Electronic Arts (NASDAQ: ERTS) is changing as fast as it possibly can. The video game publisher has built an empire on selling $60 games on shelves at stores like GameStop (NYSE: GME) and Best Buy (NYSE: BBY), but the company recognizes there is a fast-approaching point on the horizon when the video game industry will survive solely on games downloaded from the Internet to be played on smartphones or by logging into a network like Facebook. The company has aggressively expanded its mobile, social and digital initiatives in the past 24 months. On Tuesday, EA made what might end up being one of its most profitable acquisitions ever.
PopCap Games, the developer and publisher behind popular iPhone and Facebook games like “Bejeweled”�and “Plants vs. Zombies,”�was acquired by EA for $750 million in cash and stock.�Provided that PopCap reaches certain “performance goals,” the studio will receive an additional $500 million from EA.
The purchase was surprising. PopCap CEO David Roberts told Reuters in April that his company likely would file for an IPO by the fourth quarter of 2011. Where many independent video game companies have struggled in the years since the 2008 crash, PopCap has continued to grow. The company generated $100 million in revenue in 2010, up from $80 million in 2009 and $50 million in 2008. Games like the aforementioned Plants vs. Zombies�consistently rank among the best-sellers on multiple platforms from Apple’s (NASDAQ: AAPL) iPhone and PCs through Valve’s Steam service ��an online gaming network and a digital storefront.
All of the factors that made PopCap a promising independent, publicly traded company also make it an ideal subsidiary for Electronic Arts, especially as EA continues to expand into the mobile and social games markets. PopCap’s games represent more than just a solid new revenue stream for EA, however. The company also will be a way for EA to cut its competition’s business. Activision Blizzard (NASDAQ: ATVI), EA’s chief competitor and the company behind the best-selling Call of Duty franchise, actually has a partnership with PopCap. Versions of PopCap’s games Peggle�and Bejeweled�actually appear in Activision’s hugely successful online game World of Warcraft.�Garth Chouteau, PopCap’s public relations vice-president, told website Kotaku that this partnership and others like it won’t change now that his company is owned by EA.
PopCap’s games also will make for strong exclusives for EA’s Origin, EA’s digital download storefront similar to Valve’s Steam. It’s highly likely EA will lure in customers by offering certain PopCap games exclusively through Origin. The period of exclusivity will likely be timed ��say, a newer version of Bejeweled�will be available on Origin for two weeks before Apple’s App Store.
PopCap, for now, will make up just a portion of EA’s overall revenue. Total revenue in 2010 came to $3.5 billion. Another $100 million is good but not great. As a branding force in new markets, though, PopCap is invaluable for EA, and it will be a large feather in the company’s cap in the months to come.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at�@ajohnagnello and�become a fan of�InvestorPlace on Facebook.
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