This may seem obvious to anybody who’s sat beside an iPhone user on the subway but ComScore’s latest research confirms it anyway. Games are one of the hottest iTunes Apps downloaded, and those who download them are well-paid social-site viewers ripe for some kind of new advertsing scheme.

According to the research firm twelve of the 25 most popular mobile apps were games including oldies like Hangman and Pac-man, and newer titles like “Cube Runner”, ”Crazy Penguin Catapult“, and (the top game) Tapulous’s “Tap Tap Revenge”. 

It cited Stylem Media’s “Backgrounds” applications as most downloaded of non-games, just ahead of social network apps like Facebook and MySpace. 

ComScore did not measure how much advertising already comes along with Apple apps, but did offer stats that seemed to say: “psst… there’s lots of advertising opportunity right here. “  

Among the facts about Apps Store shoppers:

• Apple app users are a “particularly desirable audience” for advertising with a higher-than-average income and a fondness for online media. 
• About 35 percent of app users are part of a household with an annual income of $100,000 or more while 54 percent make $75,000 or more, according to the research. 
• They are also at least three times more likely to visit entertainment, social networking and communications sites than the average Internet user, ComScore said. It named online destinations such as AOL Instant Messenger, Hulu, Twitter, Digg.com, iMeem MTV.com.

ComScore analyst Mark Donovan said the Apps store could become an even more effective place to sell adds after Apple starts to support new payment models such as subscriptions and the sale of add-on modules for existing applications, such as the addition of new destinations for a travel guide. But he said that advertisers will have to be careful not to be too intrusive on the app users.  

“We saw pop-up ads come and go. We’re in the process of learning the most effective ways of delivering mobile advertising” he said.

(Photo: Reuters)

The Game Developers Conference is not necessarily the place one would most expect to see a presence from the U.S. military. But video games are so enmeshed in popular culture - particularly for young males - that the Army has for years been using them to appeal to potential recruits.

The Army will release the latest version of its free, downloadable first-person shooter game, “America’s Army 3,” this summer.

In an interview, Maj. Michael Marty emphasized the game’s realism. “It’s not Rambo.”

“You’re going to come in here and learn what it’s like to be a soldier.  Look, with the economy being what it is, people are saying the U.S. army is not hurting for recruits. Well, we don’t want to be the fall back position. We want kids to self-select into our business. And we think that if they understood all of the things that go into being a soldier… the Army will sell itself. All we want is the opportunity to tell our story.”

“And there will be some kids who thought ‘I’m going in the Army.’ They experience it here virtually and they say ‘you know what, it’s not quite what I thought.’”

The first version of the game launched in 2002, with the second following in 2004. The Army says the games have been downloaded more than 40 million times, with nearly 10 million registered users.

Marty said the Army realized in the late 1990s, as the military was shrinking in the post-Cold War era, that kids were getting too much negative input from movies like “Full Metal Jacket” and “Platoon” about military life. “We wanted to educate the kids about what the real Army is.”

He said the game is accurate down to the most minute detail, vetted by members of Army Special Forces: weapons, equipment, planning, tactics, barracks, even the actual sound of whizzing bullets. “Everything in here is authentic … every detail about the weapons is accurate, every detail about our soldiers. From patches and uniforms to how they dress their kit. Everything about it is exactly what out soldiers deploy with today.”

The Army even put the game developers through a week of actual basic training - shaved heads and all - to give them a better fell for designing the game.

Gareth Davis, games chief at social networking giant Facebook, says we’re in the middle of a “renaissance” in casual video games, as users transform a once solitary activity into a social one.

“Game play is an essentially human activity, a social activity,” Davis said in an interview at the Game Developers Conference in San Francisco.

Facebook, which has 175 million active monthly users, has seen an explosion in application development since it opened its platform to third-party developers nearly two years ago. The site now boasts 50,000 applications, the largest category of which is games, with more than 5,000.

“With all that growth what we’ve seen is a tremendous interest in the usage of games.” Three of the top 10 apps are games, he said: Texas HoldEm Poker, Pet Society and Mafia Wars. “Poker just passed 11 million monthly users, which is the same size as World of Warcraft.”

“At the dawn of gaming way, way, way back all games were social. We play together as human beings and then we invented games, which were board games and chess and cards. And these are all inherently social games, they’re no fun on their own. What happened I think about 30 years ago is technology came along to the point where you can play a video game and the games tended to be solo games.”

“We’re seeing new kinds of interaction and activities happenings on Facebook, people … are interacting with each other and they’re choosing games as a way to do that… What we’re finding with the games that are being created is because they’re based around social interaction they tend to become popular and stay popular.”

“So bringing these social technologies into game play is kind of bringing games back to where they started.”

Davis said in the past year, Facebook game developers have raised more than $75 million in venture capital funding.

“The best gaming experience is poker night or playing Rock Band, these inherently social experiences. What Facebook and Facebook Connect enable you to do is to do this across the Internet and across devices that aren’t necessarily in the same place at the same time. This is what social gaming is, games that are designed to take advantage of the social interaction between people.”

He was referring to the company’s recent expansion of Facebook Connect — software that links Facebook pages to third-party Web sites — to Apple’s iPhone and iPod Touch.  It allows iPhone app developers to connect their programs to Facebook, so users can tap into their accounts and share information if they want. Game developers are already incorporating it into iPhone games.

Given the popularity of downloadable apps for Apple’s iPhone and iPod Touch, many folks — namely some prominent Silicon Valley venture capitalists — are confident there’s plenty of money to be made from app developers as well.

Ngmoco, which makes games exclusively for the iPhone and the iPod Touch, said Monday it has closed $10 million in Series B financing led by Norwest Venture Partners. The company’s previous investors –- Kleiner Perkins Caufield & Byers and Maples Investments — also participated in the funding. Ngmoco received $5.6 million in its first round of financing.

Ngmoco — which stands for “next generation mobile company” — was born last year along with Apple’s App Store, and the company’s profile has risen in tandem with the store’s popularity. Users have downloaded more than 800 million apps in total and the store now features more than 25,000 offerings.

Ngmoco’s games have been installed more than 7 million times. The company currently has seven titles –- its most popular is the $9.95 “Rolando Orlando” -– and 12 in development.

Neil Young, ngmoco’s chief executive and one of its co-founders, said in an interview that he was surprised by the “voracious” appetite for games on the iPhone and iPod Touch. Although he wouldn’t rule out making games for other platforms, he said the devices provide a unique opportunity for game makers.

It’s just a blend of amazing capability with this awesome usability. And its clearly those two things that are enabling this new type of usage patterns both in terms of how people are consuming games and how much they’re consuming. And also the ease at which they’re able to get them. Until there are any other platforms that come close to that I think we’ll certainly remain focused on these devices.

Young, who left game publishing giant Electronics Arts to launch ngmoco, declined to disclose a revenue figure for the company, which has 26 employees.

The App Store is estimated to offer some 6,000 games. Many see the iPhone and iPod Touch as legitimate competitors to Nintendo’s DS and Sony’s PSP handheld gaming consoles, and that battle should play out over the coming months and years. IPhone games are expected to be much on display at this week’s Game Developers Conference in San Francisco.

Keep an eye on:

• EBay’s Skype plans to announce on Monday a version of its Internet calling software for small and medium-sized businesses (WSJ)

• Former Yahoo Chief Operating Officer Dan Rosensweig will take over Activision Blizzard’s Guitar Hero franchise (All Things Digital)

The video game industry may have won another battle over whether violent games should be labeled as such and kept away from minors, but the author of a California video game labeling law that was struck down on Friday by a federal appeals court says the war is far from over.

The 9th U.S. Circuit Court of Appeals ruled that the controversial law violated free speech protections that prevent the government from forcing its opinions on citizens -- in this case by requiring video game makers to label games the state describes as violent. The court said lawmakers also failed to show a link between virtual violence and real acts among children who play the ultra-violent games.

The judges sided with the video game industry in finding that  the industry's voluntary ratings system and stepped up parental controls were the best way to keep inappropriate games from kids.

But the law's author, state Sen. Leland Yee, said letting the industry police itself is "like letting kids sign their own report cards."

"You don't have the individuals who are going to reap the rewards of these ultra-violent video games controlling the ratings," Yee told Reuters in an interview on Friday. Yee pointed to a Federal Trade Commission study that he said shows that the voluntary ratings system "simply does not work" to prevent kids from getting "Mature" rated games.

Yee said he will press California Attorney General Jerry Brown to take the case to the U.S. Supreme Court, where he hopes to show "the growing body of knowledge" that shows  "a short skip and a hop" between game violence and the real thing.

The Walt Disney Co drew kudos from analysts in an otherwise dismal earnings report for breaking out results for its Interactive Media Group for the first time.

The unit, made up of its console, mobile and online gaming operations and Disney.com, turned in an 18 percent revenue increase but operating profit dropped after the soft retail environment, competition for consumers’ time and Disney’s “substantial” investment in the product lines were factored in.

The decision to break out the unit’s results — it comprises just 3 percent of Disney’s total revenue, according to one analyst — came in the same quarter in which Disney CEO Bob Iger warned investors that its older media businesses — DVD sales and broadcast television — face “secular changes” from which they may never recover.

Disney CFO Tom Staggs said the company plans to invest upwards of $200 million in video games development in 2009, and a more “modest” increase in spending on Disney.com and in virtual worlds like Club Penguin.

The new transparency by the often tactiturn Disney management struck Barclays Capital analyst Anthony DiClemente as a good thing in a “modestly disappointing” first quarter earnings report.

“As an analyst I love to see that because it gives some more transparency into the digital businesses and the profitability of those digital businesses,” DiClemente said.

U.S. shoppers are still spending in a big way — they are just not buying cars, plane tickets, clothing, etc. But they are buying video games.

While most media segments try to maintain stability during today’s economic turmoil, the video game industry keeps on growing, with U.S. video game hardware and software sales up 10 percent last month according to NPD, fueled by record sales of Nintendo’s Wii console and DS hand-held system.

Nintendo’s Wii console sold over 2 million units in November, up from over 800,000 in the previous month.

A separate reports suggests that hard times may favor video games, adults will “turn to
staying in with video games rather than going out on the spend.”

(Reuters)

Keep an eye on:

• DreamWorks Animation launches characters like Shrek and the penguins from “Madagascar” into new lines of business, hoping to grow consistently even during a recession that already is slowing DVD sales. (Los Angeles Times)
• Time Warner names CEO Jeff Bewkes as chairman; Richard Parsons to step down on Dec. 31 (PaidContent)
• CBS Interactive reorganization details (PaidContent)
• Howard Stern contemplates re-signing with Sirius XM (Orbitcast)

(Photo: Reuters)

How do entertainment retailers come up with the prices they charge? Why is a movie theater ticket $10, a music CD $15, a rental DVD $3-$5 and a top video game $60?

We asked Strauss Zelnick, executive chairman of game publisher Take-Two. He says it’s simple math, based upon the value of that experience.

Prices are determined by the marketplace — if folks stopped buying stuff, prices would fall, etc. (Think gasoline). Balance that with cost. A game like Halo or Grand Theft Auto takes years to develop and costs as much to make as a Hollywood film.

Here’s Zelnick in his own words:

The reason the consumer is willing to pay $60 for front-line product is because they are going to get 20-plus hours of game play out of that product.

I’m a big believer that there is an equation for the pricing of front-line entertainment products, which is: The hours of expected consumption times the value per hour, plus the catalog value.

The price per hour is pretty stable across media. For example, a motion picture: You have two hours of experience in the theater, a very high-quality experience, zero catalog value. So what’s that worth? I guess about $5 an hour (on a per capita basis). If you apply that to a video rental, also zero catalog value, there’s multiple people watching typically, it’s a lower quality experience, that’s how you get a video rental of three bucks. Recorded music, you will listen to the album (up to 10 times — or hours — on average). The same equation applies.

There’s more:

What’s driving that front-line price point is the perceived quality of the experience, times the number of hours you are going to have that, so that the price per quality hour of the experience, times the hours, plus catalog value. And I understand why that number would be, for the sake of argument, $60, versus for sake of argument, $15 for an album, versus $3 for a video rental, versus 10 to see a front line movie.
They are not so far off.

So it’s not that we came up with that price point out of the blue. If we came up with it out of the blue, we wouldn’t be selling anything at that price point.

For the record, the industry walks the walk. Take-Two’s Grand Theft Auto has sold more than 10 million units in less than a year. And other huge industry sellers such as Metal Gear Solid, Fable, Halo, Madden NFL, Rock Band and Guitar Hero? Most have sold more than a million copies — at $60 a pop, or more.

I admit that I’ve bought $5 DVDs, cheered, and watched them only once. I’ve also paid $60 for games, grumbled about it, and played them for months. Now I’m thinking about buying Rock Band 2 ($189) or Guitar Hero: World Tour (also $189) for the holidays. (grumble grumble grumble)

So what do you think? Are video games fairly priced?

(Photos: Screenshot from Amazon.com; Zelnick, Reuters)

Strauss Zelnick, chairman of Take Two Interactive, has a bone to pick with the media: He doesn't like the two words "Financial" and "Crisis." At least not when they are used to describe the current state of economic affairs.

"I don't think we're in a financial crisis," Zelnick said at the Reuters Media Summit. "The use of the word crisis -- I'm loathe to be critical of the media since I'm every bit a part of the media -- but I don't think the word has been especially helpful. We're obviously in a recession and these are very very trying times."

If not a financial crisis, then what? Well, Zelnick offers up a hospital metaphor. 

"We're still seeing the car crash, and the ambulences are still showing up at the scene. Maybe we're in the emergency room, but we're not even in the intensive care unit yet for a lot of these companies. But they will get there."

Call it what you like. Either way, It's not pretty.

(Photo: Reuters)

Microsoft's videogame chief Shane Kim came by our New York office this morning for the Reuters Media Summit and shared his thoughts on XBox 360 sales ("cautiously optimistic") and the outlook for the gaming industry amid the economic doom-and-gloom ("Who knows, maybe flat performance will be considered a remarkable achievement").

He also gazed into his crystal ball and served up some insights on the trends shaping the gaming business.

Consolidation is going to continue, he thinks, especially among the smaller videogame publishers as they search for hit games while keeping costs in check.

"There are a number of mid-tier publishers behind the Electronic Arts and Ubisofts and Activisions of the world who are struggling."

Another exciting trend for Kim is the return to videogame content developed by small creative teams, which he thinks could reduce the industry's dependence on sequels of hit games.

"That would be a good thing... because one of the challenges the industry has had, in my opinion, over the last five to 10 years is a growing reliance on sequels and licensed properties as opposed to those new creative hits. If we can find those nuggets that start smaller and can grow into big hits, that's a great thing."

He did wonder how smaller creative shops could find funding for their pitches, given that dollars could be hard to come by these days. But at the same time, it's an opportunity for bigger publishers, he said, since nothing rocks the gaming world like a hit game.

(Photo: Reuters)