A brief history of mobile gaming’s deal-making

A brief history of mobile gaming’s deal-making

The ink has hardly dried on Tencent Holdings, China’s largest online gaming and social networking company’s, $8.6 billion deal with Finnish mobile game maker Supercell Oy yet some are calling it the shape of things to come: a market ripe for mega-valuations and deal making.

The acquisition, which nets Tencent about 84 per cent of the Clash of Clans-maker and values the studio around $10.2 billion, would likely seem ludicrous to the poor soul ruining their posture over a game of Snake on a ’97 Nokia. But in today’s world where tech IPOs have a tendency to balloon to dizzying heights, the emergence of time-killing games on smart phones as a dominant market force with valuations rivaling their console game peers isn’t so farfetched.

Actually, for the first time ever, mobile gaming revenues are expected to trump revenue generated by console and PC games this year. According to a report by researchers Newzoo, games for tablets and smartphones will bank a total of $36.9 billion in revenues – about 37 per cent of the $99.6 billion gaming market in 2016. Contrast that with PC games, which are expected to bring in $31.9 billion and consoles at $29 billion in revenues and there’s no question the mobile sphere is leading the pack for the foreseeable future.

Overall, the games market is expected to grow 8.5 per cent year-on-year, striking $118.6 billion by 2019 with mobile gaming accounting for $52.5 billion of that revenue. The Asia-Pacific market accounts for 47 per cent of total global game revenues with China accounting for half of that at $24.4 billion, ahead of the US at $23.5 billion. Mobile is massive in China, expected to hit $10 billion this year, a 41 per cent growth from $7.1 billion in 2015.

So with that in mind, Tencent’s $8.6 billion majority stake purchase of Supercell seems like a decent deal, giving the Chinese brand access to the Finnish studio’s purported 100 million daily players over its four games – Clash of Clans, Clash Royale, Boom Beach, and Hay Day. As Ars Technica pointed out: that’s nearly 10 per cent of the global mobile gamers market.

While the acquisition nods at the future of mobile gaming, understanding the deal-making trajectory requires peeking into the early days. Here are a few of the key moments:

2005: EA snaps up JAMDAT

Founded in 2000, JAMDAT rapidly became one of the key players in the mobile gaming sphere issuing addicting titles for commuters and casual games like Tetris, Downtown Texas Hold ‘Em, and Bejeweled. By 2004 the company had listed on the US NASDAQ exchange, raising $89 million to funnel back to investors and put towards future operations. The company was valued at $400 million. In December of 2005, Electronic Arts offered up $680 million in cash to buy the company and acquire its way into the fast-growing sphere. The deal wasn’t the only one though; 2005 saw a flurry of mergers and acquisitions action with Digital Chocolate buying Finnish studio Sumea for an undisclosed sum; Mforma purchasing UK studio Blue Beck, also undisclosed, and mobile services company Infospace paying both $26 million for German developer Elkware and $15 million for UK-based developer IOMO. But the EA acquisition of JAMDAT signaled a new interest for major console and PC game producers.

2007: The mid-range publishers fall and the beasts get bigger

One of the highest profile pullouts was Infospace, which had spent over $40 million on acquisitions a couple years prior. The company got out of the game space altogether. US-based Oberon snapped up I-Play, tapping into the company’s catalog of mobile titles including the popular Fast and the Furious franchise. After a flurry of acquisitions Glu Mobile, which was founded in 2001 and responsible for countless popular titles including Deer Hunter and the World Series of Poker Texas Hold ‘Em, went public, raising $84 million in an initial public offering and valuing the company at $327 million.

2009 to 2013: Farmville, Minecraft and beyond

Having only tiptoed into the industry in 2007, San Fransisco-based Zynga really hit its stride in 2009 with the uber-success of its FarmVille app for Facebook. With the iPhone steadily making its way into consumer’s hands, mobile gaming saw higher-uptake by casual gamers not interested in owning consoles. Flush with cash from Facebook revenue, Zynga went on an acquisition spree in 2010, snapping up a series of smaller studies and developers including Texas-based mobile game developer Newtoy, in order to get its hands on the equally popular social media games Words with Friends and Chess with Friends. Within four years of launching, Zynga neared a billion dollars in revenue, surpassing the market value of EA. During this time Swedish developer Mojang was earning legions of fans with Minecraft, an open-world builder game. According to the Wall Street Journal, Mojang’s profit was $128 million on net sales of $325 million in 2013.

2013 to present: And out come the wolves

In 2014 Microsoft shelled out $2.5 billion for the Minecraft maker. Supercell, which had formed in 2010, made a profit of $464 million on revenue of $892 million in 2013 and that year Japanese mobile giant Softbank teamed up with games developer GungHo OnLine Entertainment to buy a 51 per cent stake in Supercell for $1.53 billion. Swedish game designer King Digital Entertainment hit it big with Candy Crush in 2012 and by the following year posted a net profit of $568 million on net sales of $1.88 billion. In 2015, World of Warcraft and Call of Duty-maker Activision Blizzard announced its intent to acquire King, closing the whopping $5.9 billion acquisition in February 2016.
Between Tencent’s $8.6 billion play for Supercell and the projected mobile gaming industry growth from Newzoo it’s becoming more apparent that mobile gaming is poised to be a deal-making hotbed in the coming years. Unless, of course, mobile technology takes a left turn.