Mobile gaming and intellectual property – a sport of kings?

On November 2 2015 gaming giant Activision Blizzard announced its acquisition of King.com for the hefty price of $5.9 billion. King.com’s financial success with Candy Crush Saga has been well documented, but it has recently struggled to replicate its initial success with new games. The announcement caused a stir in the media, leading to a flood of speculation regarding the sale and what the future will bring.

It is a big move for the gaming industry. Mobile gaming has seen a surge, and in fact mobile game revenues are estimated to overtake console game revenues by the end of this year. 

Smartphones have become a platform for mobile games and this, combined with the effective monetisation of users through in-app purchasing, has created a powerful market force.

Apart from Electronic Arts, the console and PC gaming behemoths have been unable to get a foothold in the mobile gaming market. It is therefore no surprise that traditional gaming companies would eventually look to acquire mobile gaming companies.

Looking at the two companies’ patent portfolios and application pipelines (Figure 1), King.com exhibits healthy growth in the size of its patent portfolio in terms of both granted and pending patent families. Activision Blizzard’s portfolio has also been growing in terms of granted families, but in contrast to King.com it shows a decline in pending applications since 2009.

Figure 1. Patent portfolio size (grants/applications) for King.com and Activision Blizzard

Source: Cipher and Thomson Reuters

As shown in Figure 2, Activision Blizzard owns a more mature portfolio with more than 80% granted patent families, whereas King.com has a younger portfolio with a pipeline of 45% applications.

Figure 2. Grants and applications – company comparison

Source: Cipher

Buying King.com will give Activision Blizzard access not only to King.com’s experience in running and monetising mobile gaming operations, but also to a healthy pipeline of innovations that can pave the way to the world of mobile gaming. From King.com’s point of view, it gains access to a substantially larger portfolio. King.com’s CEO said, “We suddenly have access to the best IP portfolio I could ever have thought of."

Figure 3 highlights the technology overlap between King.com and various gaming industry players. Although Activision Blizzard and King.com have a reasonably high technology overlap, this is only 25%, reinforcing the King.com CEO's comment regarding access to complementary technologies and intellectual property.

Figure 3. Technology overlap with King.com’s portfolio

Source: Cipher

The source of the companies’ patent portfolios offers another interesting insight. Investigating the origin of patents held by major players highlights the acquisitive nature of the industry and how the companies have systematically acquired large portfolios over the past three to five years. Activision Blizzard and King.com owe a large part of their respective portfolios to patents originally from IBM, whereas Zynga has acquired patents from multiple companies, including a large portfolio from non-practising entity (NPE) Walker Digital. There are also deals happening inside the industry, with Asian company Line acquiring a large portfolio from Sony and Kabam acquiring a few patents from Digital Chocolate.

Figure 4. Overview of acquired patents

Source: Cipher

Comparing King.com’s portfolio to related patents held by its peers paints a picture of owners of early patents and future pipeline. In Figure 5 below there are two clear spikes of invention around 1997-2000 and 2007-2010, and there are also two major owners of portfolios: Activision Blizzard and Zynga.

Bearing in mind that a large number of patents have been acquired, this could explain why there is a fairly good spread of new and old intellectual property among all companies.

Figure 5. Patent portfolio datelines, mobile gaming patents

Source: Cipher and Thomson Reuters

With the (mobile) gaming industry growing at such a rapid pace, it is no surprise that it has become an attractive target for patent litigation, primarily by NPEs. Figure 6 shows the surge in ongoing suits over time, with 90% being initiated by NPEs. With revenues growing at such a pace, this mimics the behaviour of industries with similar characteristics (eg, mobile payments, wearables and mobile services).

Figure 6: Ongoing US patent litigations over time in the mobile gaming space

Source: Cipher 

Figure 7 demonstrates the growth aspect further by comparing companies’ revenue and patenting growth. Companies have been categorised into three groups. The size of each bubble reflects the respective company’s existing patent portfolio size:

• Companies creating both consoles and games (eg, Sony and Microsoft).
• Major game publishers (eg, Activision Blizzard and Electronic Arts).
• Mobile gaming companies (eg, King.com and Zynga).

Figure 7. Patent and revenue growth comparison – bubble size reflects size of patent portfolio

Source: Cipher, Newzoo

It is impressive to see so many companies with double-digit growth, especially with large companies such as Sony and Microsoft, which already have hundreds or even thousands of gaming-related patents, growing more than King.com. Zynga and Nintendo are the clear outliers in terms of portfolio growth. Tencent is also showing impressive growth for both revenues and patents.

Following the Activision Blizzard and King.com merger it will still be in the middle of the pack in all aspects (existing patents and growth, as well as revenue).

IP data speaks volumes about the surging mobile gaming market. There appears to have been a conscious effort to strengthen IP portfolios for a long time, and most players have large and expanding portfolios.

The industry has growing revenues, many new entrants, an appetite to acquire intellectual property and – so far – no patent litigation among competitors. If this acquisition is a sign of things to come (eg, further consolidation), patents will no doubt play a major role moving forward in the (mobile) gaming space.