If you had told developers during the time of the earliest generation of social games on the Facebook Platform – games like Vampires and Zombies, circa mid 2007 – that The Walt Disney Company would be acquiring an app developer for somewhere between $550 – $750 million three years later, most would have been very skeptical, if not incredulous.
But Disney’s acquisition of large social game developer and publisher Playdom yesterday marks another symbolic moment in the evolution of social gaming on Facebook (and MySpace, where Playdom invested early and has had success). Following EA’s acquisition of Playfish last November, Disney is the first media giant to pull the social gaming acquisition trigger in a big way.
It wasn’t that long ago that social games and apps were thought of as just another vast repository of low quality advertising inventory – if not worse. But Disney’s acquisition of Playdom, even more so than EA’s acquisition of Playfish (given Disney’s breadth of brands and media interests, and how careful they are with protecting their IP portfolio from potentially scarring issues), will now validate the virtual goods model to many media executives and investors who were hesitant to believe that something as trivial as inviting your friend to mop your restaurant might be a promising way to build a business on the internet.
As social gaming has become increasingly mass-market throughout the west and – this year – increasingly popular in the east as well, media companies like Disney are betting on the idea that new brands and IP can only take you so far; existing IP will become increasingly important in separating from the pack of developers vying for consumer attention, especially as customer acquisition costs increase.
We continue to hear of many social game developers and media companies interested in talking more with one another. If anything, we’ve been seeing that developers are getting more eager to have conversations than was the case six to nine months ago, but the number of potential acquirers sniffing around has also been increasing throughout the year as well.
Overall, we continue to expect to see more M&A activity in the space over the coming months. There are a lot of companies who are now confident enough that virtual goods inside games on social networks will be sustainable and are trying to figure out what exactly their move will be.
To dig deeper into the social gaming market, check out our recent Inside Virtual Goods reports: