EA Makes Mobile Gaming Play With Jamdat Buy

In a move that signals the growing importance of gaming on hand-held devices, Electronic Arts (Nasdaq: ERTS) (EA) said it was buying mobile game developer Jamdat Mobile Inc. for US$680 million in cash.

The agreement calls for Redwood City, Calif.-based EA to pay $27 in cash for all outstanding shares of Los Angeles-based Jamdat stock, about a 15 percent premium over the $22.77 closing price before the deal was announced late yesterday.

An Instant Player

The deal gives EA almost immediate access to a leading mobile gaming platform, which in turn will enable it to offer some of its broad catalog of game titles to mobile phone gamers, a fast-growing niche market within the gaming space. Analysts say EA chose to buy rather than spend years and a comparable amount money building a mobile platform that could compete with Jamdat and others.

The companies said the partnership would bear fruit quickly, with the two co-publishing some 50 titles aimed at mobile phones in the next 12 months, including titles such as Tetris, Bejeweled, Need For Speed, EA Sports Madden NFL Football and EA Sports FIFA Soccer.

"This is an important strategic acquisition for Electronic Arts," said EA CEO Larry Probst. "Together we intend to build a leading global position in the rapidly growing business of providing games on mobile phones."

EA said it would combine Jamdat with its own mobile gaming business, bringing all 350 Jamdat employees and all of its worldwide locations into the fold after the closing of the deal, which is expected sometime early in 2006. Jamdat has development offices around the world, including Montreal, Tokyo, London, Bucharest and Hyderabad.

The combined mobile division will be overseen by Jamdat CEO Mitch Lasky.

Build or Buy?

In a conference call, Probst acknowledged that the deal was driven in part by slower sales of its traditional game titles, saying that sales during the normally busy holiday period have not met forecasts.

Warren Jenson, EA's chief financial officer, said there are an estimated 1.5 billion cell phones in use in the world, about 40 percent of which have the color displays needed to play the most popular cell phone games.

Jenson noted during the conference call that the challenge of designing games for the mobile market is that different carriers and device makers have different requirements. Jamdat's approach to bridging those differences was a major factor in the acquisition, he added.

So far, gaming on mobile phones is a niche business, one that will account for around $500 million in sales this year but is growing fast. According to researchers at M:Metrics, 5.3 million people downloaded games to their hand-held devices during October, the vast majority of them younger phone users.

M:Metrics' latest monthly Benchmark Survey reveals that those who downloaded a mobile game bought an average of 1.8 games in the month, with the arcade puzzle genre (such as Jamdat's Bejeweled or Glu Mobile's Zuma) maintaining its popularity as the leading type of game purchased. Card, casino, strategy and sports games follow, in descending popularity. Although males continue to out-download females, accounting for 58 percent of those who downloaded a game in October, the gender gap has closed in the last six months. In January, the split was 66 percent male, 34 percent female.

M:Metrics said Jamdat is the most popular title in terms of share of the game download market, with nearly 15 percent of the games downloaded in October coming from the publisher, putting it ahead of competitors such as MForma, THQ (Nasdaq: THQI), I-Play and Gameloft.

Time to Strike

Jupiter Research analyst Joseph Laszlo said the buy may suggest that major game publishers believe the market for mobile games has truly arrived.

"The mobile-pure-play games publishers, like Jamdat, Gameloft, Sorrent, and Digital Bridges have had the playing field pretty much to themselves," Laszlo said. "Established publishers in the PC/console games sector have bided their time, waiting for a real market to develop."

The play may not pay dividends for some time, however. Laszlo said the cell phone market will remain "a relatively small part of total games industry revenues for the next five years."

"One likely outcome of integrating Jamdat and EA will be more rapid release of game brands/titles across console, PC, and cell-phone platforms," he added. "Right now the cell-phone version of a PC or console game generally comes sometime after the release of the primary game. It'll be interesting to see how EA experiments with using a cell-phone port of a title as a complement to, or perhaps even a preview of, a title about to be released on another platform."