While it’s fair to say that Nintendo DS and DSi still command the lion’s share of the kids business feeding into the portable games and entertainment market, the fast-growing base of more than 85 million iPhone (61.6 million) and next-gen iTouch (23.4 million) users is generating a micro-market of its own for downloadable games and applications that certainly has kids IP owners paying attention. In the last four months, Nickelodeon, PBS Kids Sprout and Disney have all dipped their toes into the iApp market that is pegged to generate more than US$1.2 billion in 2009.

What opened the field up was Apple’s June 2008 introduction of its SDK or Standard Developer Kit that gave developers access to the technical tools needed to craft any number of applications for the increasingly popular platforms in exchange for a paltry US$100 fee per kit. And just 10 months in, the seemingly low-cost barrier to entry has resulted in the posting of more than 80,000 apps to the Apple-controlled and managed App Store.

In the webshop’s first month of operation, more than 60 million apps were downloaded, generating an estimated revenue of US$30 million. Sales of Sega’s popular Super Monkey Ball title alone brought in US$3 million, for example. And there were even some headline-grabbing cases in which enterprising programmers, such as iShoot developer Ethan Nicholas, were able to earn more than US$30,000 in one day and more than US$1 million in a month.

Kids players entering the market, however, are still feeling their way around to gain a foothold. Like the early days of mobile gaming, business models aren’t set. Questions of whether to self-publish promotional apps or pursue a traditional licensing agreement are common. Moreover, like the crowded mobile arena, it’s becoming clear, quite quickly, that getting potential customers to wade through the cluttered pages of the App Store to find and then download a particular app may be the biggest hurdle of all.

New model, new business

The revenue potential for iApps certainly didn’t catch astute IP owners unawares. Nickelodeon was quick to translate some of its iconic properties into successful apps. In partnership with Redmond, Washington’s Mobui, Nick created and launched The SpongeBob Tickler (US$1.99) in late January, following up quickly in February with SpongeBob SquarePants Atlantis Treasures from its video game partner THQ and a Dora the Explorer app. ‘It’s a brand-new business opportunity both as a license category and as a self-published category,’ says Don Williams, senior VP and GM for the Nickelodeon Kids & Family Games Group. ‘We are pursuing both paths at the moment.’

While Nick remains tight-lipped about its approach, one can draw the conclusion that the less complicated the development process, the more likely that it could be handled internally at the company. While it took approximately five months to create the first SpongeBob app with the software developers at Mobui, the initial offering was inexpensive and not as complicated from a programming standpoint as the offerings that have followed. The more complex the apps that will follow, as necessitated by the marketplace, the more likely that Nick and other IP owners will look to traditional licensing deals. That was the pattern set up in the early days of mobile apps. However, neither Nick nor any of the other content owners contacted for this article would commit to one model or another.

Preschool net PBS Kids Sprout also initially entered the space with a free promo app called Dress Chica. Based on a character from the channel’s Sunny Side Up Show, the app was created with Burbank, California-based The Studio at New Wave Entertainment. Sprout contracted The Studio to develop and deliver the free app, which is wholly owned by the broadcaster. However, when the next generation of iApps is delivered, perhaps with an enhanced video player, it is possible that a different model will emerge that might employ a revenue-sharing approach, predicts Scott Williams, VP and creative director of The Studio.

Williams explains this next stage of the software’s evolution is a direct result of the way in which the iPhone/iTouch has streamlined the development process. Whereas companies used to have to develop for hundreds of different handsets, with infinite variables in terms of memory, screen space and computing power, for example, the iPhone’s penetration has given the entire mobile designing community one platform to concentrate on and master. Williams lists the platform’s accelerometer, touch screen and WiFi capabilities as the main factors contributing to the device’s overwhelming popularity.

Rumors about the capabilities of the next generation of iPhones range from better peer-to-peer functionality to the possibility of Flash and QuickTime software compatibility; each innovation and the introduction of a more powerful device sometime this summer should further bolster the iPhone’s appeal and platform viability.

Similarly, Toronto, Canada-based zinc Roe Design founder/designer Jason Krogh, whose company just completed its first app for tween interstitial series The Zimmer Twins, which airs on Teletoon in Canada and qubo in the US, feels that based on development costs and reasonably estimated sales, companies will realize that an advantageous price-point for a robust app will have be in the US$10 neighborhood.

‘Really it’s becoming a competitor for PSP and DS,’ says Krogh. ‘iPhones and the iTouch are starting to eat away at a bunch of different markets.’ The development price also contributes to its viability as a competitor. While apps can be developed for as little as US$5,000, professional, high-quality ones can cost upwards of US$150,000, which is still a bargain compared to the cost of publishing a title for the other platforms.

Apple’s slice

Creating and selling titles for Apple’s shiny new software format comes with its own set of challenges. It’s worth noting that no matter how wildly popular an application might be, both developers and IP owners are going to be divvying up a maximum of 70% of the potential profits. As it turns out, Apple has employed the same retail model used by iTunes, acting like a traditional retailer that controls all financial transactions at the App Store and taking a 30% cut of the retail price in the process.

The App Store, which can be accessed online via iTunes and through the iPhone itself with the push of a virtual button, is also the sole iApps distribution outlet – it’s a completely closed-loop proposition. So not only is saleability limited, but differentiating between applications at the increasingly crowded store is proving to be a challenge for both IP owners and developers. While Apple’s portal lists apps in categories such as sports, entertainment, games, kids and editorial picks, the company hasn’t clearly communicated how its suppliers can secure visible placement on the site.

For instance, Tom Alexander, SVP of marketing for Sprout, was happy to find the Dress Chica app on Apple’s ‘Best Kids’ page at the store, but he knows that the net had nothing to do with the featured placement and that Apple can’t be counted on to continually promote the program. In fact, there is a shroud of mystery hanging over much of Apple’s online business, and developers and IP owners find they largely have no influence on the company’s placement of apps on the site.

In response, Sprout is looking to its own resources to promote the app, placing a link for the title on the Sprout-to-Go web portal. It’s a tack that most companies are expected to take in order to differentiate themselves at the App Store.

However, some remain optimistic that these are temporary hurdles. The organization of the apps and the ease of distribution is something that Krogh believes will evolve quickly in the coming months as the platform becomes further ingrained and bigger players attempt to utilize it as a revenue source.

‘Apple has a lot of experience with distributing music,’ says Krogh. ‘What you are going to see is a number of websites that will scrape content and then send you to the correct place at the app store.’ These web portals could be developed by outside sources with an editorial bent, or in the case of Sprout and Nickelodeon, may be supported as an aspect of their already established portals.