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Disney to buy Playdom Inc. for $563.2 million

The acquisition positions the entertainment giant to capitalize on a rapidly expanding segment of the video game industry.

July 28, 2010|By Dawn C. Chmielewski, Los Angeles Times

Walt Disney Co. made a bold bet on social networks as an emerging entertainment platform Tuesday by agreeing to acquire gaming company Playdom Inc. for $563.2 million.

Playdom is among the largest makers of online social games, which allow players to organize mock mafia hits, coordinate sorority soirees or play other games on networks such as Facebook and MySpace.

The deal positions Disney to capitalize on a segment of the video game industry that's rapidly expanding.

"There's a huge growth opportunity happening in the marketplace that we weren't really playing in in any significant way," said Steve Wadsworth, president of the Disney Interactive Media Group. "We believe strongly that social gaming is a critical component of interactive entertainment and we feel it is critical for us to have a presence there."

The acquisition could advance Disney Chief Executive Robert A. Iger's strategy of exploiting the company's established characters and brands across multiple platforms. It also underscores Iger's emphasis on investing in high-growth, emerging businesses that deliver entertainment.

"So many people are spending time on these platforms, I think it's very important that our brands and properties be there," Wadsworth said.

Playdom broadens Disney's portfolio of games with titles such as Market Street, Sorority Life and Bola, which the Mountain View, Calif., company says draw an estimated 42 million players a month. The deal also gives Disney expertise in exploiting a relatively new, yet lucrative digital market.

Justin Smith, founder of research firm Inside Network, said social games represent the most rapidly expanding segment of the virtual goods market, in which players pay small amounts of cash for digital items that enhance their game experience. Spending is expected to reach $835 million this year, nearly double the $490 million of a year earlier, he said.

"Only a small percentage of the active users purchase items," Smith said. "But they end up purchasing enough of them to support the rest of the audience."

Michael Pachter, a video game analyst with Wedbush Morgan Securities, said he was surprised by the steep price Disney paid for Playdom, which is the third-largest social game company. Leading the category is Zynga, which makes popular Facebook titles such as FarmVille and Mafia Wars. Second is Playfish, maker of Hotel City and Bowling Buddies.

Last year, Electronic Arts paid $300 million to acquire Playfish.

"I actually think it's a good acquisition," Pachter said of Playdom. "I just question the price."

Playdom's shareholders stand to reap an additional $200 million if the company meets performance goals.

dawn.chmielewski@latimes.com

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