Social gaming sector braces for deal wave

Gentlemen, start your engines: the fledgling social gaming industry is revving up for a new wave of acquisitions and consolidation this coming year.

By (Reuters)

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Published: Sat 16 Oct 2010, 9:23 PM

Last updated: Mon 6 Apr 2015, 3:52 AM

Among those eyeing the likes of Zynga or Crowdstar are Web powerhouses seeking to shore up their social networking credentials such as Google Inc and media giants such as News Corp or Viacom Inc seeking new marketing avenues, industry executives and analysts say.

As online gaming continues to grow at double-digits - it became the No. 2 online activity in June a growing number of corporations hoping to boost their Web presence have begun to take a serious look at the biggest players in social gaming, including oft-cited targets such as Crowdstar and Kabam.

“The truth is everybody is talking to everybody, every potential buyer is probably talking to just about every social game company out there,” said Tim Chang, principal with Norwest Venture Partners, whose firm invested in Playdom.

Microsoft Corp could buy a social gaming company to enhance its Web-connected Xbox console platform and an Asian company such as Tencent Holdings Ltd could see a chance to gain US market share, industry executives say.

And gaming executives may want to reduce their reliance on a single platform - especially since Facebook tightened privacy constraints this year that make it difficult for users to publicize their in-game exploits.

That may have made companies such as Playdom, sold to Walt Disney Co for over $563 million, more approachable.

Google’s supposed foray into social gaming is the subject of much speculation. Like other Internet leaders such as Microsoft or Yahoo Inc, it is keen to build a social network, but is struggling to find the right touch.

A popular social game may help by pooling millions of users into a ready-made community - the first step.

About 30 per cent of Facebook’s users now play casual games such as Farmville or Mafia Wars, which unlike traditional video games require interacting with fellow gamers on a network.

Together, they power a $1.6 billion annual market for “virtual goods”.

According to Nielsen, online gaming displaced email as the second-most popular activity among US Web surfers in June.

Others see media companies, trying to reach new audiences and offset flagging growth in traditional income such as DVDs and advertising, on the acquisition trail.

Last November, Electronic Arts Inc bought Playfish in a deal valued at up to $400 million.

Question is, with some of the biggest players snapped up, who would remain viable targets. Some experts see smaller deals in the year to come.

Zynga’s price tag - valued by analysts at between $3 billion to over $5 billion - is discouraging. Others farther down the food chain that have been talked about as targets, include RockYou! and Hong Kong-based 6waves.

After Zynga, the social gaming company with the highest number of users is Crowdstar, but there is a big gap. Zynga has 223 million monthly average users, while Crowdstar sees 58 million monthly, according to tracking firm Inside Network.

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