

Puzzle & Dragons launched in the spring of last year, and it hit No. 1 on the Apple iTunes App Store in Japan on the top-grossing chart within a few days. It has been there ever since. It has also dominated the charts on Android, though the number of actual downloads has been small. A well-timed television commercial helped push it into the stratosphere in Japan. It’s not an overnight success story, as the company has been in business for more than a decade and it has created hits such as the Ragnarok Online game. The company operates multiple studios, and it now has more than 40 working on updates for Puzzle & Dragons.

In the U.S., however, Puzzle & Dragons isn’t as popular. Launched in November, the U.S. version is ranked at No. 53 on the Apple iTunes App Store in terms of top-grossing apps, and it is No. 874 in terms of downloads, according to App Annie. Morishita said the company hasn’t spent any money on marketing in the U.S., and it will wait to do so until it has higher average ratings for the game.

Meanwhile, GungHo acquired Grasshopper Manufacture, the maker of Lollipop Chainsaw. That company was founded by legendary game designer Goichi Suda, also known as Suda51. He made acclaimed games such as No More Heroes and Killer7. Such investments could improve the odds that GungHo will be more than a one-hit wonder.

We looked up Kazuki Morishita, the chief executive of GungHo, at the Game Developers Conference in San Francisco last week. Here’s our edited transcript of our interview with Morishita, who spoke through a translator.

GamesBeat: I had never heard of you guys until I started looking at some of the worldwide results of the top-grossing games. How did your success happen? How did your games become so popular?

Kazuki Morishita: GungHo was established back in 2002. It’s been more than 10 years. We specialized in PC and console games, so mobile was a later step. We only started there two years ago, and we’ve gone from there to lead the mobile space.

GamesBeat: How many mobile games had you done before Puzzle & Dragons?

Morishita: We’ve published a total of 10 mobile games so far. Five of those were in the past year.

GamesBeat: Why did this one become so popular?

Morishita: Good luck. [Laughs] I established the company when I was in my mid-20s, and back then I had a very hands-on approach. The company was smaller, so I could oversee all of the creative direction and production and development. We had a very big title in Ragnarok Online, a massively multiplayer online role-playing game, and as the company grew from there, I focused more on the business aspect.

A couple of years into that, the quality of our games started slowly declining. They weren’t as well received by the public. Three years ago, I decided to change our business style and go back to taking charge of the creative direction. I’m president and CEO of GungHo, but at the same time I’m also executive producer of all games. I’m very hands-on with all these releases. If I have to push back certain games because they’re not up to standards, I can do that. That helped with Puzzle & Dragons when it came to controlling the level of quality.

GamesBeat: What was it like to begin that project and see it through to completion? How much time and how many people did it take? Was there a time when you knew you had a hit?

Morishita: The concept stage for Puzzle & Dragons started in August 2011 or September 2011. At the time, card battle games were really popular in Japan, so I thought we could come up with a new type of game in that genre. I personally thought most of the games there were crap. I couldn’t understand why they were such a big deal. I thought we could turn the genre upside-down and come up with something very innovative. A month after the concept stage got going, I knew we had something pretty special. It was a lot of fun.

Altogether it took a little less than half a year to make. The first month after release, the team was only six or seven people, not counting the illustrators. Right now we’re up to about 40.

Originally, the game was designed so that you could play the puzzle sideways. You held the screen horizontally. Then, two or three weeks later, I had the idea of moving it this way and making this part the puzzle, so we could focus more on the dungeon-RPG elements. By doing that, we were able to merge more genres together. That was a turning point, where we realized this was going somewhere. It was almost by chance, but that’s what I mean about good luck.

To be honest, I wasn’t anticipating the sales to be so high. Even though I knew we had something fun to play, that doesn’t necessarily mean it’s a moneymaker. But I’m confident now that Puzzle & Dragons is the most addictive and fun game in the world right now.

GamesBeat: What day did it launch in Japan? How quickly did it take off from there?

Morishita: The iOS version launched on February 20, 2012, and it was only two or three days before it became a top-grossing game in Japan. Seven months later we released the Android version. Originally, we wanted to do a simultaneous launch for all platforms, but at the time we were a little short-staffed and our people were more used to developing for iOS. We developed on the native platform first, and when we had more people who were comfortable working in Unity, that’s when we started on the Android version. Android took about a week and a half to reach No. 1.

When we launched the Android version, since the game was now available on both platforms, we did a new marketing push. We aired a TV spot in Japan, which isn’t very common for mobile games, but we were confident that we had something very strong. Up until that point, it was all word of mouth spreading the game.

GamesBeat: Is your team all working on continuous updates for the game now?

Morishita: Right now, about half of those people – around 20 – are working on updates and ongoing operations.

GamesBeat: Most games that hit No. 1 only stay there for a few weeks. This one has been there for how long? What are some of the other records you’ve set?

Morishita: From day two until now, we’ve stayed at number one on iOS. We’ve never dropped out. It’s the same with Android.

GamesBeat: When did the bigger companies start paying attention, like SoftBank? When did bigger things start to happen?

Morishita: SoftBank was actually one of the first investors in GungHo. They had 33 percent of stock in the company in 2002. When they bought an added 7 percent that just brought their share up. As far as the operation of GungHo, nothing has really changed. Some people just sold their shares and Softbank picked them up.

GamesBeat: Are you surprised at how successful you’ve become?

Morishita: I’m not shocked or surprised, and some people find that kind of strange. [Laughs] We’re just so focused on creating and developing the next new fun game. I’m very calm about all this media interest. It’s not going to change our philosophy about making games.

GamesBeat: Puzzle & Dragons hasn’t done quite as well here in the United States. Are there any reasons you think might explain that difference? Do you think there’s something you can do to make it more successful here?

Morishita: In Japan, the game came out in February. In the U.S., it didn’t come out until November. There’s that lead time that Japan had. Since we reached the top of the charts there in a matter of days, it was very easy to get started on marketing quickly. If we’re going to do any major marketing push, first the user reviews and ratings have to be high. Otherwise people aren’t going to be interested when they go to see the product. Our thinking is that we’ll wait a while – however long it may take – for the reviews to be very positive. The game is already up to a 4.5 average on the App Store, and we’re at 4.1 or 4.2 on Google Play, so we’ll be ready to start soon.

Geography is another factor in play. The size of the country is so different. Something spreads through the media much quicker in a country like Japan. There’s a lot more lag from the time difference and the size difference over here.

Another important thing that we focus on before we spend a lot of money on marketing is to make sure that the operation is very smooth. When users review the game, I want the fun aspects of the game to be part of what they talk about, but also the online support and customer service. For mobile games that are constantly updating and doing events, we have to make sure the operations are perfect. It’s not like a console game that’s a one-time purchase.

At GungHo, we had 10 years of providing that kind of online customer service and operations on the PC side in our online games. We’re very familiar with what customers appreciate, and I think that’s part of why we were able to do so well in that regard with Puzzle & Dragons.

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The mobile revolution is on the minds of everybody at the Game Developers Conference (GDC). It is happening faster than anyone expected, and it came into sharp focus this week as Japan’s telecom giant SoftBank announced it would pay $265 million to acquire additional shares in GungHo Online Entertainment, the maker of the runaway mobile gaming hit Puzzle & Dragons. That game was made by six people over the course of a year.

SoftBank, run by tech empire builder Masayoshi Son, will own about 40 percent of GungHo Entertainment, up from 33.6 percent. But the stunning fact is that GungHo is now valued at around $5 billion, up from just $300 million about five months ago. What could have possibly made GungHo so much more valuable in such a short time, and is it possible that this game will generate $1 billion in revenues more quickly than the upcoming Battlefield 4 from Electronic Arts? Probably so, and that tells us more about the bifurcations in the video game business today.

Whether you believe the hype about mobile or not, you can’t avoid a conversation on the topic at GDC, which is drawing an estimated 23,000 game developers to San Francisco this week. Roughly half of the attendees at the show are now indie game developers, and they all dream of striking it big with games like Puzzle & Dragons. Asked why the game took off, Kazuki Morishita, chief executive of GungHo, said, “Luck.” Seriously, though, Morishita and his team carefully crafted the title until that had something that was simple and worked.

Puzzle & Dragons is the top-grossing app in the world today on Apple’s iTunes App Store and Google Play thanks to its incredible success on iOS in Japan. The game took off without much help. But in Asia, mobile messaging networks such as Line, Kakao, and We Chat are taking off like crazy. People are downloading lots of games via the mobile messaging networks, which add a social layer on top of Android in markets such as China, Japan, and Korea. Puzzle & Dragons, which combines a hardcore role-playing game and casual “Bejeweled-like” gameplay, has more than 10 million downloads in Japan and is monetizing far better than other titles. The company is generating an estimated $86 million a month, or roughly $2.5 million in revenues per day. In a word, that’s insane.

You could think of Puzzle & Dragons as an anomaly, the strange winner of a lottery where hundreds of thousands of mobile games are competing for the attention of gamers. But it is not alone. Finland’s Supercell has scored big time with Clash of Clans, a role-playing game that is bringing in an estimated $1.4 million a day. It is no wonder that other big digital game companies — Kixeye, Kabam, and Wargaming — are rushing into mobile games. Supercell is rumored to be raising a round of more than $100 million at a valuation of more than $800 million.

Compare what is going on in mobile with the traditional business. Battlefield 4, a hardcore PC and next-generation console game that EA announced this week at GDC with the release of a spectacularly movie-like trailer, represents the pinnacle of what veteran game developers can achieve. EA has hundreds of people working on the title, which includes lifelike human graphics and pulse-pounding sound. The title is at the high-end of the triple-A spectrum in terms of quality, but it may have a tougher time reaching $1 billion in sales than Puzzle & Dragons. After all, the best-selling first-person shooter game Call of Duty can generate $1 billion in revenues in a couple of weeks. EA has yet to knock that title off its throne.

Those who don’t succeed in making a transition to this new world of gaming are being left behind. THQ and Atari have gone bankrupt. Many console game studios are closing. It is no surprise that EA is in the midst of a change in chief executive officer and that traditional Japanese console game maker Square Enix also lost its CEO this week. EA has about $4 billion in revenue, but among Western game companies, it is a leader in digital games. Interestingly, China’s Tencent, a leading Internet company, also has about $4 billion in revenues related to games. With around $55 billion in market value, Tencent is far bigger than its Western rivals, and it is likely to keep on growing. Companies like it are expanding and will pay dearly to break into the business. Last year, Tencent bought 40 percent of hardcore game maker Epic Games at a valuation of about $825 million. It’s so strange that Epic is worth a fraction of GungHo, and it is probably on par in value with a company like Supercell.

By comparison, Puzzle & Dragons is a relatively simple title built by a small team. It came from a company that was struggling, and it faced tough opposition from some very large competitors. GungHo has a bigger game in mobile today than EA, Zynga, Disney, Gree, and DeNA. David Helgason, the chief executive of game engine maker Unity Technologies, said in an interview that that is a sign that indie developers are going to be successful for a long time to come on mobile platforms even as the major brands storm the platform.

If mobile keeps on gaining momentum, the choice for developers is going to become easier and easier in terms of where to place their bets. Developers vote on the future based on their platform choices. About 58 percent of developers plan to release their next games on mobile platforms such as smartphones and tablets. Only about 49 percent are planning to release their next games on PCs, and around 13 percent intend to release on consoles.

These figures are going to become more interesting going forward as the number of mobile devices climbs into the billions. But acquiring or investing in these small mobile companies at the height of their success is a risky matter. Zynga, for instance, acquired OMGPOP last year for hundreds of millions of dollars only to see its smash hit, Draw Something, come crashing down in the rankings as the fad that drove the game ran out of gas. Mobile games are golden if they can continue to stay at the top of the charts for a long time, but they can lose their value as quickly as they earned it.

Anil Dharni, an executive at Gree, told GamesBeat that you have to invest in titles and franchises that you believe will be around a decade from now. In the meantime, the whole industry is still just beginning to discover what works and what doesn’t. One executive at GDC told me that one of the tests for whether a game will have lasting power as a franchise is whether or not it has a strong community behind it. If it does, then it will be hard for challengers to take on a game that has a grip on a strong base of fans.

GungHo’s title hasn’t been around long enough for us to know if it has that kind of community. So purchasing a company like that has its risks. Buyers beware.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Mobile games are serious business. That’s probably why serious Japanese telecommunications company SoftBank just purchased a huge amount of shares in Puzzle & Dragons developer GungHo Entertainment.

SoftBank paid $265 million to acquire a 58.5 percent stake in GungHo. Puzzle & Dragons was the highest-grossing mobile game on both Android and iOS in February. This is largely due to its success in Japan. With its 10 million players, it’s possible that Puzzle & Dragons could become the first mobile game to earn $1 billion.

Puzzle & Dragons is a puzzle role-playing game that combines match-three mechanics with Pokémon style gameplay and art. It’s primarily responsible for pushing GungHo to the top of the highest-grossing developers list on Android and iOS (where it is No. 2).

GungHo fits with SoftBank’s recent ambitions to take the spot as Japan’s biggest mobile-Internet company. The corporation deals in broadband, media, marketing, and now … Puzzles & Dragons. SoftBank is targeting $10 billion in annual revenue.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Gamers are downloading Temple Run 2 in the millions, but it’s a Japanese game from GungHo Online that is raking in the cash.

Match-three role-playing game Puzzle & Dragon pulled in the most revenue on both iOS and Android in February, according to app-tracking firm App Annie. This is despite not even placing on the top 10 most-downloaded game charts for either operating system last month.

GungHo was the highest-earning developer on Google Play in February and the second highest on iOS.

With its multiple millions of downloads across iOS and Android, Temple Run 2 no longer cracks the top 10 app by monthly revenue. As ubiquitous as developer Imangi’s endless runner is, it’s monetization doesn’t generate income as efficiently as other games.

Of course, Minecraft: Pocket Edition, which sells for a flat rate, is the sixth highest-grossing iOS game for February. So monetization isn’t everything.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Asia’s mobile apps market can teach us a lot.

At the close of last year, the Pew Research Center found that 87 percent of U.S. adults (roughly 239 million) owned at least one mobile phone, and among those, 45 percent were smartphones. The concentrated ownership and rise of mobile devices isn’t a trend exclusive to the U.S. More than 25 percent of Japanese consumers currently use a smartphone, and there are more than 30 million smartphone users in South Korea. While the U.S. still has a higher number of users, Forrester predicts that smartphone usage within the Asia-Pacific region will grow by 20 percent in 2013. North America is only expected to grow by 10 percent.

As a result, developers in Asia are advancing the mobile space in unique ways – many of which have begun to or will influence western markets. During my latest trip to Japan and South Korea, I witnessed a few key trends that will shape the U.S. market for developers and consumers.

The platform within a platform

Kakao Talk, a messaging app that allows users to text, make voice calls, and share media for free, has evolved to become its own platform for third-party apps after gaining significant market penetration in South Korea (reported to be greater than 90 percent penetration with 27 million daily active users). Game developers can now tap into Kakao’s audience and social graph. In exchange, Kakao takes a 30 percent cut of the developer’s revenue. Similarly, Line, a Japanese messaging app released after the Tōhoku earthquake to ease jammed communication lines, has opened its platform and access to its 100 million users to third-party developers under a similar structure.

Several new mobile operating systems debuted recently, but it will likely be years before another major platform emerges and challenges Android and iOS. Instead, what will likely occur is the development of “sub-platforms” – emerging from popular apps (much like Kakao) or through distributed software development kits (SDKs).

The success of these sub-platforms is notable for developers: Line reached 50 million users in just a little more than one year (Facebook gained its first 58 million users over three years: 2004-2007), and the Kakao Games platform launch generated $35.3 million with 82 million downloads from 23 million unique users in October 2012 alone. The potential to successfully mold an app into a platform is a unique and real opportunity – and something for developers to keep in mind.

A healthy marketing mix

As U.S. consumers spend more time (and money) on mobile devices, many big-name brands (including GMC) are partnering with companies such as Tapjoy to integrate ads within mobile apps (Tapjoy’s CEO Steve Wadsworth will be speaking at our VentureBeat Mobile Summit on April 1-2, where we will delve deeply into the problem of monetization). Mainstream, consumer brands are shifting advertising budgets to balance between and even move away from traditional mediums with the rise of mobile.

In Japan, there’s an additional flow for mobile ad spending: mobile developers are also advertising on traditional mediums. In fact, the No. 1 and No. 2 TV advertisers in Japan are mobile gaming companies. TV advertising recently played a major role in the growth of Puzzle & Dragons (see video below). In addition, Tokyo is covered with giant billboards promoting top mobile games.

This isn’t something we’ve seen in the U.S. at scale, but it makes sense. Mobile advertising has many benefits (measurable results, real-time reporting, interactive, etc.), but that doesn’t discount the value of advertising on multiple channels. A key tenet for advertising is putting messages where your customers are, and what these Japanese companies have recognized is that they can effectively reach their customers beyond the mobile device. While the economics of TV advertising may not make sense in other regions, there’s a huge opportunity for U.S. developers to expand their customer base by leveraging the entire marketing landscape.

The lines continue to blur

One of the biggest trends fueled by mobile gaming is the expansion of the gaming audience. More than ever, games reach a broader and more diverse audience, and developers in Asia have led the way in creating content for this wider market. Some of the top games on Kakao appeal to audiences ranging from hardcore gamers to grandfathers by offering both skill-based challenges and casual accessibility.

GungHo’s Puzzle & Dragons may be the top grossing game in the world right now due to the game’s seamless combination of hardcore RPG elements and casual “Bejeweled-like” gameplay. This game goes beyond what is known as “midcore” by fusing polar opposite ends of the gaming spectrum together, demonstrating that high ARPU and high DAU do not have to be mutually exclusive.

It will be interesting to watch more mobile game developers experiment with this combination of broad, casual appeal combined with hardcore strategy and tactics in an attempt to approach the success of Puzzle & Dragons.

Asia’s mobile market offers huge potential for U.S. developers. Its key markets are expanding rapidly, and offer both attractive market opportunities for developers as well as valuable strategies to increase lifetime value.

Chris Akhavan is Tapjoy’s senior vice president of global partnerships. He has been at Tapjoy since January 2010 and manages developer partnerships, publishing and international expansion teams; leads app monetization, distribution and publishing strategy development. He is responsible for operations in North America, South America, Japan and Korea. Chris regularly speaks at industry conferences to share his expertise on app development and discovery, including sitting on panels at VentureBeat’s MobileBeat conference and Inside Social Apps NYC.

Mobile gaming is hitting its renaissance. In both the Google Play and Apple iTunes app stores, the percentage of money spent on games out of the total amount spent on apps is increasing, according to analytics firm App Annie, which released the data this week at the Mobile Gaming USA East event in New York.

The gaming industry and mobile device makers alike are putting their hopes in mobile games as the rocket to vast profits. While smartphone and tablet revenues are a small slice of the overall game market, the growth rates based on data from December are gathering momentum. Evidence collected by App Annie in December suggests that mobile gaming nirvana is not so far away.

The iOS app store continues to generate five times more revenue from games than Google Play, but Google Play is growing. In fact, in South Korea, the money spent on games is almost entirely on Google Play. In Japan, iOS is significantly bigger than Google Play. Apple generates more game revenue than Google Play in the United Kingdom, China, Australia, Canada, German, France, Russia, and Italy. Still, Google Play earns a higher percentage of its revenue from games compared to the Apple iOS app store.

“What was very telling was that December was the biggest increase we have ever seen for iOS, driven by device sales and promotions,” said Oliver Lo, vice president of marketing at App Annie, in an interview with GamesBeat.

Google Play gaming grows

For games, the top three countries generating revenue in the Google Play store are Japan, South Korea, and the U.S. Together, they drove about three-fourths of the Google Play games revenue in December, said Lo.

These three countries also spend a higher percentage of app money on games than any other country. In data from the month of December, South Korea’s Google Play app revenues are 95 percent based on games. Japan’s Google Play app revenues are about 88 percent based on games, and the figure for the U.S. is 76 percent.

With Google Play, the percentage app downloads from games ranges from mid-20 percent to low-40 percent figures. Arcade, action, and casual games make up close to two-thirds of game revenue. Other popular categories in descending order are brain and puzzle games, cards and casino, sports, and racing. South Korea and Japan skew toward brain, puzzle, and casual games. In the U.S. and Australia, the more popular categories are card and casino games.

Japanese gamers are big spenders. With Google Play, Japan has the highest games revenue-to-download ratio by far. As a category, cards and casino games have a high revenue-to-download ratio.

On Google Play, the top app publishers in December in terms of downloads were Facebook, NHN, Rovio, Google, and GO Launcher. Japanese and South Korean game publishers dominate the revenue rankings for Google Play. The top revenue producers worldwide were NHN, DeNA, GungHo Online, Gree, and Colopl.

For games, the top revenue generators on Google Play in December were GungHo Online’s Puzzle & Dragons, DragonFlight for Kakao by NextFloor, NHN’s Line Pope, Anipang for Kakao by Sundaytoz, and a casual title from Patistudio. Of these top five, all were from Japan and South Korea.

“We’re seeing reverse globalization, where Japanese and Korean companies are dominating the store,” Lo said.

In the U.S., the top revenue generators among games on Google Play were DeNA’s Rage of Bahamut, DeNA’s Blood Brothers, Ateam’s Dark Summoner, Playtika’s Slotomania, and Dragonplay’s Slot City.

iOS app store gaming stats

App Annie found that the U.S. and Japan contributed over half of the total revenue for the iOS app store in December. Asian countries lead the way in percent of revenue coming from games on the iOS app store. China has more than 80 percent of its iOS app store revenue coming from games. It is followed by Japan, Macau, Singapore, and Canada.

Japan has the highest games revenue-to-download ratio on the iOS app store, followed by Switzerland, Australia, and Singapore. As a category, card games have the highest revenue-to-download ratio in the iOS app store, followed by role-playing games, casino games, and strategy games.

Apple’s store is still the cream of the crop, earning 350 percent more revenue than Google Play, and growing more in absolute dollar figures than the upstart Android store.

On iOS, Apple and Google are the top app store publishers in downloads during December. They were followed by EA, which had 958 apps, Rovio, which had 28 apps, and Disney, with 199 apps. But in revenue, EA was No. 1 in December, followed by Supercell, the Finnish publisher of Clash of Clans. It was followed by Gameloft, Gree, and GungHo Online. The rest of the top ten included Zynga, Kabam, NHN, Square Enix, and Rovio.

When it comes to games alone, Clash of Clans was the top worldwide revenue producer on iOS  for each month in the fourth quarter. It remained No. 1 in December, followed by EA’s The Simpsons: Tapped Out, Puzzle & Dragons by Japan’s GungHo Online, Supercell’s Hay Day, and King.com’s Candy Crush Saga.

And in the U.S., the top revenue generators among games in the iOS app store were Supercell’s Clash of Titans, EA’s The Simpsons: Tapped Out, Supercell’s Hay Day, Backflip Studios’ DragonVale, and Kabam’s Kingdoms of Camelot: Battle for the North.

Putting mobile gaming in perspective

The amount of money associated with mobile apps is still relatively small. Electronic Arts reported $1.2 billion in revenues in the last three months of the year. But mobile games accounted for only $100 million of that amount. That was up 18 percent from a year ago. And EA said that  EA said that The Simpsons: Tapped Out was a top-grossing game on iOS in the quarter, generating $23 million in digital revenue. By comparison, a top hit on the consoles can generate hundreds of millions of dollars in sales.

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