Some people in the video game industry predict the mobile games business could eventually grow to topple the handheld gaming market, Wedbush Morgan disagrees. In its July industry report, analyst Michael Pachter estimates the mobile games industry is currently closer to $2 billion and, even with expected growth, the market may only expand to $4-6 billion in the next three to five years.

In a section titled "Mobile Phone Games are a Fad," Pachter explains that, while 1 billion iPhone applications have been downloaded across 31 million Apple products sold, "it is not evident that more than 20% of these downloads are games." Suggesting the iTunes App Store has generated "under $400 million in game downloads" in its first year. Pachter does predict the mobile game industry will grow at 25% per year for a few years, but will eventually fall as competing devices enter the market.

The report also calls Electronic Arts' emphasis on mobile games "misplaced." EA Mobile has grown steadily over the last few years, but the report estimates the mobile games division is -- along with that of competitors Gameloft and GLU Mobile -- "barely profitable."

According to the report, finger pointing in Apple's camp should directed toward the "open forum" structure of the store and Apple's business model. Apple runs the game download service for an estimated 30% fee, leaving 70% to the game's publisher, the report claims. The section on mobile games goes on to conclude that handheld systems, like the new PSP Go, will "maintain its niche, without significant cannibalization" from the mobile games industry.

This article was originally published on Joystiq.

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