Why Best-Selling Apps Are Investing in TV Advertising

If you thought the app market had completely matured, you'll want to read about its latest evolution.

Jul 14, 2014 at 11:26AM

Business is always always changing, but when change is gradual, we tend not to notice. So maybe you've missed the latest change in the app market. I've been overseas for three years and haven't seen the gradual progression first-hand. Now I'm back, and one change in the app market reached out and slapped me in the face.

It's changing the way apps do business.

Introducing 'app-vertising' 
I was recently watching TV when it went to commercial break. Soon, I was presented with cartoon characters destroying each other. This included help from a Mr. T-like character riding a hog. My immediate thought: "I must see this movie." Shockingly, I discovered it was a commercial for an app called Clash of Clans

Mr T

Source: Clash of Clans Facebook page

Apps have advertised online for years, but they're now using TV spots to boost their rank in the app store -- and it's working. App Annie reports that several apps saw a boost in downloads after airing commercials.

Leading the way is a small company called Supercell, the developer of Clash of Clans and Hay Day. This outfit is quickly approaching $1 billion in annual revenue. Clash of Clans, its smash hit, was released in 2012, and by now would have normally exceeded its lifespan. In fact, this past December, the app had fallen out of the top 10 in downloads and had slipped to second in revenue. But Supercell breathed new life into the app with the TV spot. This ad amassed more than 14 million views on YouTube in its first week. Now Clash of Clans is No. 8 in downloads and has regained the No. 1 spot in revenue.

King Digital Entertainment (NYSE:KING) experienced similar success with successful game trailers for Candy Crush and Farm Heroes Saga. Before December, Candy Crush wasn't even in the top 100 mobile games in Japan. Then King ran a TV ad, and within a couple days, it reached the top spot.

A breakdown of the app world
Companies like Supercell and King Digital are pure app market plays. But you may be surprised by some other big-time app producers. Electronic Arts (NASDAQ:EA) and Disney (NYSE:DIS) are both among the top 10 downloaded app producers -- earning the No. 2 and No. 10 slots, respectively.

But those spots are earned by the sheer number of apps produced. EA has 955 apps to its name, while Disney has 560. Supercell and King Digital crack the top-10-downloaded producers with far fewer apps -- six and 33, respectively.

To top it off, Supercell and King are the highest earners in the app market, and Electronic Arts investors are noticing. In the most recent conference call, one investor asked why these EA competitors continue to "dominate" the revenue chart. EA CFO Blake Jorgensen replied "...there isn't one established formula for how to be successful in that category."

But considering that Supercell and King both dominate app revenue, and both have the common factor of running TV ads, it's hard to believe that ad campaigns aren't an extremely relevant part of the equation.

A glimpse of the future?
If app-vertising is the newest way to get noticed and downloaded, then it stands to reason that the companies that have the deepest pockets will be able buy their way to the top of the charts. That means we're departing the app era of a somewhat lucky Angry Birds breakout, and we're entering the era of big spending to grab your attention. 

In March, Disney acquired Maker Studios for $500 million. You've likely never heard of Maker, but maybe you've seen some of its YouTube channels like "Epic Rap Battles in History." Disney CEO Bob Iger praised Maker as a leader in short-form video, a space he feels Disney is lagging behind. 

The stated reason behind this acquisition is so Maker Studios can help extend the reach of Disney's Star Wars and Marvel properties through short-form online video. But going beyond the obvious, under the Maker umbrella is a sub-network called Polaris, which is dedicated to gamer culture.

From this acquisition, Disney should gain substantial insights into the gaming world, which could propel the creation of more appealing games. Additionally, this acquisition provides a valuable medium for creating buzz for those games, just as Supercell and King have done. 

And if Disney can find the recipe to mobile gaming success, expect copycats to follow suit. Simply put, the days of small app-making start-ups may be numbered.

Keep your eyes open
Just when we all assumed the app market had matured, this app-vertising change nearly slipped under the radar. In the near term, I'll continue watching how Electronic Arts and Disney respond to Supercell's super success

Apps are advertising on TV, but TV is in for big changes
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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