Mobile Gaming Needs More Hits Than the Music Industry

Source: Zynga.

"I've written about 78 top 10 songs, and I still don't know what a hit is."
-- Motown legend Lamont Dozier

A good article on how to make a hit song appeared in The Guardian a few years ago. In it, some legendary songwriters weighed in on what does and doesn't make a song reach the top spots. The conclusion was that, while there are some core components that every hit song needs and some to avoid, it mostly comes down to luck.

That's troubling news for songwriters and mobile game creators alike. Both Zynga  (NASDAQ: ZNGA  )  and King Digital (NYSE: KING  ) rely on creating hit after hit to bring in new revenue and make investors happy.

Zynga has managed to create some blockbusters over the past several years, from FarmVille to Words with Friends and Zynga Poker. But just like popular songs that get played out after too many spins, mobile games can die quickly. The ephemeral DNA of mobile games is both part of their draw and their demise. They typically sweep across massive amounts of users quickly, and then are forgotten when the latest new game arrives.

Zynga's new CEO and the former president of Microsoft's interactive entertainment division, Don Mattrick, knows this. That's part of the reason Zynga recently snatched up NaturalMotion, the makers of Clumsy Ninja, for $527 million. The company needs to create big hits, or at least purchase them, on an on-going basis to keep revenue coming in.

Zynga makes its money mainly from getting about 2% of its active users to make in-game purchases. A little revenue comes from advertising, but not much. Because the percentage of in-game purchases is so small, the games have to be wildly popular to generate any significant sales.

Snatching up companies like NaturalMotion obviously helps Zynga in the short term, but it's questionable how well the long-term strategy will pay off. There's no way to ensure NaturalMotion's games will continue to top the gaming charts.

A gaming fountain of youth
But perhaps Zynga isn't the best at representing the mobile gaming industry. The company walked hand-in-hand with Facebook for too long and has staggered a bit on its own. King, on the other hand, has had a much longer time creating purely mobile games, not to mention it thinks it's discovered the secret to getting users to play and pay. In a recent SEC filing, King said, "We believe we have a repeatable and scalable game development process that is unparalleled in our industry."

While it's possible there could be some truth to this, it's still too early to tell whether King's statement contains mobile gaming genius or simple hubris. It's hard to argue against the company's Candy Crush Saga success. The Economist pointed out recently that the game is played by 93 million people every day and made up 78% of the company's fourth-quarter 2013 gross bookings.

But every good investor knows that past success doesn't predict future gains, especially in mobile gaming. While it's arguable that any company needs big hits to continue to operate (i.e., Apple needs new innovative devices), mobile games don't have the same long-tail revenue streams that products do or that even successful console games can generate. Once a smash-hit mobile game about candy is played out, it's finished.

If the music industry has any advice to offer, it's that King hasn't found the secret to manufacturing hits. At the risk of speaking sacrilege by comparing Bob Dylan's songwriting to mobile games, here's what Dylan said to Apple's former CEO, Steve Jobs, in Walter Isaacson's biography of the late innovator: "They just came through me, it wasn't like I was having to compose them. That doesn't happen anymore, I just can't write them that way anymore."

If Zynga and King think they know something about creating mobile game hits that Dylan doesn't know about writing songs, so be it. But I'd bet against that any day. 

Our CTO invested $100,000 in this stock
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2014, at 11:50 PM, jaylandsman wrote:

    apples and oranges. i'd suggest doing some due diligence next time. Supercell and King have 6 of the top 8 grossing mobile apps (and you suspect it's because they are both on a young dylan esq creative genius tear). Their success is more science than art -game theory, psychology, big data, engineering. I hope the"one hit wonder" sentiment lasts for another 6 months. So I can load up the truck on the way down! Contrary to popular belief, beariers to entry are significantly misunderstood for the top grossing gaming apps. Hardly any movement in the past year in the top 10. Look it up, talk to folks in the industry. Value investors have a rare opportunity to buy the leader and still a growing company in a growth sector at a big discount. King is a cash machine.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2887399, ~/Articles/ArticleHandler.aspx, 8/31/2015 4:02:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

Today's Market

updated Moments ago Sponsored by:
DOW 16,572.89 -70.12 -0.42%
S&P 500 1,975.66 -13.21 -0.66%
NASD 4,787.49 -40.83 -0.85%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:46 PM
ZNGA $2.51 Down -0.01 -0.40%
KING $13.32 Down -0.18 -1.33%
King Digital CAPS Rating: *