Big game publishers muscle in on iPhone's upstarts

By Gabriel Madway

SAN FRANCISCO (Reuters) - As the iPhone becomes a popular mobile gaming device, large game publishers with deep pockets are going head-to-head with smaller developers who found early success on the Apple Inc (AAPL.O) phone.

With name recognition and financial resources, publishers like Electronic Arts (ERTS.O), Gameloft (GLFT.PA) and Glu Mobile (GLUU.O) have a huge advantage. But up-and-coming companies such as ngmoco, Digital Chocolate and Tapulous have proved adept so far at building their brand.

Apple's App Store is crowded with about 13,000 games -- many from tiny developers -- and gaining the attention of consumers is a challenge. Download rankings are key to success since users trawl the most-popular lists for games.

"Although the top iPhone games are made by independents today, the big publishers will strike back," said Jeremy Liew, a managing director at Lightspeed Venture Partners, a venture capital firm that has invested in social gaming companies.

"The iPhone only offers one way for games to get discovered today, and that favors the cash-rich big publishers."

The big players "have a full marketing budget ... the minute an app starts dropping in ranking they'll go ahead and start pouring money into advertising to push that ranking up," said Krishna Subramanian, co-founder of analytics company Mobclix.

In contrast, smaller publishers tend to offer more free or 99-cent games to help push up download numbers.

Since its launch a year ago, the App Store has given birth to an entire industry of software developers. Stories of entrepreneurs working out of a garage who have gotten rich with an iPhone app have added to their mystique.

And there is financing to be had, most notably a $100 million iFund established by Kleiner Perkins Caufield & Byers. The venture fund has invested in app developers like ngmoco.

Tapulous, creator of the popular "Tap Tap Revenge" game with 10 million users, has obtained angel investor funding and expects to be profitable by year's end.

"I think there's an opportunity for companies such as mine. If we can build a distribution channel and a brand, we can do well because we are more nimble," said Tapulous Chief Executive Bart Decrem.

GROWTH MARKET

Apple has sold more than 40 million iPhones and iPod Touches, with more than 1.5 billion apps downloaded. According to Mobclix, the average price paid for a game download is

$1.79.

Electronic Arts claims to have the largest market share by revenue of any iPhone game maker, led by titles like "Tetris" and "Scrabble." EA said its iPhone business is profitable.