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Gameloft's Alexandre de Rochefort

CFO discusses iPad and why early adoption of new devices has paid off for the company

Gameloft's financial results for 2009 showed another year of revenue rises for the company – 11 per cent on 2008, with iPhone sales growing 231 per cent to outperform even Gameloft's own predictions.

The performance, combined with its appearance on-stage with Steve Jobs for the unveiling of the iPad earlier this month, marks the start of a great year for the company, which was launched in 2000 by Ubisoft co-founder Michel Guillemot. And, speaking to GamesIndustry.biz this week, CFO Alexandre de Rochefort predicted the coming years will see further growth in the mobile game market still, as smartphones take over from Java handsets and devices such as iPad offer even greater gaming experiences.

GamesIndustry.biz 2009 saw revenues grow by 11 per cent for Gameloft. What strategies and investments fuelled that growth throughout the year?
Alexandre de Rochefort

Well, there is absolutely no doubt that our early positioning on the iPhone was key to this growth rate. Our sales on the iPhone reached €17.6 million - which was way above our initial guidance of €15 million, which itself was quite aggressive at the beginning - and that's the key to the market in our view.

If I look at the long term growth for Gameloft and for mobile gaming in general, what I see is that the attach rate on Java phones is around 3 per cent, whereas on the next generation of smart phones beginning with the iPhone, the attach rate is above 10 per cent. On the iPhone several studies have shown it's even as high as 15 per cent. My point is that, basically, there is absolutely no doubt that in the next 3-4 years all Java phones will have been replaced by the next generation of smartphones. And this means that even if we have a similar install base – I'm not even betting on the increased penetration of mobile phones in the world, I'm just saying at equal install base - we are capable of growing this market 3-4 times just due to the fact that the games are so much better on the next generation smartphones than they are on Java phones. Because of that, the consumer experience is much better and therefore – and we are living and experiencing this as we speak – the tie ratio is much higher on these phones.

Just keep in mind that a Gameloft Java game is a 1MB game whereas a Gameloft smart phone game like on the iPhone is 100 – 400MB. So there's no question that the consumer experience is much better.

GamesIndustry.biz So your strategy will be to continue to support new devices as they are released?
Alexandre de Rochefort

Yes, which is something that we've been doing from the start. All in all, what we're saying is that the transition from Java phones to smartphones in the US, Europe and Japan is really now quickly becoming a reality. And we've been preparing for this shift for years now. Keep in mind that when we started to work on the Nokia N-Gage, I remember a lot of analysts were quite dubious about our reasons for going there. The thing is, we've been preparing Gameloft to be able to develop 3D games since 2004.

And the reason why Gameloft has such high market share on the App Store, along with EA, when Glu and the other companies are nowhere to be seen, is really because we've been preparing for this shift for years now. And on the Palm Pre, which is now available to download iPhone type games since January 2007, we've also seen very very good results. The two companies that are making the most money on Palm Pre in gaming are again EA and Gameloft. But the other guys, none of our competitors, are making any significant money here.

GamesIndustry.biz So your success has come from supporting these devices – like the N-Gage and Java phones – from early on, when other companies maybe didn't see their potential?
Alexandre de Rochefort

Yes, but all the players in the industry have been working on Java phones since 2002 when the first ones arrived on the market.

Where I think we've been good is with really starting to work on 3D devices such as the N-Gage and the DS very very early. Our first DS game was Asphalt Urban GT and was launched in December 2004. My point is, we've been teaching our teams to create 3D games since 2004. So when the iPhone arrived on the market, when the App Store was launched, we were ready. And the first 3D soccer game on the market was a Gameloft game. The first 3D racing game was a Gameloft game, and so on.

GamesIndustry.biz Mobile phone games accounted for a huge percentage of your overall revenue (94 per cent) – so how significant are other formats such as PSP and DS for Gameloft now?
Alexandre de Rochefort

Those markets are growing very fast. We did €5 million in revenue in 2009, compared to €2 million in 2008. So we had 150 per cent growth in this area in 2009, and I expect to see very strong growth again. Maybe not 150 per cent, but very high growth rate on console revenues for Gameloft this year.

GamesIndustry.biz Will you be putting more resources into those platforms?
Alexandre de Rochefort

Well, we have 400 people working on console games today, we have 800 people working on iPhone games today. And the rest are working on Java phones. It gives you a sense how big our commitment is to iPhone and consoles sales.

GamesIndustry.biz Do you release your games across all territories? Including the ones iPhone is now being released into?
Alexandre de Rochefort

Yes, our games are localised to be sold in China, South America etc, as we have done over the years on Java. It's something we're very accustomed to. The localisation and adaptation of games is really one of our strengths I think.

But another thing that could have a very positive impact on our iPhone revenues in 2010 is the end of exclusivity deals. The US is a significant part of our iPhone revenues, although the iPhone is only currently available to AT&T customers. I have no idea when it will happen, but one thing I'm sure of is when the exclusivity period ends, when Sprint or T-Mobile in the US start selling the iPhone as well, we will start to experience significant additional growth here. This is based on our experience with France, Italy and the UK where the exclusivity on the iPhone fell and we saw significant increase in sales on the iPhone.

GamesIndustry.biz The economic climate doesn't appear to have had a big impact on Gameloft – is that because the product you're selling is more immune to the recession than traditional games do you think?
Alexandre de Rochefort

I think the one structural reason why mobile gaming as a whole is holding up quite well in a difficult context is due to the fact that our games are sold at a low price. And this typically is very efficient in difficult times. I think the reason why this industry is showing good resilience overall is really due to the fact that we're not selling games at €70, we're selling our iPhone games at $5-7 dollars. Our Java games are sold at $3-4. Which is the kind of spending that most people can afford I think. And that's the number one reason for the resilience of our business.

GamesIndustry.biz So what are Gameloft's plans going forward in 2010 and beyond?
Alexandre de Rochefort

I think we've been quite consistent over the years in terms of strategy – and a bit boring – but basically what we've been doing is just saying, first of all we want to do everything internally, that's important for Gameloft. We have close to 4200 employees at Gameloft, of which more than 3500 people work in our internal studios. That's huge and that's the trademark of Gameloft really. And we will continue with this strategy because I think it's paid off nicely over the last few years. So that's something that's not going to change.

The second point is that we've really made sure that we'll be present on all the new devices. I think everyone will agree that – of all the mobile gaming companies – the one that was quickest to be present on the iPhone was Gameloft. In July 08 we had, at launch, 7-8 games ready for the iPhone. We're not shy of investing on new devices even when we don't have that much visibility on how well that device is going to sell.

Gameloft was, as far as I know, the only European company invited by Apple to present on stage for the launch of the iPad and, to a certain extend, I believe this was because we've shown to Apple that we were ready to invest on new devices really as ahead of the new device as possible. We're not shy, we are not fearful of investing – even if we don't know what the output will be. We've been investing on Google phones, on the Palm, on the iPhone and we're going to continue doing this and clearly it is our will to be present on the iPad when it is launched. I don't know with how many games but we'll be there.

GamesIndustry.biz What's your opinion on the iPad and what it could mean for the mobile gaming market?
Alexandre de Rochefort

It is very difficult for us to make any comment since, I personally, have not seen the object itself. So I don't want to comment before we've seen what the device can do and started really working on the device. The only thing I can say is that the processor seems to be more powerful than that of the iPhone, the definition of the screen seems to be even better than on the iPhone, and the size of the screen is obviously much bigger. So all things considered my guess is that it's going to be a good device to play games on.

GamesIndustry.biz Gameloft stopped working on boxed products as from last January – is that a decision you'll be sticking to?
Alexandre de Rochefort

Yes definitely. We did a trial in 2008 that wasn't really convincing in our view so we decided to stop all production of boxed games in January 2009. Given the evolution of the DS and the Wii markets, which were the obvious markets we were targeting at the time – these markets have been down 15-20 per cent depending on the countries – I think it was a wise decision. So we'll be sticking to digital distribution alone in the coming years.

Alexandre de Rochefort is CFO of Gameloft. Interview by Kath Brice.

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