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Mobile Gaming Needs More Hits Than the Music Industry

By Chris Neiger - Mar 31, 2014 at 2:30PM

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Zynga and King rely on hits even more than songwriters do -- and that's a very bad thing.

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 ( ZNGA -0.61% ) and King Digital ( KING.DL )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. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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