What Disney Got in the Playdom Acquisition

In a new industry like social gaming, a single acquisition can have a disproportionate effect on the ecosystem. The buyout of a prominent company changes perceptions across the market, whether the price is high or low.

Disney’s July acquisition of Playdom has certainly had that effect, setting off a new round of speculation on some familiar themes: Is social gaming a real business, or a bubble? Has the industry produced viable companies? Is Playdom worth what Disney paid?

There’s no doubt that in Playdom’s case, the acquisition price raised some eyebrows. Disney paid $563.2 million, with the possibility of an additional $200 million earnout, for a company with (at the time) 40.1 million monthly and 4.8 million daily active users. Calculating by the full $763 million, that equates to $159 per DAU.

There are nuances to that number — like Playdom’s MySpace traffic, and other issues that we’ll discuss below — but by nearly any measurement, Disney paid handsomely for Playdom’s users.

When a large, established company buys a startup for a sizable amount, it’s usually said that they’re not just acquiring a company, they’re acquiring a “growth story”. This was not immediately evident in Playdom’s case.

When EA bought Playfish for $400 million last November, Playfish had just doubled from six million daily active users on Facebook in June of 2009, to 13 million at the time of acquisition.

By contrast, neither Playfish nor Playdom, not to mention Zynga, CrowdStar or RockYou, has shown much growth in 2010. Only companies that began 2010 small or not yet on Facebook have grown appreciably.

An AppData view of Playdom’s traffic in the six months before its acquisition shows a decline from a high of over seven million DAU in mid-April to around five million in late July, when it was acquired. Like its peers at the top of the social gaming world, with the increasing challenges of distribution on the Facebook Platform in 2010, Playdom had been growing revenues by improving its per paying user monetization metrics, we hear, which can’t be gauged as easily by outsiders.

Thus, many noted that Disney appeared to pay almost twice what Electronic Arts did, for a company with a smaller audience and without the same obvious traffic growth story.

What were Disney’s motivations in buying Playdom? Following the acquisition, relatively little fresh reporting went into the story. So we set out to dig a little deeper into Disney’s motivations, and the reality at Playdom at the time it was bought. What emerged were often very different perspectives from people who had relationships to Playdom prior to the acquisition.

On one side are the negative voices, drawing Playdom as a cynical con-man and Disney as the willing dupe. The alternate view is that Playdom was, like everyone else in the space, simply figuring out its strategy as it went, and that Disney made a well-considered choice for its own future.

Below, we deal with both of these two takes on the acquisition. One note: While we spoke to a number of sources for this story, including both industry onlookers and ex-Playdom employees, most of our sources asked to remain anonymous, citing potential repercussions in the tight-knit social gaming community.

Critical Views

Immediately following the acquisition, we heard some strongly-worded skepticism from a number of sources outside Playdom about the company. “Playdom’s only strategy was to grow and flip to a greater fool,” one prominent industry figure told us. Others offered more or less the same opinion.

The social game industry is, in many ways, a quite cynical place — an attitude perhaps carried over from 2009, when many companies grew from “fast follow” products that closely copied others and spammy viral techniques. Some executives that we spoke to seemed to feel that Playdom had crossed some kind of line in its strategy during that time, even by the loose standards of the social gaming world.

What did Playdom do that was so objectionable? In the view of the detractors, Playdom’s own acquisition strategy — it bought at least eight other companies over the same number of months — was intended to simply bulk up its traffic, without creating a viable long-term structure. In other words, Playdom was creating a bubble, and betting that it could sell itself before it popped.

One former employee said that this roll-up strategy was real. “We all talked about it internally, we all knew that was the reason that these companies were being bought, with some exceptions. We didn’t get Raph Koster [of Metaplace] for that reason. But all we were doing was driving up the value,” the employee told us.

Acclaim, which Playdom bought in May, was an example brought up by more than one source to illustrate how  Playdom bought some companies for name cachet and reputation. Acclaim became famous in the 1990s for its association with titles and franchises like Batman Forever, Mortal Kombat, and WWF Wrestlemania, but by the time of Playdom’s acquisition it had been restarted under new management as a MMORPG maker. Playdom touted Acclaim’s 15 million registered users after the buy, but had quietly shut down all of its games by August.

While some of Playdom’s acquired companies appeared to quietly disappear into the organization, other far-flung studios played a disproportionate role in keeping Playdom viable through new game releases.

This year’s decline in Playdom’s traffic would have been far more severe without highly successful releases like Social City, which at one point accounted for a quarter of Playdom’s MAU. PushButton Labs, an experienced third-party developer not owned by Playdom, helped with that game.

Playdom’s other successful recent titles were also developed outside of its Mountain View headquarters. Verdonia, which grew quickly but harbored serious flaws that led to a later fall, was created by a previously-acquired company, Green Patch, also in Mountain View headquarters. Market Street, Playdom’s most successful game outside its city-building titles, was developed by the San Francisco office.

City of Wonder, however, was developed in Mountain View.

The fact that Playdom produced hits is laudable. But its biggest success rested on one studio outside of Mountain View. The headquarters in Mountain View employed over 300 people including executives and support staff, and was mostly focused on centralized functions and maintaining existing games developed last year – though it also produced new games like Treetopia and Fish Friends, which were built hastily and were criticized for relying heavily on copying concepts from other titles.

Employees had varying views of why Mountain View seemed to have a harder time producing good content. “There were a bunch of kids running the place who had never been in the game industry, never managed anything before, and suddenly they’re game producers and executive producers. Of course it was dysfunctional,” said one source.

Another early employee seemed to pin the blame on John Pleasants, the experienced CEO hired away from Electronic Arts in June of 2009, saying that the company felt like it was on course to rival Zynga until Pleasants came on. Afterwards, Zynga pulled ahead, while Pleasants was not as aggressive as he could have been.

Mountain View did more than just produce games — more on that below. But with Eugene doing so well, one might speculate that Disney could have simply picked out and bought an equivalent small, innovative studio for a fraction of the price it paid for Playdom, and built a strong social gaming business around that core.

Skeptics believe that Disney may have bought into a too-rosy story of Playdom, or that the acquisition team could have been pressured into buying an internally troubled, but externally much-admired industry leader by Disney executives who wanted to show shareholders that they were leading in a hot new industry.

The lack of other available companies of Playdom’s size may support these views. Zynga is too large, while CrowdStar has, according to conflicting reports, either rebuffed or been rejected by several suitors, or has other issues. For the moment, there aren’t any other companies with enough size to fit the bill.

And Disney clearly preferred a hot new market to its old standbys. Four days after buying Playdom, Disney sold off its Miramax movie production studio for $660 million, enough to cover the Playdom acquisition.

Disney’s Broader Focus

The view that Disney was duped is too simple to be credible — Disney executives had extended contact with Playdom in 2010, and had contacts in the industry who could inform them of any problems at Playdom.

Similarly, while a desire to look like it was paying attention to a hot trend could have contributed to the acquisition, it’s unlikely that a savvy CEO like Bob Iger, who also oversaw the acquisitions of Pixar and Marvel Entertainment, would buy a total dud.

A kinder – and possibly more accurate – view of the acquisition is that Disney was buying more than just Playdom’s traffic and a jumble of studios.

Two important, but little-discussed, strengths of Playdom suggest a basis for that view.

The first of those strengths is Playdom’s centralized infrastructure, which the company has “perfected” while testing both its successful and failed games.

Playdom has reportedly poured a significant portion of its revenue over the past year, possibly running into tens of millions of dollars, into the teams and tools behind its analytics and monetization platforms. As part of this, it has seen its revenues grow significantly in the past year, we’ve heard, especially in proportion to its traffic.

While Disney no doubt appreciated revenue growth, the more important part is how that revenue grew.

Understanding user metrics and behavior (and knowing which metrics are the right ones to understand) is a key part of the social game business that many companies, both small and large, have failed to fully appreciate. While Disney may not have acquired the most innovative game production studios overall, it did acquire systems and understanding that could give it a competitive edge for years to come.

A senior Disney executive that we spoke with confirmed that Playdom’s analytics ability played a significant role in the acquisition, saying that Disney is using Playdom’s expertise in analytics outside of social gaming. “These are skills that are applicable across our gaming platforms and are already proving incredibly valuable to us,” the executive said.

A second, related strength is Playdom’s understanding of other game publishing platforms and users around the world. Playdom has been the first US-based social game company to enter into relationships with publishers like Russia’s i-Jet and Brazil’s Mentez, and its has published games on Hi5, MySpace, the iPhone, Android and other platforms. It has had third-party studios like Moblyng work on its mobile titles.

Creating a worldwide network was always part of Playdom’s plan, according to Tim Chang, the principal at Norwest Venture Partners who led an investment in the company last year. “That was something they were always intending, building out third party tools and doing cross-promotion. They’re very partner-friendly, an easy shop to talk partnerships with, and that also made it a good DNA fit for Disney, because Disney’s goal is to put their catalog of branded IP into social gaming,” Chang told us.

Disney’s goals, as seen from the outside, do seem to value Playdom’s infrastructure and organizational knowledge over its track record as a collection of studios. Since the acquisition, Disney has been moving the company toward producing branded content from Disney’s many other subsidiaries, as Bob Iger hinted in Disney’s post-acquisition earnings call.

Sources say that both Disney and Playdom are even more aggressive about this strategy than has been publicly admitted. Following the acquisition, some of Playdom’s in-progress titles were reportedly canceled, in favor of focusing on Disney-branded games. Playdom’s only release since the acquisition is ESPNU College Town, which supports Disney’s ESPN sports subsidiary, although we’re told it was in production before the buyout.

Although Playdom may release unbranded games in the future, it also makes the most sense for Disney, a very international company, to focus on spreading its existing, successful IP around the world.

Playdom Today and Tomorrow

Supporters of Disney might also point out that the company has done well with other acquisitions — especially Pixar, the innovative studio whose sale gave Steve Jobs a board seat and chunk of Disney stock.

Pixar may be a unique case: the company has proven time and again that its own unique vision and technology are unparalleled. Too much rode on the $7.4 billion Pixar deal for Disney to risk letting its executives meddle; Pixar was thus able to assert its independence early on and has reportedly kept it since.

Playdom, by contrast, has a creative heritage that differs little from other top social gaming companies. Internal restructuring may fix Mountain View. But the real question is whether Disney itself can do a good job at gaming.

History suggests that will be a challenge. In two decades of producing titles based on major franchises and characters like Mickey Mouse, Disney has had hit or miss success, and in recent years has lost money at its Interactive Media Group.

However, there’s some sign that Disney may want to reboot its gaming division. In October, Disney put Playdom CEO John Pleasants ahead of Steve Wadsworth as co-president of Disney Interactive, with responsibility over all gaming.

Disney has reason to refocus its digital business for the sake of social gaming. It has a large portfolio of content that users love, that appears to be a great fit with the free-to-play virtual goods model that drives most social gaming revenue. In addition to movie tickets, real-world merchandise, television distribution rights, and every other way of monetizing its content, it now can create themed games that include virtual goods — essentially creating an entirely new revenue stream around pre-existing content.

Pleasants, who was once chief operating officer at Electronic Arts, is an experienced core gaming executive. As we noted above, not everyone is confident in his talents, but he mostly gets positive reviews in the social game industry.

And Playdom may be able to grow without the rest of the world seeing exactly what’s happening. With per-user revenues already rising, Disney may be able to further accelerate revenue growth with its own entertainment expertise. Playdom’s 40 million MAU can also help push traffic to other Disney properties outside of gaming.

As for Playdom’s lower-level employees, we’re told that many are now considering their options elsewhere, in part driven by the desire to work for agile startups over a major corporation. “I don’t think they’re any longer vested in Playdom as an organization,” a recruiter who has worked with many current Playdom employees told us, while smaller companies also said they’re interviewing numerous people from Playdom. It will be up to Disney to prove that it can rival Silicon Valley’s pull for existing and future workers.


Playdom grew, and then sold, at a time when companies could be successful despite internal challenges and an unfocused acquisition strategy. Despite those facts, it’s also worth pointing out that the company survived its early encounters with Zynga and stayed viable through much of 2010. At one point, Playdom even reportedly had ambitions toward a big IPO.

The market has tightened considerably this year, however. Playdom, like other companies, likely had neither a perfect plan or an internal conspiracy to dupe a larger acquirer. Instead, the company figured out its strategy as it moved, and ended up falling short of a perfect performance. While Disney’s price was considered high by some, later Playdom investors likely didn’t profit much by the sale.

And yet, following its short and tumultuous history, Playdom could now become an important part of how Disney distributes and monetizes content, and possibly help the rest of the company improve its understanding of how to do business on the web.

[Correction: An earlier version of the story said that City of Wonder was developed in Eugene. It was developed in Mountain View. Also, Verdonia was developed in Mountain View, and the San Francisco location is an office.]

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Leave a Reply

18 Responses to “What Disney Got in the Playdom Acquisition”

  1. william says:

    Wow what an inaccurate article.

    Wild Ones – Made in Mountain View
    Mobsters – Made in Mountain View
    Mob 2 – Made in Mountain View
    Sorority Life – Made in Mountain View
    WSOP – Made in Mountain View
    Tiki Resort – Made in Mountain View
    Verdonia – Actually made in Mountain View by Mountain View employees.
    and more…

    Market Street is made in the SF office of Playdom. It’s not a separate studio. You could have found that on their website.

    Fact check much Chris?

  2. Eric Eldon says:

    Hi William,

    Most of the games you’re referring to were developed in 2009. We were specifically referring to successful games that launched in 2010.

    However, I’ve updated the article to say that Verdonia was built in Mountain View, and to clarify that the San Francisco location is an office.

    Any other thoughts?


  3. Sean Ryan says:

    Whenever a large company purchases a smaller one in search of talent, not just tech/traffic, the key question is whether they believe the executives can make a significant impact on the parent company, vs running a smaller business. It seems clear Disney is happy with the team given that they have moved John Pleasants into a leadership role for Interactive, so that’s a huge reason to to purchase a company like Playdom – very few smaller company executives are as well suited to take leadership roles in much larger companies as Pleasants and his team are, which may be the bigger impact in the long run, offsetting what could be described as a rich price vs traditional comparisons. A similar situation just occurred with the DeNA acqusition of Ngmoco – rich price, but they also bought a leading company with a strong team

  4. Anonymous says:

    “Pleasants, who was once chief operating officer at Electronic Arts, is an experienced core gaming executive.”

    While I like John, and he is clearly a very smart guy, the above statement is just not true, at all. He was at EA for just 14 months. He accomplished nothing. He never worked at any other video game company.

    14 months at EA, with no accomplishments, does not make him “an experienced core gaming executive”.

  5. A Little Birdie says:

    Actually, while the design of City of Wonder was managed out of Mountain View, it was developed in Playdom’s South East Asian offices.

  6. Lazarus says:

    I agree with Anon’s statement’s about Pleasant’s stated ‘core gaming’ credentials.

    John is a pleasant (!) and engaging person with a strong understanding of the web business, but he does not have any great understanding or experience of the core gaming business.

  7. Marj says:

    This is ridiculous – John Pleasant is a an experienced EXECUTIVE who has mastered the art of absorbing data from like-industries (the man was the head of Ticketmaster, for god’s sake) and applying his experience in those fields to new companies that can benefit from an experienced and nimble brain that can pick up the intricacies of a new and related industry (entertainment to gaming – it isn’t neuroscience, people). John Pleasants doesn’t need to know how to play Farmville or Sorority Life perfectly – he simply needs to understand that others do, and why, and turn those products into a highly successful franchises beyond the gaming space. Who better than a man who spent years running the most successful entertainment company in the US? What Playdom DOESN’T need is another snot-nosed 24 year old running around screeching that they know how to run the company b/c they’ve been playing games online for 4 years. No. What Playdom and Disney need is John Pleasants: a talented, solid, intelligent executive with proven experience in taking companies to the next level, in a way he wasn’t able to do so at EA due to internal politics and in a way that we all hope he’ll e able to do at a company like Disney, where they seem to recognize and reward people like John Pleasants. Deservedly so.

  8. Disney Collects 69 Million Facebook Fans, and Counting says:

    [...] about Disney’s acquisition of Playdom on Inside Social Games, noting that the company has a long-term Facebook strategy in mind with the July purchase — tightly integrating Disney content into social [...]

  9. Mobster game play says:

    I play mobster on myspace when are you guys going to fix the game right now a lot people accounts are getting hacked. People worked really hard on there myspace mobster accounts. Do you guys even care people spend the hard earned money on playdom. Do you guys even care.

  10. Granny Green Patch says:

    Well they murdered my Lil Green Patch and for that I will never forgive them..Playdom…and also Lil farm Life has been left to languish with no attention. They took the most popular FB games and killed them off..they did not listen to the loyal users they had acquired so they dont deserve any success when they treat loyal players so badly. Most of us who were acquired refuse to play their games.

  11. Playdom Veterans Move On Into Mobile Startups says:

    [...] months after Disney acquired Playdom for up to $763 million, a host of senior executives and producers have already left to start new companies or join [...]

  12. MDD Refugee says:

    All I know is that as soon as Disney purchased Playdom they destroyed a wonderful game – MyDivaDoll. Less then 48 hours notice and almost 800,000 players (who had been playing for over 2 years, spent real money and formed a wonderful community) were suddenly left out in the cold with no explanation of why. Why purchase these games only to shut a lot of them down? Pure evil, in my opinion.

  13. Playdom Veterans Move On Into Mobile Startups « Carl Costa says:

    [...] months after Disney acquired Playdom for up to $763 million, a host of senior executives and producers have already left to start new companies or join [...]

  14. Quora says:

    What is the story of Playdom?…

    Try going over this: http://www.insidesocialgames.com/2010/10/25/playdom-disney-acquisition/

  15. Two of Playfish’s Cofounders Leaving Their Positions at EA says:

    [...] social games and the Facebook platform are a part of their future. Disney followed suit with its acquisition of Playdom last July, and numerous traditional gaming and media companies and individuals have also moved into the [...]

  16. knighthooder says:

    Most of these games mentioned go by a familiar formula more or less. Not mentioned was Playdom’s acquisition of Hive7 and their games and code. Particularly Knighthood/Chivalry played on both MySpace and Facebook.

    There were faithful followers of Knighthood precisely because it was NOT a formula game with cheesy little characters and graphics. It was very much like a real-world model. There were no virtual monsters, farms, creatures armies, etc. but every aspect was mathematically and strategically figurable within the game play and mattered to the outcome of any battle or competition. As in the “real world”, people and culture mattered, teams mattered, there were spies, drama and intrigue.

    The only true variables beyond those built into the game at intervals by programmers to keep people thinking and figuring new strategies were player skill, cheats, and lag and downtime, the first making it a highly competitive and the rest annoying a huge part of the population who played.

    Yes like life it had its problems and there were many ideas about how they should be fixed. It was a constantly evolving situation. Maybe it was un-fixable, maybe not. Certainly it was abandoned and hastened to the grave by the inattention of a company that never seemed to be on the “Knighthood team” except to place a copyright on the bottom of the page.

    Do social game platform builders and managers understand that people who play games put time and effort and sometimes real money into them in order to build something they like and find enjoyment in a virtual product? I wonder. People take ownership of “their” farm, castle, army, warrior, diva, … whatever. They build and play in some cases almost as seriously as they would anything in life.

    Maybe that’s sad but it is true. That’s what pays those huge paychecks a lot of people in the business get for an intellectual, virtual product that they themselves treat with such disdain that they can just pull the plug and walk away once their pockets are lined. In the end customers are becoming more wary of spending “real money” on games and also becoming more jaded about certain companies who repeatedly take what they have worked on and just erased it.

    That might be a bubble that will matter in the end- the bubble the customer is tired of having popped in their faces. Not only will people who care enough to pay for some of these services start really paying attention and start avoiding those companies, that may also carry over to advertisers who don’t choose carefully and companies who acquire offending companies on speculation for whatever reason.

    Just a thought…

  17. D9: Disney’s Iger Says More Original IP Titles Coming From Playdom says:

    [...] bought Playdom for a variety of reasons, as we explored in this investigative piece last year. It wanted to get in on another area of gaming, as it struggled with console titles. It wanted a [...]

  18. Il boom del Social Gaming « Dr. O-one says:

    [...] L’importanza economica di questo settore, che si snoda tra videogame e social media, sta aumentando a ritmi impressionanti, e lo testimoniano le cifre con le quali le grandi media company hanno acquistato giovani start-up. Nel novembre 2009 Electronic Arts ha acquistato Playfish (company che produce social game), per 300 milioni di dollari. Lo scorso mese di luglio Disney ha rilanciato comprando Playdom (company che realizza social game per Facebook e Myspace) per la bellezza di 563,2 milioni di dollari! [...]

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