casual games; a strategic review of the sector

8/14/2019 Casual Games; A Strategic Review of the Sector

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Keygrowthfactors

Fundraising

Mergers&

Acquisitions

a uat on

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VentureCapital &PrivateEquityfirmsareactivelyinvestingin

thecasual

game

sector

Softbankfunds/companies BenchmarkCapital

Plusmany

others

ExplosivegrowthforGamePortals&OnlineMediaConsumption

Casualgames

are

games

for

the

mass

market

owpro uct oncosts orcasua games

Lowadvertising&distributioncosts Recurringrevenuebaseandscalabilityarethecriticalfactors

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moreappea ngto nanc a nvestors

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potentialtomeetthefollowing:

Diversified

Content Great games

Portfolio

Fast rowin rofitabilit driven b ame/subscri tion/one za on

virtual items revenues, advertising revenues (in-game orin-site) and search revenues

Platform

customers

Mana ement Management teams require strong experience in internet,

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game or en er a nmen sec ors

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34

deals

in

2007

with

over

$135m

raised

TrionWorldNetwork$30m

IGAWorldwide

$25m

K2Network$16m

Infocomm AsiaHoldings$14.2m

e wor ame n erac on 10m

AvistaPartnersNote: up to 15 July 2007; deals for 2007

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Total Deal Value (USD$ millions) Total # of Deals

266.1

36

34 35

40

240.0

260.0

280.0

167.7

30

180.0

200.0

220.0

135.9 20140.0

160.0

102.0

97.5

15

10

15

80.0

100.0

.

50.039.7

11.23 3

8

5

20.0

40.0

.

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00.0

2000 2001 2002 2003 2004 2005 2006 2007

YearNote: up to 15 July 2007.; deals where value is undisclosed are not included in total value but are included in # of deals


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rm o ea s

Intel Capital 8

Softbank funds/ companies 8

Benchmark Capital 7

IDG Ventures 6

Accel Partners 5

JVP 5

Granite Global Ventures 4New Enterprise Associates 4

Trinity Ventures 4

CDC Games 3

Greylock Ventures 3

Madrona Venture Group 3

Millenium TechnologyVentures 3

WPP related companies 3

AvistaPartnersNote: up to 15 July 2007.; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal

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Company type # of deals % of deals

Game Portal 8 23.5%

In Game Advertising 8 23.5%

Casual MMO 4 11.8%

Multi la er Network 3 8.8%

Online Game Social Network 2 5.9%

Online Fantasy League 2 5.9%

asua ame u s er .

Casual Game Developer 2 5.9%

Multiplayer Online Game Developer 1 2.9%

Episodic Game Developer 1 2.9%

Game Search Engine 1 2.9%

AvistaPartnersNote: up to 15 July 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal10


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Morefundraisingdealsin2006inthesectorthan

anyother

full

year

Interestinthesectorbyfinancialinvestorsisatan

a

t me

g

GamePortals,InGameAdvertisingandCasual

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Date Acquirer Target

Value

Revenue

EBITDA

Jul-07 Popcap Retro64 na

Jul-07 CMP Technology How Machines Work na

Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x

Apr-07 Eidos Bluefish Media na

Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x

Feb-07 Vivendi Games Wanako Games na

Feb-07 Google Adscape Media na

-

Jan-07 Gigamedia TC2N $22.9m (40%)Nov-06 Realnetworks Atrativa $3.8m

Nov-06 Demand Media Intermix assets na

Oct-06 Boonty Gamehub na

Sep-06 Sony Gamepot (27%) $22m

Sep-06 Spill Group Zlong Games (majority) na

Aug-06 Fun Technologies CDM Fantasy Sports $10m 1.3x

Aug-06 Fun Technologies Teagames na

18dealstodateinpast12monthsworthover$460m18dealstodateinpast12monthsworthover$460m-

Jul-06 GaiaX APE Inc. $1m

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Total Deal Value (USD$ millions) Total # of Deals

340.2

1716

300.0

320.0

340.0

.

2007istrendingtoover$400min

dealsfor

full

year

227.2 12

14

240.0

260.0

280.0

207.0

184.1 168.6

.

9 8

9

8

10

160.0

180.0

200.0

.

94.86

100.0

120.0

140.0

3

2

4

1

3

2

20.0

40.0

60.0

.

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0.0 . 00.0

1999 2000 2001 2002 2003 2004 2005 2006 2007

YearNote: up to 15 July, 2007; deals where value is undisclosed are not included in total value but are included in # of deals


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Acquiror # of deals

Fun Technologies 6

Electronic Arts 4

Realnetworks 3

Shanda 2

Big Fish Games 2Media General 2

Viacom (Atom Entertainment) 2

Popcap 2

Gigamedia 2

Vivendi Games 2

AvistaPartnersNote: up to 15 July, 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal15


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PurecasualgameM&A

Oberon,

Bigfish,

Popcap have

been

the

most

acquisitive ar ouspotent a g antsmayacqu re Videogamepublishers

asa e ca e casua us nessnow as ogo.com

Eidos hasacquired1company

Onlinecontent/servicecompanies

Realnetworks hasacquired3companies&hasRealarcade

MicrosoftacquiredMassiveandhasMSNGames

Me ia/Entertainment ong omerates

MTVNetworks/ViacomacquiredAtomEntertainment

TimeWarner/AOLac uiredGames.com

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17acqu s t onsc ose n200 ;mostever

timehigh

Valueof

average

deal

size

can

only

go

higher

Consolidation will continue to grow inmomen um

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Date Acquirer Target

Transaction

Value

EV/

Revenue

EV/

EBITDA

Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x na

Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x

ug- un ec no og es an asy por s m . x

Mar-06 Fun Technologies WorldWinner $23m 2.2x

Feb-06 Realnetworks Zylom $21m 2.6x

Nov-05 Liberty Media Fun Technologies (51%) $144m 5.6x

Jun-05 Fun Technologies Fanball Interactive $22m 4.8x

Jul-04 Fun Technologies Skilljam $8m 2.2x

Jan-04 Realnetworks Gamehouse $35.6m 3.6x

Multiplesaredrivenby:

acquiror demand

growthrateoftarget

strategicvalueoftarget

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Onlinegamecompanieswanttoknow:

business?

a are s oo ng or nanon negamecompany

ForVCs,thequestionisthis: W attypeo on inegame usinesss ou I oo to

investin?

n e argeme acompan esas : Whichonlinegamecompaniesshouldwelookat

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acquiring?

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Whatis

the

Hol

Grail

in

thefutureofonline

ames?

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Currently,manypeoplebelieveitisWorldofWarcraftfromVivendi.

nottheHolyGrailofonlinegames onlyattracthardcoregamersandnotthemassmarket

WOWseightorninemillionsubscriberspalesincomparisontotheover50millionusersworldwidewhoplayMaplestoryfromNexon inKoreaortheover66millionregisteredusersofHabboHotelfromSulake inFinland.

PlusMMORPGs

do

not

have

much

of

alife

c cle

be ond

five

years.

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modelsarebest es eciall

iven

the

hu e

success

of

item

sellin

based

businessmodelsinAsiaandthegrowingsuccessofcompanieslikeThreeRings(PuzzlePirates)andK2

OnecompanytowatchisBigpoint aGermancompanywhichnowofferssevencasual

browserbasedgames.

revenuesbysellingitemsingame.

Onaverage,theyaregeneratingmorerevenuesper

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Therearemanyportalslikethisbutveryfewoftheseportalsaregeneratinganyseriousrevenues.

months. Aggregationasastandalonestrategydoesnotworkunlessyouarethe

num eroneortwop ayer

Whatisgoingtohappenwhencasualgamepublishershavetheowercontrolrevenueshares& ricin ?

Willnothappenovernightbutitwillhappenoncetherehasbeenmoreconsolidationinthesectorandthepublishersarelargeror

.

Contentownerswillalwayswinintheendandthisbusinessisclearlymoreaboutgreatgamesandthanaboutgreatdistribution.

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Somepeoplebelievethatpublishingahugenumber

ofdownloadable

ames

and

sellin

them

ever where

istheanswer. Butisthatreallyalongtermsustainablebusiness,given

t e arge(an rapi ygrowing)num ero own oa a egame

publishers

and

developers

,thereareinthemarketcurrently.

How

many

puzzle

games

can

the

market

support?

Andhowdoesaconsumerdifferentiateamongthem?

Doubtfulthatanyonewillsucceedlongtermwith

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,gameplay,interactivity,customization,VOIPcapability,anduser

generated

content

(games,

videos

of

game

play

and

avatars).

uss mp eway oma e r en s, n r en s, nv e r en s,an p ayw friends.

Mixofdifferenttypesofadvertising,includingbothonsitebannersandingamepromosorproductplacement.

myspace skype youtubemaple habbo

hotel

Holy

1st amewebsite

that

offers

all

the

ke

features

of

this

mash

u

will

indeedbetheHolyGrailofonlinegames.

Forgetabout10millionoreven50millionusers.

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Loo or100m onreg stere users oronegamewe s te28

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Lowerdevelopmentcosts,lessrisk&higherROI

PC

XBLA

PSPDS

Wii

GamePortals/Aggregatorsgrowinginpopularitywithconsumers;watchinglessTV;Advertisingisamajorsourceofrevenue

MixofAdsupported,casualgamesandpaidpremiumgames

Ingameadvertisingisanewsourceofrevenuefordevelopers/publishers

CasualMMOswillgrowie.Runescape

Businessmodelssellingitemsingamegrowingquicklyie Bigpoint

Social3dchatgameswillgrowie SecondLife,Habbo Hotel

Micropayments

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Raisemoneytogrowand/oracquire

u 2 us nessonownwe s esw a ocusoncommun y

Monetiseacrossotherplatformsbylicensingorinhouseformobile,

Sellitems

in

game

Buildadvertisingrevenues

oca ze

s es

or

ey

on

ng s

coun r es

Outsourceselecteddevelopmentpiecesoverseas

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Developgamewidgetsforsocialnetworksie.Bunchball

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Paul Heydon

Mana in DirectorAvista Partners

Tel: +44-203-178-6866

Email: [email protected]

Web: www.avistapartners.com

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This presentation was prepared by Avista Partners exclusively for the benefit and internal use of the Recipient in order to indicate, on a preliminary basis, the feasibility of a possible

transaction or transactions. This presentation is incomplete without reference to, and should be viewed solely in conjunction with oral briefing provided by Avista Partners. Thepresentation is proprietary to Avista Partners and may not be disclosed to any third party or used for any other purpose without the prior written consent of Avista Partners.

The information in this presentation reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing this presentation, we have relied

upon and assumed, without independent verification, the accuracy and completeness of all the information available from public sources or which was provided to us by or on behalf ofthe Reci ient or which was otherwise reviewed b us. In addition our anal ses are not and do not ur ort to be a raisals of the assets stock or the business of the Reci ient. Evenwhen this presentation contains a kind of appraisal, it should be considered preliminary, suitable only for the purpose described herein and not be disclosed or otherwise used without

the prior written consent of Avista Partners. The information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or

potential change of control, which may have significant valuation and other effects. Avista Partners LLP is authorised and regulated by the Financial Services Authority.

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casual games; a strategic review of the sector

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