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The Free Zone: Grist for the Rumor Mill

By Richard Aihoshi on January 17, 2011 | Columns | Comments

Grist for the Rumor Mill

Even though I basically never seek them out, I seldom go very long without some new rumor coming my way.  When I add in the fact that the ones I've already seen get repeated and re-circulated, sometimes in modified or embellished forms, the inflow is pretty regular, although the volume does rise and fall from day to day.  Naturally, some are more interesting than others.  As well, they're not all equally credible, both in terms of the reports themselves and the various people who have passed them along.

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Somewhat ironically, when a source is such that I know a particular rumor is true or basically accurate, you won't see it discussed in this column.  By default, I treat all personal communication except for press releases and other announcements as confidential, so that would mean betraying a trust.  Having never done so during a decade and a half writing about the game industry, I'm not about to start now.

So, the rumor I've chosen to talk about today is one I can't confirm and have no solid reasons to believe.  However, it has piqued my interest repeatedly for quite a while, it started circulating again within the past month or two, and my gut feel says there *might* be some fire where there's currently just smoke.

EA back on the acquisition trail and looking at free to play

In 2008, when Activision and Vivendi Games merged to form Activision Blizzard, EA lost the lofty position it had held for some time, that of unchallenged industry giant.  At that time, the company seemed to view acquisition as its major growth strategy, and to be heavily focused on the online sector.  It bought Mythic Entertainment in 2006 (as well as DICE and Phenomic).  2007 saw the purchase of VG Holdings, owner of BioWare, which was working on SWTOR, and of Pandemic (the deal was completed in 2008).  There were also two significant minority ownership investments, about $105 million for 15 percent of Korean "big five" publisher Neowiz, and around $165 million for a similar stake The9, which held the WoW license for China at that time.

After a brief break from anything major, 2009 brought a much talked about return to action with the acquisition of social network game company Playfish in a deal valued at up to $400 million.  Then last year... back to nothing big unless you want to count $20 million for mobile publisher Chillingo.  In the meantime, Activision Blizzard received a huge boost in sales with the release of the Cataclysm expansion.

Not surprisingly, EA is no longer a shining star on the stock market.  Its valuation fell last year to a level where its capitalization is a little over $5 billion.  That's a huge figure, but only about 40 percent of Activision Blizzard's; i.e. the company is worth roughly 2.5 times more.

That can't sit well at all with EA's executives.  Even worse, a number of analysts have placed Zynga higher, at up to $5.5 billion, although any such numbers are speculative since that company is privately held.  In addition, Tencent Holdings far surpasses all of these.  With China's leading instant messaging and other Internet services, it's much more than just a game company.  That said, its estimated value is over $40 billion.

When I put these things together, I can't help but be intrigued by the thought that EA is looking for another major acquisition, at least in part to help buoy up its stock situation.  Yes, SWTOR will sell a lot of boxes, but when that will actually happen is still uncertain, as is the likely magnitude of its ongoing revenue stream.

EA's name comes up every time a publisher of any substantial size is seen as a possible acquisition candidate, but realistically, are there any truly desirable candidates out there?  I'm not so sure, even for a merger.  So, I can't help but wonder what other avenues the company might focus on for growth.  And when I do, buying an F2P publisher looks like a decent option. 

It's also possible to make a case for pushing more strongly into F2P through licensing.  EA clearly has the resources to do so.  However, this route does have a major obstacle in that a lot of titles are already licensed to various publishers.  Furthermore, as the large Chinese publishers increase their presence in the west, it makes intuitive sense not only that their successful games will become unavailable, but also that they'll be looking for desirable ones themselves.

So, that leaves purchasing an existing F2P publisher, preferably a major one with a significant portfolio.  As I said, I don't know if this will happen, either in 2011 or ever.  But I'm not about to dismiss the possibility. 

The Free Zone The Free Zone Editorials
Richard Aihoshi has been writing about MMOGs since the mid-1990s, always with a global perspective. As a result, he has observed the emergence and growth of the free to play business model from its early days in both hemispheres.

He is the former Editor of RPG Vault and his column, focusing on free to play MMOs, appears on MMORPG.com every Monday.
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