Electronic Arts agrees to buy PopCap Games

Electronic Arts Inc. has agreed to purchase PopCap Games Inc., the maker of Bejeweled and other popular games for mobile phones and social networks, in a deal valued at as much as $1.3 billion.

The game industry giant said Tuesday that it would pay $650 million in cash plus $100 million in stock for PopCap. In addition, EA agreed to pay as much as $550 million should PopCap meet certain profitability milestones over the next three years.

Although long a dominant force in console gaming, EA has made a series of acquisitions to bolster the company’s presence in the growing market for games played on social networks and mobile phones.

Founded in 2000, PopCap is perhaps most famous for its first breakout title, Bejeweled. The puzzle game, and its subsequent variants, have sold more than 50 million units in the last 11 years.


But the Seattle developer has been more than just a one-hit wonder, cranking out a series of highly polished titles over the years that have gained it the respect of serious as well as casual players. Its Plants vs. Zombies, for example, won the 2009 Puzzle Game of the Year award from PC Gamer. Another game, Peggle, was named one of the top 10 video games of 2007 by Joystiq, a site that caters to hard-core gamers. Other hits have included Zuma and Bookworm.

“PopCap has made lightning strike five times,” said EA’s chief executive, John Riccitiello, referring to PopCap’s string of best-selling titles in a call with analysts.

PopCap has also scored financially with its portfolio of games. Its revenue, which had been growing by more than 30% a year over the last three years, is expected to sustain that pace this year. It is on track to bring in revenue of $130 million, up from $100 million in 2010. The privately held company did not disclose its net income, except to say that it posted operating margins of 16% last year.

What made PopCap attractive to EA and others that bid for the company was its ability to sell its games on numerous platforms.

Bejeweled, for example, is sold as a disc on retail store shelves, as a downloadable title for game consoles and mobile devices including Apple Inc.'s iPhones and iPads, and on Facebook, where players can purchase “power-ups” that help them score more points. PopCap also gets revenue from licensing Bejeweled to airlines as part of in-flight entertainment systems. In Britain, PopCap also makes money from people who play Bejeweled competitively for cash prizes.

“We’re working on making it so you can play Bejeweled on your refrigerator,” joked John Vechey, a PopCap co-founder, during an interview.

Riccitiello estimated that sales from digital distribution, which currently makes up 25% of the overall games business, will grow to more than half the industry’s revenue within five years.

Aside from being highly polished, PopCap games are also known for their over-the-top, deliberately cheesy themes and characters, which include plant-eating zombies, magical unicorns and French-accented lobsters.

EA has already spent millions acquiring companies that sell games via digital platforms such as Facebook, iTunes and Xbox Live. In May, it purchased Firemint, an Australian developer of smartphone games such as Flight Control. In October, it snapped up Chillingo, the publisher (though not the developer of) Angry Birds, one of the most successful games for Apple Inc.'s iPhones and iPads. And in November 2009, EA paid $275 million in cash for Playfish, a developer of social games on Facebook.