M&A Plays on in Mobile Entertainment Field: As big outsiders move into mobile games, many small players will really feel the pressure

Much like players of Jamdat Mobile Inc.’s Lemonade Tycoon game test their entrepreneurial skills to find out if they can build a small lemonade stand into a thriving business, many of the hundreds of mobile games creators that started a small shop with a few bucks are doing their best to squeeze out the competition and make it in this fiercely competitive entertainment niche. And it’s no game to them. Consolidation in the fragmented market, which has been steady the past couple of years, got a jolt in late 2005 when video games behemoth Electronic Arts Inc. muscled its way into the mobile game market with its acquisition of Jamdat. Electronic Arts, the world’s biggest independent video games publisher, had its own mobile games division but had gained little traction in the field. A number of industry followers think that the Jamdat buy could reinvigorate industry consolidation, and will make it more difficult for small players to remain independent – or even stay in business – now that big games developers are getting in on the action. “I’m not sure how much more real M&A there’s going to be. I think the major, inter-industry activity has largely taken place. But I do think we’ll see more companies coming in from outside the industry,” says John Foster, Senior Vice President of Corporate Development at mobile entertainment provider InfoSpace. Y. Stuart Nam, Esq., a Managing Director at Principia Group in Silicon Valley, asserts that companies such as Disney, which has dabbled in mobile games, Yahoo!, and Google have been pegged as possible acquirers but says that “any real potential buyer will be coming from Asia.” “They are very advanced in this market, but what they don’t have are global distribution channels, and that’s what big guys in the market need to have.” InfoSpace has ceased its search for more acquisition targets, Foster points out, because games, even huge hits, have a short shelf life – a matter of weeks or months. “We’re not buying a library, like you’d get with Sony Pictures. The main assets buyers have been looking for are porting skills, because developing those takes a long time, and distribution with a carrier. We have those as well as game development skills, so adding another game studio wouldn’t really add value to us.” He adds that the cost of porting – adapting a game to multiple handsets – is becoming prohibitive to smaller games shops. A game has to be modified to fit each specific mobile phone’s specifications, and there are hundreds of different mobile phones on the market. As in other industries, consolidation among buyers puts the squeeze on producers. As major wireless telecom companies continue to merge, they increasingly are interested in doing business with fewer game creators, notes Miles Lee, a Vice President focused on the wireless sector at ADVENTIS. Making matters worse, he adds, the major carriers intend to shrink the number of games they’ll offer to customers and also demand higher-quality games from development studios. (c) 2006 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com