Is There Going To Be More Consolidation In The Social Gaming Sector?

social gaming penetrationFrom our social gaming report. Click to read →

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Global M&A volume in gaming grew 88% in 2012, according to investment firm Digi-Capital (Via TechCrunch) and some people are talking about an upcoming wave of consolidation in social gaming. Is it going to happen? 

In a word, probably. 

Several reasons are driving this:

  • Gaming and media companies are realising that social gaming is big, for real, and profitable. What’s more, success in social gaming is HARD (more on this here) and requires true sector expertise, which means buying rather than building. So companies outside the sector will be making more acquisitions.
  • Talent acquisitions make sense. The way Zynga, a very acquisitive company, and the other big players work is that it has many “studios” designing and developing games all through the year. When one of these games comes out, and testing shows it has potential, Zynga will use its “secret sauce” of lessons drawn to optimise the game’s virality and monetization, and its size to market it to an enormous Facebook audience. One way to understand Zynga’s competitive advantage is that it is an enormous “platform” to supercharge Facebook games through optimization and marketing, into which game-developing “studios” can be plugged in. In other words, the big players in social gaming will always be looking for small, talented teams to acquire and add to their stable. While M&A volume up 88% y/y sounds impressive, average deal size was only $30.4 million, which suggests lots of smaller talent acquisitions to bring the average down (we’d be curious to know the median).
  • Zynga wants and needs to buy growth. Zynga more specifically has tried big acquisitions–PopCap for $1 billion, which went to EA instead, and Rovio for $2 billion, which opted to stay independent–in order to buy growth and an escape from its Facebook dependence. Zynga is on the prowl for a 10 figure deal, perhaps a few 9 figure deals and certainly many 7-8 figures deals. 

For all these reasons we think M&A activity in the social gaming sector will say vigorous. 

Click here to read our report on the social gaming market →

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