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Acquiring 'one hit wonder' studios makes a lot of noise, but delivers little long term value, reckons EA CEO Riccitiello

Current trend making EA man 'anxious'

Acquiring 'one hit wonder' studios makes a lot of noise, but delivers little long term value, reckons EA CEO Riccitiello
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EA CEO John Riccitiello has delivered his verdict on what he suggests is the recent spate of rash acquisitions in the mobile space, suggesting most have little chance of delivering long term success.

Refraining from mentioning any specific deals, Riccitiello used EA's earning call to suggest some firms are picking up studios based on little more than calculations made on the back of a fag packet.

Popping the bubble

"In terms of acquisitions, to be honest with you I'm pretty anxious about acquiring instant one hit wonders in this space," said Riccitiello.

"There's an awful lot of noise that grows up around an individual franchise as it rises, not so as that individual franchise when it declines."

Commentators have been quick to suggest Riccitiello's comments were likely aimed squarely in Zynga's direction.

The social games specialist recently acquired Draw Something developer OMGPOP for around $180 million in cash – a figure some have suggested now looks rather inflated, with the game's daily active userbase reportedly in quick decline.

Indeed, it's Riccitiello's view that knowing what to pay for studios that have only one or two hits under their belt is an especially tricky science, given it's almost impossible to calculate how long those titles will continue to pull in revenue.

Tough times

"At lot of times when people are acquiring individual new intellectual properties in mobile and social, they try to put an earnings multiple on it, typically a 10x or a 20x," he continued.

"The problem is, to put anything on it more than a 3x or a 4x you have to have a belief that this thing is going to last a very, very long time.

"If something is going to come and go in three or four years, you can't put a multiple, you've got to add up three or four year's profitability to figure out what to pay for it, and then do some sort of a risk-adjusted discount on that."

Riccitiello's comments echo those recently made by Glu Mobile CEO Niccolo de Masi, who described both OMGPOP and hardcore social outfit Funzio – recently acquired by GREE for $210 million as "one, two or three trick ponies".

"As we've seen with Draw Something, if you have one game, it's not going to stay at the top of the charts," de Masi concluded.

Jewel in the crown

For Riccitiello's part, he claims EA's acquisitions in the mobile space – which include Chillingo, PopCap and Firemint – have brought proven IP into the fold, with PopCap in particular serving up the ever-popular Bejeweled.

EA's competitors, however, may find themselves falling on comparatively hard times if they continue to make purchases at the drop of a hat.

"What I'm starting to see, is valuation expectations that assume that these things are all hockey sticks moving up and to the right with no end in sight," he concluded.

"I think those are bad assumptions. Some of them will work, some of them won't, but they can't all be worth the multiples that I'm seeing in the market right now."

[source: GamesIndustry.biz]

Keith Andrew
Keith Andrew
With a fine eye for detail, Keith Andrew is fuelled by strong coffee, Kylie Minogue and the shapely curve of a san serif font. He's also Pocket Gamer's resident football gaming expert and, thanks to his work on PG.biz, monitors the market share of all mobile OSes on a daily basis.