It’s official. Disney has purchased Playdom for at least $563 million and the option to earn out $200 million more in the future. Micky Mouse now owns Playdom (and the 12 studios they purchased). Playdom’s CEO John Pleasants is now the new Executive Vice President of the Disney Interactive Media Group.
What does this mean in the world of social games?
For one, Playdom deserves congratulations. They executed a plan perfectly to grow into the number two social games company within a year by launching innovative games (e.g., Social City) and acquiring a lot of game studios for a cheap price.
Based on the purchase price (assigning a standard 6 – 8 X multiple), we can assume they are on the path to earning $75 – 100 million in revenues this year. Not bad, but not nearly as much as the number one company, Zynga is making (projected to earn $300 million in revenues in first half of 2010 alone).
True, $570 million sounds quite low in light of John Pleasant’s presentation last week at Casual Connect where he proclaimed that social games is a $5 billion a year opportunity in North America alone. However, given where Playdom probably stands with current revenues, the uncertainty in the space, and dependence on Facebook for distribution, it is still a win for Playdom.
For successful social game developers who are talented but are just getting by, this is not good news. Playdom provided social game developers with dignified exit strategy. Rather than shutting out the lights, they could sell at a good price and be part of a growing social games company. Playdom bought around 10 game companies in the past 12 months.
Now that Disney is in charge, the acquisition binge is officially over. Now, social game developers have fewer options for the future. They can either wait to be bought out by Zynga (rumor is Zynga only buys you if you not profitable so they can lowball you), partner with a social games publisher (the next big trend), or hope that other media companies wants to buy into the market.
For Disney, this is a big way to get into the social games space. They have great brands and combined with Playdom’s technical, marketing, and development expertise, they overnight become a major player in social games.
I do wonder, however, if they could have just taken a page from Playdom’s playbook (or Viacom’s). Buy a small yet talented games company to create social games, then spend the extra $200 million on marketing to enter and win this space. It would not have been as splashy, but it would have been much cheaper, just as effective, and less of an integration headache.
There are many in the casual games industry that believe that social games is a bubble that is about to burst. A year from now, I wonder if we’ll look back to this day and say that Playdom sold out in the nick of time and Disney bought in too late.