Bad News for Videogame Industry: Players Going Mobile

Mobile gaming is exploding, according to a new report from The NPD Group, which says that of people who have mobile app games, 59 percent of total gaming is done on a mobile device, and close to a quarter of people who play mobile games ONLY play on mobile devices, and never on consoles.

This is a trend on the rise: About half of gamers said they're playing more mobile games this year than last year.

The reason for the rise? It's very simple — not only is it convenient, but people love to be able to play for free.

A deeper look at NPD's numbers — gathered exclusively for CNBC — reveals just how prevalent free mobile gaming has become, and the threat that could pose to traditional game companies. (Read More: The Most Anticipated Videogames of 2013 .)

The average number of gaming apps players have on their primary mobile device is 17. Interestingly, those playing on Apple iPhones have more gaming apps — 18 — than Android users.

But paid apps are the minority: Just less than half of gamers have paid for an app. Of those who do buy apps, they've paid for 26 percent of all their gaming apps. Of the entire universe of mobile gamers, just 12 percent of apps are paid. What about in-app purchases? They're not the holy grail for game-makers: Just 29 percent have made an in-app purchase or upgraded from a free to a paid app.

The real problem: People who have not paid for apps are not likely to do so soon. And the reason NPD found is obvious: There are just too many free options. Certainly there is an argument to be made that game-makers can cash in from a small percentage of players. But if they can't convert a larger percentage of players to pay, then there's a fundamental limit to the market's growth.

With the decline of social gaming — just look at Zynga 's stock's 70 percent plus declines year-to-date — the hope has shifted to mobile games. (Read More: Zynga Is in Trouble...And That's Not Great for Facebook .)

There's no doubt that mobile games have captured consumers attention and time. The question is whether the proliferation of free options will pose a fundamental threat to the profitability of the industry. (Read More: Fewer People Now Playing Videogames .)

Big, recognizable brands, like Electronic Art 's "Madden" or "Fifa, " have an advantage — they can cut through the clutter. But the industry has to figure out how to make money from people who are willing to pay, and to profitably complete the paradigm shift from $60 games to free mobile apps.

—By CNBC's Julia Boorstin

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