Costs Mount for Mobile Game and App Launches

One of the conceits of the app era is that their development is inherently less expensive/more profitable and would lead, once again, to a new era of innovation and entrepreneurship because of the democratization of the new, new, new business model.

That theory is so last week.

Turns out that all that accessibility had an impact recognizable to anyone who stayed awake during at least some of Econ 101. All that development stimulated competition, a lot of it, which then necessitated significantly increased investment in marketing and promotion in order to differentiate one product from another so that new apps could break out of the pack and into the public consciousness.

The cost ratchet has become such a burden that serious questions are now being raised about economic viability for the industry, if it can even be called that. Again, this sort of concentration is a natural outgrowth of successful new product development. Think autos, computers and mobile phones. The surprise is really that anyone is surprised.

The next phase will probably be a gradual diminution of free offerings followed by price increases for the remainder. Followed, eventually, by other cycles of expansion and contraction. From a business standpoint it is hard to see how this merits much attention, especially given earlier warnings about overcrowding in this market. From a societal standpoint, there are just not enough revenues or jobs at stake to justify any intervention. But it is worth noting the hardiness of certain basic theoretical tenets in otherwise innovative settings. JL

Jessica Lessin reports in the Wall Street Journal:

Game-app makers, who used to rely mostly on word-of-mouth to move their products, have been forced to ratchet up the cost and fanfare of their marketing campaigns to rival those for lower-end videogames and books, even borrowing from Hollywood's playbook.
Mobile-game maker ZeptoLab UK on Thursday will release "Cut the Rope: Time Travel," its first major title in the popular "Cut the Rope" series since 2011. The launch won't be a quiet one.
If all goes as planned, the puzzle game will go live in 125 countries and in a few dozen app stores, including those run by Apple Inc., AAPL -0.16%Google Inc. GOOG +0.68%and Amazon.com Inc. AMZN -0.04%The game will be accompanied by tie-in merchandise including T-shirts, and eventually plush toys, as well as a 10-part animated Web series that was months in the making.
The company has been building buzz for the game through a six-week promotion with Burger King Worldwide Inc., BKW -0.33%which began featuring the game in its kids' meals last month.
Overall, ZeptoLab says it will spend around $1 million launching "Cut the Rope: Time Travel," which traces the adventures of the green monster Om Nom as he meets versions of himself in time periods like the Renaissance and the Middle Ages. On top of that sum, which includes the costs of animation, the company is counting on some free help by promoting the game inside its other titles.

By contrast, the company spent almost nothing to promote the first "Cut the Rope" game when it was released in 2010. It gave the title to a third-party publisher to distribute, then sat and waited.
Now, "it's amazing what it takes to launch a new game," said Misha Lyalin, chief executive of U.K.-based ZeptoLab.
Indeed, the company's release of "Cut the Rope: Time Travel" reflects the fact that launches have become make-or-break moments for apps. Mobile games, in particular, are locked in a fierce battle for customers and are constantly being eclipsed by new offerings from behemoths like Electronic Arts.
Other developers are outspending ZeptoLab on launches, vying for a slice of mobile-games sales, which last year topped $2 billion in the U.S. alone, according to the NPD Group. Mobile-advertising firm Velti VELT +13.04%PLC estimates a top games-app publisher typically spends $5 million on mobile marketing for a new title, up from $500,000 in 2009.
To introduce its recent "Puzzles & Dragons" game in Japan, Tokyo-based GungHo Online Entertainment 3765.JA +19.26%ran a TV ad, a highly unusual tactic for a mobile-games. Mobile-gaming giant Rovio Entertainment Ltd. promoted the November launch of "Angry Birds Star Wars" with multiple online-video trailers, which resembled movie trailers in their production quality.
A GungHo representative didn't reply to requests for comment. A spokeswoman for Rovio declined to comment on the cost of the campaign, which also included an event at a New York City Toys "R" Us.
Though some developers still release apps in hopes that their merits alone will propel them up the app-store charts, "app launches are clearly becoming more important, and a positive launch is crucial to gaining those early users," said Jack Kent, an analyst with research firm IHS. But Mr. Kent said the buzz around a launch doesn't determine its success. He cited recent high-profile launches by game maker Zynga Inc. ZNGA +5.05%of games that failed to live up to expectations.
A Zynga spokeswoman declined to comment.
ZeptoLab, founded and financed by twin brothers Semyon and Efim Voinov, first gained fame with 2010's "Cut the Rope," which became a gaming sensation, and which the company says was profitable from the start. Since then, its games, which also include "Pudding Monsters," have been downloaded more than 300 million times.
Unlike some other game developers, ZeptoLab doesn't advertise inside games it doesn't own, because that strategy is getting pricey, costing around $1 to $2 per each new user who downloads the game, according to several mobile marketing firms. Instead, the company has pursued other channels. It paid to have some earlier "Cut the Rope" animation episodes shown in movie theaters in the U.S. late last year.
"A growing franchise creates huge exposure, and that's very important," said Mr. Lyalin, the CEO. But he declined to comment on the cost of the movie-theater promotion.
The company will offer the game in iPhone and Android versions for 99 cents, in a free Android version and as a $2.99 iPad game.
ZeptoLab's concept for its latest title emerged in early 2012 amid conversations with Burger King, which was interested in running a "Cut the Rope" promotion for its kids' meals. At the same time, the ZeptoLab team wanted to introduce new characters without sacrificing Om Nom's brand recognition. So, they decided to give the monster some alter egos from different time periods.
Even before building the app, ZeptoLab reached out to some of its 100 merchandising partners, including plush-toy maker Vivid Toy Group Ltd. and Round 5. Those discussions helped inspire new merchandise featuring Om Nom as he appears in various period of history built into the game.
The toys will go on sale later this year, a busier period for toy sales. Vivid plans to promote its "Cut the Rope" line with television ads.
ZeptoLab began preparing for the next phase of the launch around October, when several of its developers started building an online version of the new game for the Burger King campaign, in which the fast-food chain would give away Om Nom toy with its kids' meals, along with a code allowing the user to play an online version of the game.
A different ZeptoLab team turned its attention to animation, a pet project of chief creative officer Semyon Voinov, who had been taking animation lessons on the side. The animated clips to market the new game will be distributed inside the game and on Google's YouTube video site.
Around January, about a dozen of ZeptoLab's developers, located primarily in Moscow, started coding the mobile version of the game. Because the company had already built the Web game for Burger King, creating the mobile version took just four months, less than the typical six months.
In March, Burger King kicked off its "Cut the Rope: Time Travel" promotion, delivering a toy Om Nom in 17 million kids' meals. Mr. Lyalin said Burger King paid ZeptoLab as part of the deal but declined to say how much.
A Burger King spokesman declined to comment on the results or cost of the campaign.
Earlier this month, ZeptoLab's chief revenue officer, Diana Moldavsky, traveled to Silicon Valley to show off the new game to Apple and Google, hoping they would choose to promote it in the app stores as an "Editors' Choice" or "Staff Pick."
A spokesman for Apple and a spokeswoman for Google declined to comment.
After ensuring there wouldn't be any kinks in approving the app, ZeptoLab settled on April 18, a Thursday, the day of each week when Apple touts a new set of apps. ZeptoLab says some app stores have hinted they might promote the app but they often don't have many advanced details.
One of the last elements of the plan to be completed was price. Mr. Lyalin knew the mobile market was shifting from paid games to free-to-download games that offer in-app purchases. He decided to stick with the paid strategy, with some in-app purchases to unlock more content, because he said he believes that everything hangs on the quality of the game itself.
"If it doesn't stick, no amount of money will help," he said.