Electronic Arts Inc has acquired privately held Playfish for $275 million in cash plus other consideration as the maker of the Madden NFL series expands in the growing social gaming sector.
EA paid about $275 million in cash for 2-year-old Playfish, which makes games for people to play on computers with friends, unlike traditional videogames that need dedicated consoles.
Playfish's hits include the game show-styled Who Has the Biggest Brain? and virtual pet game Pet Society, which boasts some 21 million users a month. The games are free, but players can purchase or give away virtual goods -- such as flowers, clothes, furnishings and weapons.
The deal includes another $25 million in equity retention arrangements, and the sellers could reap another $100 million, contingent upon the achievement of certain performance milestones through 2011, London-based Playfish said.
EA said the acquisition accelerated its position in social entertainment and strengthened its focus on the transition to digital and social gaming.
The great thing about games is people play and pay for games -- what we are seeing change is the model in which they are doing so, said EA Interactive executive Barry Cottle.
You typically paid a significant up-front price to play a game, and now we are seeing -- with platforms like Facebook
and (Apple's) Apps store -- it's a free or near-free environment in order to get into a game, he added. It's more now play-to-pay, instead of pay-to-play.
To be sure, the traditional U.S. videogame software market is expected to grow, with sales seen reaching $19.5 billion in 2013 from $14.7 billion in 2008, according to PricewaterhouseCoopers. But more nontraditional players, also called casual gamers, are entering the market through social gaming and other new avenues.
The deal comes at a crucial time in the videogame market, where sales have slumped this year amid a dearth of blockbuster titles and as consumers carefully watch their spending habits due to the tough economy.
Even price cuts in recent months for Sony's PlayStation 3, Microsoft's Xbox and the Nintendo Wii failed to have a dramatic effect on sales of games. But some expect the market to turn this holiday season, with the launch of big titles, including Activision Inc's Call of Duty: Modern Warfare 2.
Playfish is owned by its founders, management, staff and outside investors that include Index and Accel. It has more than 150 million games installed and played worldwide on platforms such as Facebook, MySpace, Google, and Apple's iPhone.
Playfish Chief Executive Officer Kristian Segerstrale will stay on with the company, which will operate within EA Interactive, which focuses on Web and wireless games.
EA shares were up 2 percent at $19.38 in afternoon trading.
(Reporting by Franklin Paul; Editing by Tim Dobbyn and Lisa Von Ahn)