mobile gaming – Inorganic Growth

Contact: Jarrett Streebin

Electronic Arts (EA) recently shelled out a reported $20m for mobile game publisher Chillingo. The UK-based startup published the popular iPhone game Angry Birds. Although the acquisition didn’t include the game or its developers, it will help EA market and distribute its mobile games. This small deal is the latest in a hot streak in mobile entertainment transactions this past year.

Last year, EA bought mobile and social game developer Playfish for $300m, plus an additional earnout of up to $100m, making EA one of the largest developers for mobile and social games. The company followed that up with the purchase of mobile game developer IronMonkey Studios earlier this year. The Australian company had already built mobile games for existing EA titles such as Medal of Honor and Need for Speed. Now, Chillingo will provide the channels to better market and distribute these and future titles to iPhone as well as handheld consoles such as Sony’s PSP Mini and Nintendo’s DSiWare and WiiWare platforms. It’s likely that this distribution will extend to Android titles as well.

Not that EA is alone doing deals for mobile gaming companies. In mid-October, DeNA dropped a whopping $400m on ngmoco, one of the largest acquisitions ever involving the iPhone. These are just a few of the transactions that have helped double the M&A activity in the mobile gaming sector. So far this year, there have been 29 deals, up from 17 last year, according to The 451 M&A KnowledgeBase.

-by Thomas Rasmussen

Casual gaming is a serious business. Amid a decline in M&A across the overall gaming industry, casual gaming acquisitions are trending up slightly. So far this year there have been 28 social and casual gaming deals inked, which compares to 25 for all of last year. This is in stark contrast to a sharp decline of more than 30% in tech and gaming M&A in general. What might the reason be for this and what does it portend for the year to come?

The past month has authoritatively invalidated a long-held belief by those in the gaming industry: It is not a recession-proof sector. In fact, lackluster earnings from Electronic Arts (EA) and others have the industry anxious. EA posted a negative EBITDA of $310m, provided dire forecasts and announced across-the-board job cuts for the most recent quarter ended September 30. The bright spot, however, is the continuing growth in casual gaming among not only the big videogame companies such as EA, but other companies, as well. For instance, RealNetworks’ recent third-quarter earnings report boasts another 20% increase in its gaming business compared to last quarter. As the casual gaming industry continues to be seen more as a viable business model, we expect the shopping to continue for not only the gaming conglomerates, but also for large media companies looking to get in the game. Amazon’s recent acquisition of Reflexive Entertainment is an example of new acquirers shopping in the space.

Not that it is a hard trend to spot, but for what it’s worth, VCs, angels and serial entrepreneurs have been touting this development to us all year, and are putting their money where their mouths are. Among some of the startups to receive sizable funding recently are Playfish, which raised a $17m series B round last month for a total of $21m to date; Social Gaming Network Inc, which has won about $20m in funding so far; and Zynga Game Network, which has taken in $39m. That is a lot of money for companies in an industry previously regarded as a niche. And given the heavy consolidation experienced in the traditional gaming industry, all of these vendors are likely to be part of the many names mentioned in M&A chatter in the near future.