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Got Game? Videogame Industry Turns to Mobile

The holiday shopping season is always a crucial one for the videogame industry.

Jonathan Alcorn | Bloomberg | Getty Images

But this year the explosion of the number of mobile devices and tablets is changing the game: Though the industry continues to see record-breaking hits like "Call of Duty: Black Ops 2" from Activision Blizzard, overall game sales are on the decline. (Read More: Call of Duty: Black Ops 2 'Shatters' Pre-Order Records.)

Now game makers must figure out how to grow profits from mobile games that are free or cost just $1 or $2.

Electronic Arts is in a particularly precarious position, because it must grow its mobile profits without cannibalizing sales of $60 packaged games.

Its response is a strategy EA calls "fewer, bigger, better."

It's slashing the number of new console and PC games it releases each year from 67 in its 2009 fiscal year to just 22 in its 2012 fiscal year. In its fiscal 2013 EA will release just 14 packaged game titles, but it's doubling down on digital, with more than 30 mobile and social games, building on its library of over 500 mobile titles. (Read More: Will It Be 'Game Over' for Videogame Makers This Holiday?)

Many of EA's mobile games are free, with the option of buying extras or making in-app purchases, others cost 99 cents or $1.99. And the company said the range of low cost price options aims to appeal to the billion-plus potential gamers with smartphones.

"Mobile games are as profitable as console games," EA's Vice President of "All Play" Nick Earl said. "The costs are actually less and the revenues can be as much if not greater than a console product."

Earl said that EA is seeing an increase in what it calls "conversion rates"—the number of people who are paying to play. In addition, he said, the average amount that people spend has been increasing.

EA's mobile business is small but growing: Revenue grew 59 percent to $88 million last quarter, driven by a 120 percent increase from smartphones and tablets. Many of EA's hit mobile titles are based on popular console games, like "Madden," "The Simpsons," and "FIfa."

The goal is to create cross-platform play, where people play a game on mobile devices during the day and then pick up the game on consoles at night. The idea is that if people can play across devices, they'll keep buying traditional games, and they'll stay hooked on EA titles, rather than defecting to mobile-only brands like "Angry Birds."

Meanwhile, Zynga is tackling the growing mobile market from a different angle: It's shifting gears to mobile because its core business, social games like "FarmVille" and "Mafia Wars" on Facebook, is on the decline.

Now that people are spending more time on mobile devices and less time tied to "FarmVille" on Facebook, Zynga is providing casual gamers with low-cost alternatives to the $60 games they used to buy from Nintendo around the holidays. (Read More: 10 Must-Have Videogames This Holiday Season.)

Zynga already has five of the 10 most popular mobile titles and more than 35 mobile games across iOS and Android devices. Now, the comany said it will launch four games a quarter, double the number of web games it'll introduce.

Zynga offers all of its mobile games free and ad-supported, with two other ways to profit from mobile game play. People can pay for ad-free versions, or can make in-app purchases to advance their game.

It's starting to work, with mobile generating 20 percent of Zynga's revenue last quarter, up from just 6 percent a year ago. This comes as Zynga has restructured, weaving mobile into every part of the business. It's combined its web and mobile teams and is cross-promoting mobile games to leverage its scale. (Read More: Zynga Does a Management Shakeup.)

Travis Boatman, Zynga's vice president of mobile, said the company is looking for ways to cash in on the 1.2 billion smartphones and tablets expected to be sold next year.

"I think the additional accessibility of all these new consumers coming to the space is just a massive opportunity, and it's significantly larger than it was in the past," he said.

Boatman said he understands why the growth of mobile games is correlating with the decline of casual packaged goods games.

"If I were to choose, I would choose a mobile phone or a tablet, because it's so much easier and games are so much more accessible," he said. "And at the end of the day I want to have a fun experience and it's much easier because most of my friends are either on these large platforms like Facebook or on mobile phones."

And though mobile games aren't exactly stocking stuffers, both EA and Zynga say they expect to see a boost in mobile game revenue this holiday shopping season. As people unwrap their new smartphones and tablets, they're likely to download new games and cash in their gift cards.

—By CNBC's Julia Boorstin
@JBoorstin

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.