Ads for Free Games

Watch a car insurance commercial on your phone and you get to play a mobile game for free. That’s essentially the business model behind GameJump, a web site launched last month by San Francisco-based Greystripe. Forcing young gamers to sit through ads may have been a risky proposition a few years back, but with more women and adults playing games, GameJump may actually have a shot (see Free Games for Your Phone).

The company enables some 80 games to be transferred to users’ phones by SMS (short message service) or WAP (wireless application protocol). The site supports 30 different phone models. For the deskbound, the games can also be downloaded to PCs. Although the games are free, gamers pay in other ways: They must sit through ads before and after games. The company has signed ad deals with companies including Progressive Insurance and Zagat Survey.

Distributing games this way is already working online. Many of the titles offered by sites like EA’s Pogo.com and Shockwave.com are completely free, often supported by ads. According to comScore Media Metrix, Pogo attracts more than 12 million unique users per month, while Shockwave pulls in nearly 6 million. But mobile gaming is a young industry and it remains to be seen whether outside sites like GameJump can attract enough mobile users tired of paying as much as $10 per game from carriers like Verizon.

Greystripe CEO Michael Chang is hopeful, saying his site is seeing as many as 10,000 downloads per day. That’s a drop in the bucket compared to leading casual game sites but the site launched just a few weeks ago. “It has definitely exceeded our expectations,” says Mr. Chang, whose company was founded in 2003 and received financing from Incubic Venture Capital. Some 50 percent of the downloads come from outside of the United States, he adds, suggesting the business has broad appeal.

But GameJump faces challenges, including building enough traffic to make it an appealing target for advertisers, says M:Metrics Senior Analyst Mark Donovan. The big mobile carriers’ lock on the U.S. market makes it difficult for outside sites like GameJump to draw traffic. But the $500-million mobile gaming market is worth fighting over; M:Metrics says it could double in the next few years.

Contact the Writer: ROlson@RedHerring.com

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Kodak’s Risky Digital Camera Plans

There are no easy choices for Eastman Kodak. The film giant announced plans to develop software that would help theaters manage the digital projection of movies, a move that is likely to hasten the demise of celluloid, a big revenue source for the Rochester, New York-based company. The move comes as Big Yellow is already struggling to reinvent itself as a maker of digital cameras—the very culprits in the downfall of its former cash-cow film business.

Kodak said on August 16 that its digital cinema division will work with National CineMedia, a partnership of three top U.S. movie theater chains, to develop digital cinema theater management software. The package aims to automate all theater functions including show presentation, ticketing, and feature and trailer scheduling. Kodak plans to sell it to theater chains worldwide for use in 1,600 screens that have digital projectors.

This software will surely undermine its traditional theatrical film business, most of which now comes from Hollywood. That’s because it will require that cinemas move to digital projection, which eliminates the need for prints. Hollywood has been slow to embrace digital film because of worries about piracy.

Faced with the reality of the digital revolution, Kodak has made its new digital offerings like cameras and printing key to its turnaround. Problem is, these newer ventures so far have not proved particularly lucrative, says Morning Star analyst Mark Lanyon in a research note. “The scale of Kodak’s turnaround plans is daunting, and we are skeptical about the long-term growth and profit potential of its new ventures,” Mr. Lanyon says.

Kodak’s debut in the digital cinema business will take time to pay off and will certainly be less profitable than the traditional film business, warns JP Morgan analyst Sameer Doctor. On average, Kodak can expect to reap about $18,000 a year per movie screen from film prints, says Mr. Doctor. Revenue from software sold to a digitized theater would be a fraction of that amount, he says. “You are going to see their traditional side decline and their digital side grow—the question is whether it’s going to grow fast enough,” Mr. Doctor says.

Kodak didn’t return calls seeking comment.

Kodak’s digital business selling cameras and printers accounts for more than half of its $14.3 billion in 2005 sales but lacks economic strength, says Mr. Lanyon, mainly due to low margins and fierce competition from Hewlett-Packard, Sony, and Canon. The company lost $1.4 billion last year.

As for the digital cinema business, the next few years will determine if Kodak’s gamble is a good one. Digital theaters around the world are slow to adopt the new technology and could take more than five years to buy Kodak’s software, Mr. Doctor says. And the last thing Kodak needs right now is another bomb.

Contact the Writer: FBhuta@RedHerring.com

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Building a Better PassportAfter 9/11, the United States relied on technology to build better baggage screening. Now it plans to use tech to create a better passport. German chipmaker Infineon said last week that it received a “multimillion-piece purchase order” from the U.S. government to become the primary supplier of integrated circuits for the country’s planned transition to electronic and biometric passports.

Talked about for years, “smart” passports appear closer to reality now that the feds have placed an actual order with the Munich-based company. A few other startups had been vying for the contract to make the chip, which will be located inside the back cover of new U.S. passports. Infineon beat out Axalto of Amsterdam; On Track Innovations of Rosh Pina, Israel; and ASK of Sophia Antipolis, France.

If it all works, Infineon’s “contactless” RFID chip will hold all the information contained in a passport along with biographic data and an embedded digital photograph. The chip is expected to hold about 64 kilobytes of storage capacity—or the equivalent of about 8,000 words. Since 9/11, the U.S. government has made electronic passports a priority as a way to staunch the flow of people using forged travel documents. The government expects to issue 15 million electronic passports in the first 12 months of the program. A pilot effort began in August.

Issuing passports with chips laden with personal data could raise many privacy concerns as citizens are likely to worry about the kind of information bad guys could gather if chip scanners fell into the wrong hands. But experts say there are controls. The data will be encrypted and accessed by card readers from a distance of 4 inches. The passport will have a metallic jacket so that when it’s closed the data will be inaccessible. “That gives the user a degree of control over how and when the data is accessed,” says Benjamin Jun, vice president of technology for Cryptography Research, a data security firm.

There’s another problem. Many of the people who want to do harm to the U.S. are probably not going to be traveling on U.S. passports. To address this, the government plans to issue electronic visas for travelers to the U.S. By October, foreign nationals not required to show a visa will be required to carry an electronic passport that complies with international standards.

The Infineon deal may be a victory for electronic passport advocates but Mr. Jun says it also highlights there were no U.S. companies capable of building the right chip.

Contact the Writer: CMedford@RedHerring.com