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Has EA’s acquisition strategy shifted from content to distribution?

By on October 25, 2010
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The acquisition of Chillingo by EA last week set tongues wagging, particularly when Angry Bird’s developer Rovio went on an aggressive PR campaign to emphasise that the rights to Angry Birds were not part of the deal.

Analysts and twitterers expressed their surprise that EA had bought a publisher, rather than the IP. As Thaddeus Frogley tweeted to me:

“Time and time again, IP is proven to deliver value, more so than tech, property, or staff … buying installed userbase is new.”

Electronic Arts' logo

That set me thinking. Historically, Electronic Arts had a very powerful distribution machine. Its relationships with retailers and its financial and marketing muscle enabled it to maintain a very powerful position as a dominant publisher of boxed games.

if you dominate distribution, what you really want to buy is Intellectual Property. You then take that IP, stuff it through your distribution machine and make twice as much money from that IP as a lesser publisher, with less muscle, could make.

Acquisitions that were all about IP made sense.

But EA’s distribution power began to erode a few years ago. As Mitch Lasky, former CEO of Jamdat (acquired by EA) and now a general partner at Benchmark, said:

“[For Electronic Arts] it was really their distribution muscle that was responsible for their tremendous success… The world changed in 2004. Really, really changed. Obviously, the shiny discs didn’t go away. But the primacy of the shiny discs as the sole method of distribution for the videogame industry started to erode.”

So if EA no longer has such a lock on distribution muscle, then IP acquisitions are no longer the only sensible deals.

Distribution acquisitions now make sense too.

That set me thinking about the acquisitions of Playfish – a leading publisher of games on Facebook – and Chillingo – a leading publisher of games on iPhone.

I think that these deals make more sense if viewed through the prism of distribution, not intellectual property. Playfish did bring IP, but it also brought a huge audience to cross-promote EA’s existing IP too, as well as an understanding of Facebook, virtual goods and social games.

Chillingo didn’t bring IP. But it brought a massive installed base of users (after all, Angry Birds alone has sold 6.5 million units), connected through the company’s Crystal technology.

Both Playfish and Chillingo look like distribution deals to me. Not just any old distribution either, but distribution on platforms that EA did not have access to before.

I’m now trying to look around to see what other businesses offer the kind of distribution that EA – and other publishers – need.

(Although, for the record, I don’t think Steam fits the bill).

What do you think?

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • I’m not sure that the walled garden is the best analogy. EA used to “control”, or at least have a dominant position in, distribution in the days of the shiny disc. Their marketing muscle, relationship with retailers and portfolio of games ensured they got powerful positions at retail.

    A “walled garden” is only one way of controlling distribution. Chillingo has got millions of games using its SDK. When people play one, EA can advertise other titles. The same with Playfish.

    In other words, absolute control over distribution is not the only route to distribution value.

  • Allan

    I can see the logic (in the argument and the strategy) but the big glaring flaw in my eyes is that these aren’t “walled gardens” – you can buy all the digital disties you like, but you can’t buy “the pipe” to the customer – in disintermediating world the consumer can jump straight back to the IP.

  • If you start to look at it that way then I suppose it’s pretty similar to how direct marketing companies work. EA have effectively bought the customer list that Chillingo have built up. Of course in the digital age they now have a way to actually target and deliver content to users rather than just dropping junk mail through their door.