EA Pops A Cap In The Competition

The games may be casual, but the price for the company isn't.

Electronic Arts has finally announced their acquisition of casual games publisher PopCap (Bejeweled, Plants Vs. Zombies) for a cool $650 million in cash and $100 million in EA stock, along with some performance bonuses for the next year or two that could bring the value of the deal up to $1.3 billion. Not bad for casual games.

EA released a presentation for their shareholders showing some interesting marketing data concerning PopCap and EA and some of the competition (*cough*Zynga*cough*), which is posted here.  Among other things, it notes that the Daily Average Users of EA and PopCap combined are more than 10 million... which is rather a distant number two to Zynga's 53 million DAU. You have to start somewhere, I guess.

EA clearly sees this deal as an important step in expanding their horizons. They're hoping to take their brands and spread them across every platform, with every sort of revenue model, and connect gamers across platforms. It's an ambitious strategy, but it makes sense if you're looking to get the best growth possibilities out of your vast IP holdings. They've bitten off a big bite, and now they have to show they can chew, swallow, and excrete some golden profits in the next few years. (OK, maybe I did push that metaphor one metabolic step too far.)

Analysts are applauding the move, and at least one says it shows how myopic Activision looks for staying well away from any sort of mobile or social gaming because they think it might go away soon. Have they bothered to look at console software sales figures for the industry over the past three years? I guess they're content to have a bigger share of a shrinking pond, but they really out to check out the river nearby.

EA's clearly hoping PopCap can create more successful casual games, and help bring EA's brands to casual gamers (and vice versa). EA makes no secret of their ambitions to rule the gaming world. They see themselves as playing a much bigger game than Zynga, and they see Zynga's reliance on Facebook as a weakness that will limit Zynga's growth in the future. Or, at least, provide EA with a competitive edge. That presumes, of course, that Zynga has no plans to do anything about that, which would seem to be underestimating them.

What does this mean for other developers? Many of the larger ones may become acquisition targets, if they aren't already. Of course, that presumes that a developer is willing to be bought, and can set a reasonable price. This is clearly not the case with Rovio, developers of Angry Birds. Oh, they sound like they're open to an acquisition, but they think they're worth more than $1 billion.

I think they should try to avoid those powerful hallucinogens... Maybe they should have more than one game before they start asking for a billion dollars. Maybe even more than one successful game. Needless to say, I don't think anyone's rushing to write them a check.

Riot Sold To Tencent

I found it interesting that there were two big acquisitions last Friday, of nearly equal size, that were covered very differently in the press. One was the acquisition of The Huffington Post by AOL for $315 million; the other was the acquisition of Riot Games by Chinese Internet company Tencent for just north of $400 million. AOL's acquisition was headline news on the television and in the news papers, covered extensively with plenty of speculation about what this might mean to the future of the media business. Tencent's acquisition was covered by a few gaming websites, but otherwise caused nary a ripple.

Riot Games is the creator of the amazingly successful game League of Legends, a real-time strategy game that's free to play. They make money by selling you different skins for the characters, and additional characters that you can use in the game. This model has been a winner for them. Not that they've released any revenue numbers, but I deduce this from the fact that they have 100 job openings (!). Tencent was an early investor in Riot, and they are positioning this as just a further investment in Riot Games. Tencent plans to leave Riot Games management alone, according to their press release. Why mess with success?

Tencent's totem creature apparently lays gold coins.

If you're wondering who the heck Tencent is, this article has some interesting facts. The most interesting tidbit: If you ask the question "Who are the top three Internet companies by market capitalization?", the first two companies to leap to mind are Google (#1) and Amazon (#2). The third one... is Tencent. They apparently do very well in social networking in China (no doubt the Chinese ban on Facebook has something to do with this).

What's more interesting is what this acquisition might mean for the future. We'll no doubt see other games from Riot Games at some point, and they'll probably use the same basic F2P (free-to-play) monetization scheme that's been working so well. I'm sure Tencent, who has other game studios in the US, will be using F2P in their games as well. How long will it take big US publishers to figure this out? Well, it could take a while. Converting an existing game is not easy; you can't just take Call of Duty and make some weapons cost money, not without unforeseen consequences to gameplay. A whole lot of testing and tweaking would have to happen, and even then it's not clear that existing players would go for it in a console game. Then there's the sheer guts it would take for a game publisher who gets the majority of their revenue from physical goods sold in retail stores to take one of those franchises and try to get the same revenue without selling it in stores... or without pissing off the retailers they depend on.