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Games - Tuesday, July 27, 2010

Coverage Breakdown: Disney Pays $563M+ For Social Gaming's Playdom

We count 200+ news and blog posts about Disney's announcement today that it will pay $563M + $200M in earnout for Playdom. It's a big story no doubt, but its a bit disappointing to see so much coverage with very little analysis of what this means.

For us, the keys are that:

+ This is a huge win for Silicon Valley to see a 2 year old startup taking more than half a billion dollars - and its not even the leader in the sector!

+ Surely there is some fear at Disney that they were buying the Bebo or Hi5 because they couldn't afford the Facebook of social gaming - Zynga.

+ Playdom will be a great business school case study. They tried and failed to build social games on Facebook so they switched to MySpace, dominated there, and then took their show back to Facebook.

+ Playdom does remind us of the philosophy run amuck in the Internet birth bubble - go big or go home. Playdom threw around cash with abandon, but it paid off.

+ The deal is great for other social gaming companies as it re-establishes private market pricing.

Playdom, which is based in Mountain View, is profitable with 2009 revenue of about $50M. Among its other titles are Social City, which involves building virtual communities, and Market Street, which is built around operating a shop.

The leader in the sector, Zynga, has raised $520M in venture capital and is expected to go public. Electronic Arts, which has 52M active monthly users, became the No. 2 social gaming company when it agreed last year to pay up to $408M to acquire Playfish.

Gamezebo - "Playdom deserves congratulations. They executed a plan perfectly to grow into the number two social games company within a year by launching innovative games (e.g., Social City) and acquiring a lot of game studios for a cheap price. Based on the purchase price (assigning a standard 6 - 8 X multiple), we can assume they are on the path to earning $75 - 100 million in revenues this year. Not bad, but not nearly as much as the number one company, Zynga is making (projected to earn $300 million in revenues in first half of 2010 alone)."

VentureBeat - "Now, under Disney, Playdom could become an even bigger powerhouse. It can now make games based on Disney's many franchises. Brands have not done that well to date in social games on Facebook, where friend recommendations most often lead new users to games. But over time, as Facebook becomes even more crowded, fans may gravitate to brands as they do in other media."

We note that Playdom CEO John Pleasants will become an EVP of Disney Interactive Media Group where he will report to Disney Interactive Media Group President Steve Wadsworth. it has to be a little awkward for Pleasants to say 'yes boss' all day to Wadsworth given that Pleasants has just added considerably to his fortune.

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