According to multiple sources reporting to Tech Crunch, Electronic Arts is going to acquire PopCap Games for around $1bn. The negotiations are reportedly in the final stages.
Other companies were rumoured to be in the running for PopCap as well. Social games giant Zynga had reportedly “kicked the tires”, but deemed the purchase price to be too high. Another company reported to be in the market was Japanese mobile giant DeNA, who’s founder and CEO Tomoko Namba is set to retire on Saturday. Google was also widely believed to be a player due to a recent job posting indicating that they would be entering the games industry.
PopCap, the company behind Bejeweled and Plants vs. Zombies, makes revenues of about $100m – $150m per year, which makes the purchase price anywhere from eight to ten times their annual revenues. The company’s last big game was Bejeweled 3. This buyout is contrary to earlier reports that PopCap would be going forward with an IPO.
Electronic Arts has made big splashes in the past with purchases, purchasing social gaming company Playfish for $400m in 2009.
Analysis: This is a lot to digest, so I’ll try to take things in steps.
For one, this is an outstanding deal for Popcap. You can’t really do much better than 10X your incoming revenue when it comes to being purchased, so they’re definitely selling high.
As for EA… eugh. I can’t help thinking of the Skype sale, where Microsoft said “we have a need… LET’S THROW MONEY AT IT.” This is different in that Microsoft outbid itself for an asset that made almost no money, whereas PopCap is definitely making money and had other companies looking at purchasing it, but the result is the same: a big company is hoping to make a splash in an area it’s not leading in, so instead of innovating to that point, they’re basically buying the leader. It’s a nice point of penetration, but I have to seriously wonder how investors are going to react to a company that’s bled money the past few years buying another company at almost 13% of its market cap (EDIT: Speculators are not pleased). In terms of what this does for EA as a business, this only makes sense if they were *absolutely sure* another company like Zynga was getting ready to pull the trigger.
As for what EA gets out of this, they already have Pogo doing their “casual” games and Playfish doing their “social” games. I think this is about further pushing Origin. EA can do two things with PopCap: They can put pressure on Steam with PopCap’s existing lineup (the entire PopCap bundle is on Steam for a very good price, and EA and Valve aren’t exactly friendly right now), and most of all, in the future, they can affect the market by making future PopCap releases tied to Origin. They’re starting to do this with some of their AAA titles such as The Old Republic, but the thing about AAA releases is that you have to have them available through more traditional channels like retail. PopCap’s traditionally been a heavily online-centric publisher; EA might be banking on that to further push Origin down consumer’s throats. I think they’re going to make PopCap’s future releases – and possibly some of their older ones – require Origin to further penetration for that service. Personally, I don’t think that will necessarily work – it’s going to turn off more casual gamers, and it runs the risk of creating pirates – but this is the kind of anti-consumer thinking that permeates EA’s entire strategy with Origin.
What’s ironic is that this is probably the best hope consumers had, outside of possibly Google. The other options were outright bad. DeNA is making a strong Western push, but their number one priority is mobile gaming; console and PC gamers would have been left out of the loop. But that’s infinitely preferable to PopCap being swallowed whole by the behemoth that is Zynga, who has acquired fourteen companies in the past twelve months. If that would have happened, I think there would have been a heavy exodus of talent from the company, or at least a lot of updated resumes hitting the market. PopCap would have just become another brick in what is becoming a very ugly wall, so in a way, speaking as a gamer, I’m glad EA bought PopCap, if only to keep them away from Zynga.
Still, it doesn’t mask the fact that, once this is complete, it’s an extremely large purchase by a company that’s been at odds with investors and analysts for some time now, due to the fact that it’s lost a lot of money for the past few years. From a PopCap perspective, this is great because it puts EA’s considerable marketing and technological prowess behind the company, and they sold very high. From an EA perspective, it’s good, but a very Microsoft-like answer to a question that has already been answered. From a consumer perspective… well, no one really cares about them.