Playfish Successfully Sells The Hype To EA For $400mil

It looks like the rumor I reported on back in mid-October was indeed true, and Electronic Arts (ERTS) has purchased London-based, privately held, online social gaming hotness Playfish for even more money than was initially thought. According a company press release this morning, EA paid "approximately" $275mil, plus $25mil in equity retention and $100mil in cash consideration, tied to performance milestones through the end of 2011. $400mil ain't bad for a company started just 2 years ago, by former Glu Mobile exec Kristian Segerstrale, and fueled with $17mil in venture capital just last year, to build simple, casual, addictive gaming titles like "Pet Society" and "Who Has The Biggest Brain?" for social networking platforms (mostly Facebook at this point). They're currently the #2 player behind Zynga, which an anonymous analyst recently suggested to The Business Insider, could be on track to generate $250mil this year (hmm... I'm not so sure). Playfish has only dipped it's toe into the water on the mobile side... it launched "Who Has The Biggest Brain?" on iTunes back in June... but they claim to be (and given Segerstrale's background it's no surprise) big fans of the medium. As I mentioned in my post last month, there's so much hyperbole, froth and irrational exuberance around this space it's a little hard to believe that this transaction is happening at a reasonable valuation and for some EA executives, who were around during the $680mil Jamdat acquisition in 2005, this purchase will have to be feeling (as Yogi Berra would say) like déjà vu all over again. Congratulations to Playfish, you surely gone done your investors proud!

Has EA Bought More Mobile-Games-Like Hype?

Social network maven Mashable created a buzz-frenzy earlier today when it reported on a rumor (though it must be a well-sourced one for them to post it) that Electronic Arts (ERTS) may have quietly purchased Facebook game developer Playfish (run by former Glu Mobile EMEA chief Kristian Segerstrale) for $250mil a few weeks ago.

If this is true, it would be highly ironic, even bizarre, in light of a GamesBeat post a couple of hours later covering a discussion EA's new COO, John Schappert had with Wall Street Journal reporter Yukari Kane. During the conversation, at a Dow Jones Newswire event in Redwood City, Schappert equated the hype around social games to that around mobile games at the time the company bought (overpaid) $680mil for Jamdat in 2005. "Social games have attracted a lot of eyeballs. Venture money is pouring into it. Is it sustainable or is it a bubble? There are a lot of parallels to mobile," he said. He then went on, according to the report, to recall that the "mobile craze" created unrealistic expectations for growth.

The only way to reconcile these two pieces of information (if the former is true) is if the purchase negotiations are ongoing and Schappert is strategically trying to downplay the hype around social gaming to minimize the final purchase price. Clever? Whether he believes what he said or not, I think he's almost correct, except that social gaming is an even bigger hype-bomb than mobile games ever were. If you guessed that I think buying Playfish (or Zynga, etc.) at current frothy valuations is a good idea for EA, then you've obviously been living on one of Playfish's Crazy Planets for the last several months. That said, if Playfish has the opportunity to sell at this price (or near it) they should jump on it.