EA Inteview: Where Next For PopCap?
In July, publishing giant Electronic Arts acquired PopCap Games – developer of massive arcade titles Peggle, Plants Vs Zombies and more – in a deal that could be worth as much at $1.3 billion.
The magnitude of the deal marks a significant step forward for EA as a digital entity and, coupled with the launch of the publisher’s new Origin download service, the timing of the coup couldn’t have been better.
In an attempt to discover what the deal means for both parties, we sat down with Barry Cottle, executive vice president of EA Interactive to ask what lies next for the house that Bejeweled built.
What attracts you to PopCap Games as both a developer and a publisher?
These guys are the Pixar of the casual gaming space. They are an incredible group of guys, an amazing creative studio that has been able to produce endearing and repeatable hits. There are very few players out there – if you look at the industry, that have been able to get past that one big hit in any given space.
These guys have struck lightning five times in that they’ve got five strong franchises. PopCap’s slate looks good, it has a great development process, and great talent to create original IP that is geared toward the casual gamer.
I mean Plants Vs Zombies, Bejeweled Blitz and others are just instant classics, and for us – when you look at the gaming sector – mobile, social and casual online gaming are the fastest-growing segments of the $40 billion gaming market today. PopCap is the best studio at producing original IP in this space.
But just how hard is it to create new IP in the manner PopCap has achieved before, and see it succeed in this space today?
I think you see a lot of new IP enter the space that is relevant for a while. But then it fades because the platform has evolved in such a way that the game itself becomes less relevant within that space or channel.
PopCap has been able to build games that have stood the test of time and stood the test of all the different evolving platforms. There’s a reason why the studio has been able to do that.
If you look at the way it builds games through, you know, the one-touch, mouse click approach, together with strong characters, intuitive controls, then there are very few companies that are able to do this, and go beyond that one big hit.
PopCap’s back catalogue requires little introduction, and has become synonymous within the games industry.
So EA would say then, that PopCap is ahead of the curve in this space?
Oh absolutely, and again, this studio is not a start-up. This is a company that has been in business for over ten years, and it has shown that it is able to build franchises across many platforms, and become a leader in this space.
PopCap is currently a top five player on Facebook despite only having launched two games on there, while everyone else has developed and launched about 30 or 40 titles.
The studio also has two of the top ten iOS games sold last year, as well as the number one downloaded online title for 2010. It is a top ten PC software company sitting alongside the likes of EA and Activision.
PopCap is a strong creative shop that creates games that cater for the mass appeal, and it also compliments our portfolio in a very synergistic way if you think about it.
EA has top franchises in the first-person shooter genre with Battlefield, driving with Need For Speed, simulation with The Sims, then sports with FIFA, Madden and so on.
We have so many strong entries across a broad range of gameplay styles, and PopCap gives us a very strong portfolio in the casual gaming space.
In what way is this deal indicative of the wayEA sees the games industry evolving in years to come?
I think it’s exactly where we see gaming evolving. If you look at the fastest growing segments of gaming today – mobile and casual games – and you look at the genres in those two environments; 80 per cent of games played in those two sectors are casual games. So it’s incredibly important to have a strong product offering within casual gaming.
While initially an online player, the EA deal will bring PopCap’s games to even more formats.
EA is clearly mindful of PopCap’s success within these markets – success that has been achieved off the studio’s own back as an independent entity. Does this acquisition spell any chances ahead in the way PopCap does business?
No, not at all, and I think you actually said it really well in that, when you acquire a company, you acquire it for the magic it’s able to create. Keeping this alive requires the studio to keep its culture, as well as the process by which it goes about being creative and maintaining hits.
That’s what we want to maintain. I think that the benefit of this to the consumer is that they are going to be able to play that magic across numerous more platforms.
EA is going to give PopCap access to these platforms by helping it with backend studio deployment functions like QA, and handling the fragmentation between platforms such as Android.
We’ll also provide the studio with great discoverability for its games to consumers, because we have a much larger and stronger publishing organisation. But concerning the games that PopCap builds, we want to preserve the magic that it’s been able to produce.
That’s interesting because PopCap has ventured into several platforms already. But from an EA standpoint, in which market do you see PopCap at its strongest?
Like you said, PopCap has been able to launch several game across iOS, PC, and the like, but if you look at the penetration of their games across the different tablet devices, or the Android environment, or even across Asian and emerging markets, there’s a lot of untapped potential.
Massive hits such s Plants Vs Zombies have brought the PopCap brand to millions.
And has EA considered bringing the PopCap back catalogue to Origin at all?
We’ve established that PopCap is successful at creating new brands – as you put it well, it is the ‘Pixar’ of games – so what do you see as the key strengths of a typical PopCap IP? Will you nurture these strengths going forward, or would you like to encourage them to explore new avenues?
The studio has been trying new and different things that I think you’re going to see in months to come, things that are different approaches. PopCap created a new brand called 4th and Battery, which is what I would call its ‘alternative brand’, and that lets them experiment and do new things.
PopCap is going to continue doing that, but you know at the end of the day, the studio has some great franchises. They’ve got a really strong slate coming up and we’re just going to encourage them to be creative, as well as innovative.
I think that one of the things you see is that PopCap doesn’t do knock-offs. Everything it does is really original, and it’s all about innovating to create something that hasn’t been seen before.
The studio just does that so well, and that’s where they get their passion and energy, so we will keep that going and see where it goes.
It’s clear that EA recognises the success that PopCap has made for itself, and the hands-off approach is refreshing to see. But regarding other mergers in the industry, do you ever see studios losing that spark once they become integrated into a larger publisher?
Acquisitions are always challenging, and a lot of them don’t succeed. I think the there is always certain criteria you have to consider when entering into these things. Number one is that you can’t change the culture or the identity of the organisation.
You can’t change a studio’s mission, in that you can’t take away what it set out to do when it was independent. You really want to make sure the company is a good match in terms of its values, quality and the integrity of its games.
I feel very good about this acquisition because we have complete alignment on all of these factors. PopCap gets to continue the mission it set out on when the company started years ago, EA will support the brand and its identity, and I think our values line up very nicely.
EA is pretty much what I’d call a different set of fiefdoms and tribes, from the standpoint of DICE, Maxis, Playfish and now PopCap, each with its own culture and brand that allows them to thrive, and that is extremely important in this kind of acquisition.
Fun, laughs and in Bookworm’s case, education; PopCap has done it all.
EA also bought Playfish and from the outside looking in, some of the large figures bandied around for the sale of digital companies these days are often staggering. Is the games industry now entering into a goldrush for these digital players?
The market for digital gaming is taking off, and I think that people are creating market positions right now. Anytime that this happens, I think people get aggressive about insuring that they have a place in the market.
All that said, I think our deal with PopCap, and the way we do business is based on building a sustainable and profitable business, and our deal is structured as such. It’s a smart deal in that both PopCap and EA will be incredibly successful.
We recognise that the world goes through several cycles, and we’re playing a longer-term game going after the $40 billion gaming market. So right now, we’re trying to set up our organisation accordingly.
But for someone like me, with no knowledge of business acumen or how these figures are reached, the amount of money involved seems significant. How do you reach such a large figure for a company like PopCap?
Well you have to remember that PopCap is not a start-up. The company has been in business for a substantial amount of time. We’re talking about an organisation that has close to 500 staff, that is building strong IP that has stood the test of time, and we’re seeing that IP take off.
We’re seeing new platforms that use touch, tablets, mobile, Facebook and so on. Every time you do these deals, they are based on the value of the people, the studio, the ‘profit and loss’ of the company going forward based on what you think the business can do.
We feel comfortable because of the way we structured this deal. I think the up-front sum is reasonable given PopCap’s history and its previous profit and loss statements. We’ve structured this deal smartly in that it is variable depending on PopCap’s success going forward.
Zuma has been imitated countless times, but never bettered.
In what ways did your acquisition of Playfish put you in better stead when conceptualising the PopCap deal?
Yeah it really did, and as we talked about, with every acquisition you continue to learn what’s important. I think the Playfish acquisition was very strong for us in a number of ways, as it gave us an early entry into that market, as well as knowledge and expertise from those guys.
Our experiences with Playfish helped us becoming more comfortable in maintaining the studio’s culture, people and drive, while helping them exist as a core part of EA’s business too. This is exactly the same way we’re approaching PopCap.
EA also acquired Firemint as well. Do you feel that EA has enough of these acquisitions to compete now, or can we expect new deals going forward?
I think we’re feeling very good about what we have in our portfolio now. We feel we now have the internal studio capability to create original IP between PopCap, Firemint, Iron Monkey and Playfish.
Will there be more acquisitions?
I can’t really comment on that, but you know at the end of the day, this world moves fast. It’s dynamic, and we’ll continue to evolve with our eyes open as the world moves forward.
EA plans to nurture and maintain PopCap’s playful identity and culture going forward.
Earlier you mentioned that EA is playing a long-term game with this deal, which is wise given how quickly the industry can change. What are the key identifiers that EA looks for to determine how the industry will change going forward?
You know, I think that in a number of years, no one will refer to ‘Facebook gaming’, ‘mobile gaming’, or anything like that. People will be able to play their favourite games across any digitally connected platform, whether that’s an eBook reader, a smartphone, or on your laptop. You name it.
Within this space, the company that builds the most meaningful franchises that can be experienced seamlessly across those platforms is going to win.
EA is building a portfolio of franchises that people love, and that cut across a lot of demographics and types of gameplay. We also want to build a distribution platform that enables us to reach consumers directly.
I think the most important thing is just that; this whole notion of being able to pick up a game, play it with my friends, share it with them, no matter what device, channel or platform I’m on. This is what we strive for.
This process always starts with having a meaningful game or franchise that people love, and then the second piece is for people to be able to discover and play it no matter what platform they’re on. That’s also what PopCap strives for, if you look at what the studio did with Bejeweled Blitz.
It’s also where we think the world is going, and a lot of the people that we compete with today are either single platform providers, or larger business that haven’t been as aggressive as us in these emerging spaces. So we feel very good about the position that we’re in.
Cottle predicts that EA is now well prepared for the shift away from boxed code.
In what ways do you think these competitors might lag behind?
It’s going to be a very competitive space for a while, but I like how we’re positioned after the PopCap deal. I really do, and we now have a full portfolio of IP that is just outstanding and breaks through.
It’s interesting that you talked about playing through the wire seamlessly. Following the PopCap deal, EA’s John Ricitello said that the worth of boxed code wouldn’t be disappearing anytime soon. When do you see physical games media becoming a thing of the past?
I don’t know. I mean I think the boxed method is here for now and is substantial, but will we get to a world without it? Yeah I think that’s feasible, the idea that we get to a world where it’s only about digitally downloaded goods.
In the end, for us, it’s kind of irrelevant whether the industry relies on packaged goods or digital downloads. Our franchises will be made available regardless. We’re going to make Need for Speed, Battlefield and Sims available to you regardless of what format you want it in.
So yeah, I can see a world in which only digital downloads exist, and we’re well positioned in that we’re not a packaged goods company. We’re a gaming company that has incredibly valuable franchises that people want to play regardless of what channel they’re on.
Reporting on the PopCap deal, the Wall Street Journal mentioned that EA’s share prices dropped subsequently. Why do you think investors were spooked?
Whenever you see larger acquisitions, there is always movement in the marketplace. We’re very bullish about the deal; we think it’s smartly financed and it positions us really strongly in both the short and the long term.
If you look at any large acquisition within any market; be it technology or any industry, it’s pretty typical to see the stock react with an initial drop after the announcement.
But what I would point out is that within 24 hours of the drop, most of it had been regained. So it’s a typical reaction by the market.
Bejeweled, now in its third full iteration, has stood the test of time perfectly.
On the flipside then, what indicators will you look for from the financial markets going forward, to see that investors get what EA’s PopCap strategy will be?
I think we’ve laid out our strategy very openly, and I do think it was well received as it was cleverly though out. Again, it was this strong rationale or the people, the products and the culture.
People understand and know it. People play Plants Vs Zombies, Bejeweled, and they get it. The price is right, the deal structure is there and the long-term strategy is there. People see this combination, and they feel confident in where we’re going.
One of the good indicators in the very short term is the reaction of analysts who follow this space very closely, and a lot of them were very favourable on the news and the prospects of the deal.
Are you ever concerned that gamers might look at this deal and think that EA is shifting its focus to the casual market?
Nah, because this deal isn’t ‘instead of’; It’s adding to the portfolio, we already have. We’re going to keep on developing world-class FPS games, continue to provide the number one soccer game in the world and so on.
So we believe that all of these genres are as important as you. This is, for us, about filling out a space that is material, and growing.