EA Buys Playfish in Deal Worth Up To $400 Million

November 9th, 2009

By Eric Eldon

Nearly a month ago, we first reported that gaming giant EA was looking to buy Playfish. Today, the deal is official. The purchase price is $275 million in cash, with $25 million in “equity retention arrangements,” according to the press release, as well as “a maximum of $100 million” based on meeting performance milestones over the next two years.

The significance is that EA, one of the largest video-game makers in the world, believes that its future is tied up with social gaming. Playfish has distinguished itself by creating well-polished social games and gaining tens of millions of users.

In fact, as Inside Social Games readers know, we broke the story around a month ago. From our first article:

We have a few more details on what has supposedly been happening with Playfish. A reliable industry source says EA may have even acquired the company several weeks ago, with an announcement possibly happening in the next few weeks. We believe that Playfish could be on track to make as much as $75 million this year.

We and others had heard the deal was for $250 million at the time, but we heard a couple weeks later that it might be more. From our second article:

EA has been doing due diligence on Playfish, we have heard from multiple sources, meaning it has been going through the company’s financial reports and other information to determine that it indeed does want to make the purchase. We do not know if the deal has fully closed yet. Our understanding is that Playfish has been in a “no shop” period, meaning it won’t talk other potential acquirers as EA completes its review. However, some sources have previously said that the deal may have already closed. We have also heard that Playfish’s banker is J.P. Morgan….

One reliable industry insider we spoke with believes the amount is “north of $400 million.” But we have also heard that the number was “less than $200 million.” Hmm. Perhaps the “north of $400 million” number includes some sort of earn-out plan? For sake of comparison, kids virtual world Club Penguin sold to Disney in 2007 for $350 million, with the possibility of earning another $350 million based on performance over the next years.

It’s not clear when the deal closed. EA is announcing its earnings today, and it is has been in its quarterly quiet period until now — which explains the company’s silence on the rumors over the last month.

Most of Playfish’s games are on Facebook, and the largest one is virtual pet-caring game Pet Society, which has 21.5 million monthly active users and 5.24 million daily active users. The second largest is virtual restaurant game Restaurant City, with 18.1 million MAUs and 5.30 million DAUs.

Like most social gaming companies, EA makes the vast majority of its money through direct payments. While it does run some advertising offers, the offers are from TrialPay, a company that focuses on running high-quality ads from major brands. Many offer companies have been running low-quality offers like mobile ringtone subscriptions, and they’ve have been coming under heavy criticism for it. But Playfish’s reliance on direct payments and high-quality offers means it has not and will not be much affected by these issues. Indeed, the biggest way it is affected from that issue is that many people outside the industry have come under the mistaken impression that social games make most if not all of their money from offers.

The bigger issue, now, is that Facebook is introducing a wide range of changes to its developer platform, getting rid of notifications and other features that apps currently use to reach users. Playfish is likely to be less affected than some other game developers, as it has focused on making its games fun, first; instead of users getting tricked into sharing the game with their friends, they happily do it. Now, with EA’s money and large pool of gaming talent, Playfish will be especially well-positioned to compete against market leader Zynga. For example, Zynga may spend up to $50 million this year on Facebook ads, to help it gain more users. With EA, Playfish can easily do the same.

This is also a nice exit for a couple venture firms: The company has raised $21 million from Accel Partners, Index Ventures and Stanhope Capital.

To dig deeper into the social gaming market, check out our new report: Inside Virtual Goods: The Future of Social Gaming 2010.

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17 Responses to “EA Buys Playfish in Deal Worth Up To $400 Million”

EA Buys Playfish in Deal Worth Up To $400 Million Says:
November 9th, 2009 at 8:08 am
[...] > Continue reading on Inside Social Games. [...]
Laurent Courtines Says:
November 9th, 2009 at 8:09 am
I posted this on Alley Insider and I’ll post it here as well:
This is a big deal. Unlike Zynga, Playfish I feel avoided some of the aggressive user grabbing that feel a little dirty. Playfish’s games never made the games about adding more friends as a means of game play.
While you’ll notice that it has less users, it seems to me (especially in Pet Society) that the members are more engaged and less interested in level chasing.
What I am trying to get at is that Playfish is likely the long term better buy than Zynga (and playdom to a lesser extent)
Here at Games.com we’ve discussed this and made the loose comparison to Playfish being Nintendo in-terms of quality, and Zynga being more of a Activision.

We’ll see if EA affects the culture of Playfish but this is a good move and I think the next few months will be interesting.
I wonder if Activision will counter with a social game company buy?
We’ve got an exclusive interview coming soon on the sale.
EA buys Playfish, then lays off Mythic and EA staff | Cuppytalk Says:
November 9th, 2009 at 12:18 pm
[...] about a month, EA’s purchase of Facebook social game company Playfish (for $300 million) has been confirmed today. Playfish are known for their popular games Restaurant City and Pet Society, which are both in [...]
Playfish COO: EA Acquisition Validates the Future of Virtual Goods in Social Games Says:
November 9th, 2009 at 12:47 pm
[...] that gaming giant EA (ERTS) was looking to acquire large social game developer Playfish. Today, the deal was made official: EA is acquiring Playfish for $275 million in cash plus up to $125 million more in earnouts and [...]
Scott DeLong Says:
November 9th, 2009 at 11:16 pm
Things are definitely about to get very, very interesting in the social games world.
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November 11th, 2009 at 2:29 am
[...] | InsideSocialGames Condividi questo [...]
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November 13th, 2009 at 10:40 am
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November 17th, 2009 at 7:23 am
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November 24th, 2009 at 11:29 am
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December 24th, 2009 at 10:56 am
[...] why EA is partnering with another Facebook app developer when it just bought a market leader, Playfish, in a deal worth up to $400 million. “Anything going live now was in progress well before Playfish acquisition was known,” [...]
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[...] After its seminal sale to Electronic Arts earlier this fall in a deal worth up to $400 million, the company has appeared somewhat distracted as its leaders and teams are integrated into the [...]
The Early Social Game Winners and Losers After Facebook’s Platform Changes Says:
January 6th, 2010 at 3:42 pm
[...] both MAU and DAU over the last 30 days. Playfish appears to be continuing their decline since the purchase by Electronic Arts in early November. Pet Society rebounded a bit with the launch of a daily lottery in early [...]
Doing Right by the Consumer: Going Beyond Compliance Says:
January 18th, 2010 at 3:01 pm
[...] virtual currency sales at over $1B in 2009 and growing at a clip of 60%. Recent events such as EA’s $400M acquisition of Playfish, Playdom’s $43M Series A and DST’s $180M investment in Zynga demonstrate that investment and [...]
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January 23rd, 2010 at 11:56 am
[...] developer will be following in the footsteps of Electronic Arts, in reference to its recent purchase of social developer Playfish. At the moment, the speculations are all merely rumors, but based on past confirmations from [...]
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February 11th, 2010 at 10:26 am
[...] November, Electronic Arts acquired Playfish in a deal that could total up to $400 [...]
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February 17th, 2010 at 1:15 pm
[...] also makes games on Facebook, has owned the license to SimCity for years. Especially now that it owns Playfish, one of the successful social game developers on [...]