Riffing on the Popcap acquisition rumor

Yesterday Techcrunch broke this story:

Popcap to be acquired for $1+B, which started a rumor mill going. Who could it be? Story points to potential buyers as: Zynga (discounts them as not having stomach for the price & multiple, EA, DeNA, Tencent.

I tweeted about it saying I thought EA just as a gut call. Later though, I started wondering why no one had asked if it could be Google, or even more credibly, Microsoft.

Techcrunch added a story about rumors that it was likely EA.

And then today, VentureBeat had this story pointing to EA (nothing new, just citing the techcrunch article), but being skeptical about it and pointing at other potential buyers: Zynga, DeNA, Media companies like Fox, Activision/Blizzard, and throwing water on any "stingy" chinese companies.

(WTF, why is VentureBeat also not mentioning Microsoft? Does everyone assume they are broke after buying Skype?)

The interesting thing about these pieces is that they are looking at the market rather naively. Techcrunch refers to Popcap as a startup while at the same time mentioning that they've been in business since 2000. VentureBeat mentions their social games but barely mentions mobile let alone all the other platforms they are on.

Anyhow, I believe the EA rumor is most likely accurate (though I still have a side bet on a surprise that it's Microsoft, but I'm crazy like that).

Just for grins and giggles though, here's some alternate takes on the headlines made possible by this acquisition, which I think make it more apparent that this isn't such a bad buy. Allow me my editorial liberties:

If it's EA:

• #1 iPhone games publisher buys #2(3?) iPhone games publisher to further cement leadership
• #2 Facebook games publisher buys #3 facebook game publisher in bid to take lead position away from #1 FB games publisher
• Leading western games publisher buys another entry ticket in race for China gaming market (Popcap has social games/portal play in China, a shanghai studio doing original IP, etc)
• EA buys leading casual games dev, "Popcap is the Valve of casual games" says Someone.

If it were to be Microsoft

• MS buys publisher of popular iPhone, iPad games in bid to secure exclusive content/features for MS phones/tablets
• MS buys publisher of social games in bid to catch up in that race
• See same two above points about traction in Asia and Popcap's production abilities, quality

In any case, my point is that there's a lot more value to Popcap than just "Plants vs Zombies on Facebook or iPad". They are a force in the mainstream games market with recognizable IP, real revenue, good distribution, top notch development talent, international portfolio of games and distribution, etc. You can play their games on almost every platform under the sun - even play bejewelled on airplane headrests!)

$1B is a lot of money, but Popcap is an awesome crew, and likely worth it. I sure hope whoever it is doesn't screw the magic formula.

EA Buys Playfish

From Techcrunch today:

Electronic Arts closed it’s anticipated acquisition of social gaming startup Playfish for $275 million in cash. An additional $25 million in stock will be set aside for retaining the top talent at the startup, and another $100 million in earnouts are part of the deal as well if the business hits certain milestones. So the total value of the deal could amount to as much as $400 million when all is said and done.

Wow. $400M is a lot of money. Social games are clearly the hot ticket right now, so it makes sense for EA to jump in, but one has to wonder if that's money well spent.

The stock & earnout will retain the people for some time, which is I'm sure a big part of why they acquired the company.

Still, the titles are cheaper to develop, and there doesn't (as of yet) seem to be the same IP loyalty that there is in hardcore games (are there Farmville fanboys out there dissing Mafia Wars?).

Time will tell if it was a good call, but it certain does seem rash, especially with all of the kerfuffle around questionable sources of social game revenues. (Interesting meta-level piece on the same issue here)

Nice resume. Now about your lack of startups...

Good article in favor of buy-vs-build and how it’s getting mixed with hiring-vs-acquiring. Gist of the article is the merger of the following three quotes:

1) “Like everything else in technology, the cost of starting a startup has decreased dramatically. Now it's so low that it has disappeared into the noise.” PLUS

2) “When companies buy startups, they're effectively fusing recruiting and product development.” EQUALS

3) “companies that acquire technology will gradually learn to go after earlier stage startups. They won't necessarily buy them outright. The solution may be some hybrid of investment and acquisition”

It's an intriguing article and makes for some interesting food for thought if you interpolate beyond where the author has taken it. For example:

• If an ever increasing number of undergrads start their own companies, how long before it's just *expected*? Part of the min requirements? It wasn't so long ago that "I wrote and shipped an indie game" or "I ran a fan site for an MMO" was an attention-getter on a resume. Today, standard fare. Maybe one day you can't even apply for that MBA program without at least 1 startup under your belt.
• If it becomes something that everyone is doing, then the min bar will be starting a SUCCESSFUL startup. Of course, those people may not want to be hired or acquired at all. Makes for a nice feedback loop there.

Hmm...

(Of course, while the cost of starting web-based businesses may be dropping, there are still many industries that are pretty capital-intensive, in which case this may apply less.

Mickey, Put on your Parka - Disney buys Club Penguin

To the earlier discussions about large media companies getting into the MMO space, today we here that Disney buys Club Penguin.

Things that are interesting about this:

• $350M. That's a lot of kippers, kids.
• Not sure how that compares to subscription revenue, but as I said earlier, I'm not sure it matters.
• Club Penguin is based in Kelowna, which is very close to some kick-ass skiing. Why was I not told!? This is important!

When the little guys aren't so little anymore...

Saw this on Kotaku today:

Ritual Entertainment Bought by Casual Games Dev Mumbo Jumbo.

Mumbo Jumbo are the makers of the popular casual game as Luxor, among others.

That's got to have a lot of people in hard-core games land going "huh? by who?!"

I probably shouldn't comment too much given that I have a professional relationship with these guys and others like them in the space.

I will point out one thing though. The press release states:

"The combination of Ritual's(TM) high-end, multi-platform expertise and our own industry-leading publishing model will set the bar for quality and sophistication in casual games and create a major industry powerhouse. The casual games market is beginning to mature as evidenced by an increase in consumer expectations. Ultimately, the companies providing the best content will win, which is why we are investing so heavily in the development of technology and original IP."

I have to agree with the assertion that consumer expectations are rising in terms of quality, and eventually, some of that translates to production costs. Developers that think that the cost of casual game development is going to remain as conservative as it is today may be mistaken. At the very least it will split into different strata (the MMO space is probably a good example. there is room for targetted, niche, and/or quirky low-production-cost MMOs, but those developers are very concious of the fact that they are flying under the radar of the big guys. If you want World of Warcraft's customers, you better pony up on production costs to compete.