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NEW YORK (Business 2.0) -
Electronic Arts decided it couldn't beat Jamdat, a publisher of videogames for cellphones, so this week it made the largest acquisition in its history, paying $680 million for the Los Angeles-based game-maker, the biggest player in the burgeoning $2.6 billion market for games on mobile phones.
The deal gives EA (Research), the world's largest publisher of PC and console videogames, pole position in the emerging market for cellphone-based entertainment. But it also gives EA access to another key asset -- Jamdat (Research) CEO Mitch Lasky, who will head EA and Jamdat's combined mobile game units.
Lasky's background as a Harvard graduate and corporate lawyer might suggest a conservative streak. But in fact, he's turned out to be a risk-taking entrepreneur. After stints at Disney and Activision, he joined Jamdat, then a small startup, as its CEO in 2000.
Under Lasky, Jamdat made a contrarian bet on the U.S. market when analysts believed the mobile-gaming business would be mostly in Europe and Asia. Jamdat now controls roughly 25 percent of the U.S. market, and it's been consistently profitable:
Driven by its flagship games, Jamdat Bowling, Bejeweled and Tetris, Jamdat has posted four straight profitable quarters since its IPO last October, and revenues are expected to reach $80 million this year.
Rumors of a Jamdat acquisition have been swirling for months. During the summer, both Electronic Arts and Microsoft (Research) were mentioned as possible suitors.
The logic was simple: Founded in early 2000, Jamdat was one of the first companies to make mobile games. Since then, it has mastered the art of forging relationships with carriers like Vodafone, Verizon Wireless and others, who control the distribution of mobile-phone games onto handsets. (All told, Jamdat has relationships with 90 carriers in 40 different countries.)
Lots of games, fast
Another important Jamdat asset is its software-development platform, which lets it make multiple versions of its games quickly and ensure they work on the hundreds of different phones consumers use. The ability to make games that work on as many phones as possible is one of the biggest barriers to entry for any company attempting to create content for mobile phones.
Bob Aniello, Jamdat's vice president of marketing, says the move also gives Jamdat access to Electronic Arts' vast library of games, including its so-called "casual" games unit Pogo, which offers online versions of bingo, solitaire, blackjack, and trivia and puzzle games; the Sims franchise; and sports games such as Madden Football. Jamdat can now distribute those games through existing relationships with wireless carriers.
What prompted the sale's timing? With Jamdat shares trading around $30 for most of the summer, the company's rumored asking price—said to be around $1 billion—was considered too steep. More recently, concerns about Jamdat's ability to launch popular new titles to add to its lineup of games have led the stock to drop 36 percent. When the deal was announced yesterday, Jamdat was trading at $22.
Mark Argento, an analyst with Craig Hallum Capital, believes that price level may have prompted EA to move. "I think Electronic Arts heard footsteps," says Argento, who says both Yahoo! (Research) and Microsoft were likely bidders. In a research note issued Friday, Argento said he believes there's a chance of another interested party outbidding Electronic Arts. (Jamdat and Electronic Arts executives declined to comment about the possibility of additional bidders.)
Expected to close early in 2006, the timing is right for Electronic Arts. As mobile phones sophisticated enough to play games on get cheaper, analysts expect cellphone games to become a mass-market phenomenon. Research firm ARC Group estimates that by 2010 consumers will spend more than $10 billion a year downloading games onto their phones.
As a consequence, the mobile games field should remain hot in 2006 and beyond. Lasky, who acquired smaller mobile-games company at Jamdat, could spearhead other acquisitions. Namco, the Japanese maker of Pac-Man and other popular games, could be one target.
Jamdat competitors Mforma and Glu Mobile could file to go public next year --or get snapped up by larger players. But with Jamdat and Lasky on its team, EA's already one play ahead of the competition.
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For more on Jamdat's prescient move into the mobile games market, see "Dialing for Dollars" from Business 2.0's July 2005 issue:
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