When Electronic Arts Inc. signaled its long-awaited entry into mobile gaming earlier this year, many onlookers expected the 800-pound gorilla to quickly devour a competitor or two. Instead, the company appears to be making steady progress in wireless on its own.
That may be about to change.
All eyes in the wireless gaming space have been on EA since May, when the company unveiled plans to release as many as 20 titles for mobile phones during the next year. Speculation of a potential buyout heated up in July, as Jamdat Mobile Inc. shares jumped 7 percent after a Smith Barney analyst cited rumors of a takeover by EA in a research note.
EA has declined to discuss rumors, but the company has a track record of buying its way onto various playgrounds. The publisher lumbered into casual online gaming four years ago with the purchase of Pogo.com, an established portal that boasted more than 17 million registered users. It entered the lucrative simulated gaming space several years earlier with the $125 million acquisition of developer Maxis, which eventually developed the popular Sims franchise. And EA’s purchase of Origin Systems and Origin’s Ultima series in 1992 allowed it to tap the booming massively multiplayer online gaming market.
The world’s largest third-party game maker certainly has the resources to bring an established player in the wireless gaming space into the fold too. The company has a market capitalization of about $18 billion and cash reserves of more than $3 billion.
Jamdat could be one attractive target. The company has built a solid portfolio of wireless-specific games that minimize the platform’s shortcomings, including a series of popular bowling offerings. Earlier this year, Jamdat secured wireless rights to the highly prized Tetris franchise when it acquired Blue Lava for $137 million.
But Jamdat’s price tag might be too steep even for the well-heeled console game publisher. Shares of the company have performed well since the Los Angeles-based wireless game maker went public late last year, and Jamdat boasts a market capitalization of more than $700 million, meaning a would-be suitor would have to pony up as much as $1 billion to close the deal. And with a slew of titles and big-budget licensing deals, EA isn’t hurting for content, said Dave Mock, an analyst with Current Offerings. “I just don’t see it,” Mock said of the rumored takeover of Jamdat. “I can’t get by the initial question of why would (EA) need them?”
Indeed, EA seems to be making progress in wireless on its own. The company recently announced deals with Sprint Corp. and Verizon Wireless to deliver mobile versions of several of its high-profile console hits, including Madden NFL ’06 and Tiger Woods PGA Tour ’06. Other titles are planned based on Pogo.com’s casual gaming line.
While the Pogo line may prove easy to move across platforms, EA may find it difficult to create effective mobile versions of its more well-known console titles. The success of some of its sporting titles in large part is due to eye-catching graphics and sophisticated game play that takes advantage of complicated console controllers. Such qualities may be difficult to transfer to mobile phones with graphics limitations and simple controls.
“I think Pogo is much more where they’re going to see success, at least initially,” Mock said of EA’s prospects in wireless. “On a lot of the more complex console games, I just can’t picture how they get translated over and have any semblance of the game play of the console” versions.
EA also might need some help establishing carrier relationships, particularly in foreign markets, according to Schelley Olhava, a program manager in the Consumer Markets research program at IDC.
“EA is a very new entrant (to wireless), and carrier relations are huge, especially beyond the U.S.,” said Olhava. “If EA were going to make an acquisition-and this is still strictly a rumor-they’re going to want to look for players that have the talent onboard, that have proven success in the arena, and some form of IP (intellectual property).”
There appears to be no shortage of publishers that meet those qualifications. Pure-play game makers Glu Mobile (formerly Sorrent) and Digital Chocolate Inc. have been mentioned as possible targets; U.K. publisher Superscape Group plc has confirmed that its directors “are currently considering all of the strategic options available to (Superscape), including a sale of the company.”
Perhaps the best fit for EA, though, is Ubisoft Entertainment SA, a French publisher of games for several platforms. EA already owns a 20-percent stake in Ubisoft, which in turns owns about 20 percent of Gameloft, a French pure-play wireless game maker.
EA may be hoping to step up its wireless efforts to shore up its bottom line as quickly as possible. Last week, the company reported a net loss of $58 million, or 19 cents a share, and investors responded by sending the stock down nearly 5 percent.
Still, given EA’s resources and the progress it seems to be making in mobile gaming, the publisher is wise not to rush into an acquisition, Olhava said. “I wouldn’t call (any takeover by EA) necessary,” Olhava said. “I just think an acquisition, if handled properly, could help EA get a stronger foothold in the wireless space.”
