EA to Buy PopCap for $1 Billion: A Win-win Situation

Recently, TechCrunch reported that the casual game publisher PopCap Games, the company behind such hits as Plants vs Zombies and Bejeweled, is in the process of being acquired, and the multiple sources pointed out that the price is over $1 billion. Initially social game giant Zynga was the potential buyer, as well as an unnamed Asian game company, and traditional megapublisher Electronic Arts. Now, TechCrunch has narrowed the list of suspects to one, EA.

Without a doubt, the acquisition is definitly worth it for EA, whose users are mostly die hard gamers, now it needs to move into the casual game space, since the high popularity of smartphone bring this type of game out of the ground, no one can ignore the big success of Angry Birds and Plants vs. Zombies. PopCap’s flagship title Bejeweled has sold more than 50 million units across all major platforms. PopCap games are available for Web, PC and Mac, Nintendo DS, Nintendo DSi, Wii, Xbox, Xbox 360, PlayStation 3, Zeebo, Cell Phones, PDAs, iPod Classic, iPhone, iPod Touch and iPad as well as other mobile devices and in June 2010, it was announced that they would be producing games for the Android operating system. According to TechCrunch’s source, Popcap’s revenues are in the range of $100-150 million, and a price of over $1 billion would have put the deal at a possible 10x multiple.

EA has some golden properties, like The Sims, that appeal to the more casual gaming market, but for the most part, the video game giant has its guns on the home console deck. However, the addition of PopCap properties such as Bejeweled and Plants vs. Zombies would boost EA’s arsenal on the mobile front. In the world of iOS gaming, the better games are generally made by smaller, independent companies like Rovio, Lima Sky and for now, PopCap. Just think about the best games the App Store has to offer: Angry Birds, Doodle Jump and Plants vs. Zombies are among them. PopCap could be seen as the key to mobile gaming industry for EA. Acquiring PopCap would mean a substantial upgrade for EA’s casual gaming portfolio. The PopCap games could also benefit from EA’s reputation and promotional muscle. PopCap has a popular lineup of games, some of which could be spread over even more platforms, and the most importantly, people like PopCap. It’s obvious from its own statements EA is working on changing its focus and wants to do more casual and social games. An acquisition of PopCap would be a great way to do this without a lot of effort.

EA could choose to integrate development teams or let PopCap continue as its own brand with a separate management team, and obviously the latter will be a better choice, EA could let them do their own thing for the most part. This acquisition would give EA a better foothold in iOS. It’s not without precedent, however, that EA could buy PopCap and then leave it mostly alone while also pushing for more of the traditional Electronic Arts stylistic motifs. BioWare, another EA purchase, has seen a tremendous rise in the sheer amount of downloadable content made available since their migration to underneath the EA umbrella. Item packs, character costumes and, in general, stuff that many people might consider being close to microtransactions. With a PopCap acquisition, EA would be doing more than buying a game company, it would be buying its way into the mobile market.

In addition, the acquisition aslo means something for PopCap, of all the publishers with their own gravitational pulls, EA’s the best about allowing developers to take creative risks. PopCap’s trademark charm, then, probably won’t get too much of a white-washing. More troubling, however, is the way PopCap’s development process clashes with EA’s. PopCap’s proven to be incredibly methodical, giving each individual game and platform its full, undivided attention. PopCap has previously discussed filing for an IPO, and has said that could come as soon as November. They’ve maintained their goal isn’t cashing in, but building something long lasting that will have as much impact as games like Monopoly or Scrabble.

While the rest of the economy is still turbulent, mobile gaming is chugging on at a lucrative rate. There is still a lot of cash in the coffers of mobile gaming, and the smartphone market continues to expand. Even if EA is overpaying for PopCap, it’s still worth it. Firstly, there will be a return on investment in 12 to 18 months, and secondly, they don’t want competitors to get it. The acquisition could deliver in both the immediate future and the long run, the buyout is part of a tactical short-term strategy as well as a long-term strategy, just like putting your stake in the ground. Better to overpay now than pass up a prospect and regret it over time. It’s clear clear that EA has been moving in this direction for many years now and acquiring PopCap would be a brilliant move to top it all off. Adding PopCap’s expertise and library of games to their own not only makes sense for EA, but for PopCap as well.


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