Video Game Industry: No Rules Left to the Games

The video game industry is under attack. Every month sales of video games and consoles continue their precipitous decline. Why? The number of smartphones and tablets is exploding, giving gamers a range of options for nearly free play, without the cost or hassle of a console or the commitment of a game purchase.

And now it's not just casual gamers playing "Angry Birds" on their iPhones. More hard-core gamers are looking for a way to play on the go, so startups are turning mobile devices into full-blown gaming systems.

A startup called Bladepad is working on anApple iPhone case that turns into a video game controller — replete with dual illuminated joysticks and the same kind of buttons found on regular console controllers. (More: Top Disruptive Products)

The controller connects with the phone via Bluetooth, and is detachable, so it doesn’t add bulk when gamers are on the phone, addressing the iPhone’s limitations when it comes to playing hard-core games — like first-person shooters or sports games.

The company’s founder, David Baum, turned to crowd-funding site Kickstarter to raise money, and to build support from game developers, but canceled the fundraising push in August. Now, the company says the product will be available this holiday season. The challenge: ensuring there are enough iPhone apps that work with the controller.

“It's clear that the quality of mobile games is improving with faster processors and better displays on smart phones and tablets,” said Michael Pachter, managing director of Wedbush Securities. “This has caused a migration of gamers at the more casual end of the spectrum away from dedicated consoles and handhelds toward mobile phones and tablets." (More: The Zynga Effect)

Bladepad isn’t the only company looking to turn smartphones into sophisticated video game controllers.

Another startup called iMpulse has turned to Kickstarterto raise funds, Calling it the world’s smallest wireless controller for mobile devices, the company says it’s small enough to add to your key chain, and connects via Bluetooth to what it claims are hundreds of iOS devices and thousands of Android devices.

Consumers seem eager; 25 days ahead of its funding deadline it raised $20,000 more than it was planning to.

These startups have joined a number of more traditional controllers that work via Bluetooth with iPhones or Android devices.

But it’s no surprise that enthusiasts are designing their own versions and hunting for funding; gamers are notoriously passionate about the gaming experience, and smartphones are increasingly popular.

Source: Nintendo

Global smartphone shipments are expected to hit 1.7 billion in 2017, up from 450 million last year — that’s an annual growth of more than 20 percent, according to UK research firm Ovum.

So what’s the traditional video game industry doing about the rise of mobile devices?

Nintendo is embracing the tablet trend making the controller for its new Wii-U a touch-screen tablet, which looks a lot like an iPad. The Wii-U is designed to enable users to play with both screens, creating a 3-D gaming environment.

And the traditional video game makers — whose bread and butter is selling packaged software — are also shifting gears.

Electronic Arts offers several of its biggest video game brands, including Madden Football and Fifa Soccer, on smartphones, charging about $5 per game, plus the option of in-app purchases.

That’s nothing compared to the $60 these games cost at retail, but it allows EA to make its brands ubiquitous across various platforms. The gaming giant has said it wants people to be able to “snack” on mobile games during the day and then sit down for a proper “meal” at night.

Credit Suisse initiated coverage on the online video game industry, with an Oct. 10 report discussing the “proliferation of smartphones and tablets as an alternative content outlet for video game publishers as well as the movement of consumer dollars away from the console market and consumer packaged goods.”

With software consumption becoming "less tethered to dedicated console hardware,” as the CS report put it, it's likely that console-style hardware will further accelerate hard-core gamers shift to the mobile platform.

The big question: whether mobile gaming can feed into the traditional gaming business, or whether it cannibalizes it, pushing EA and its rival game-makers to re-adjust to mobile’s lower margins.

--by Julia Boorstin