Was Chillingo really worth only 1/20th of ngMoco

• Tweet
• Pin It

Yesterday, I wrote a post entitled Ten games companies that are blessed.

Three hours later, the rumour broke that Electronic Arts had acquired Chillingo, the British iPhone publisher that I had put on the list.

The price has now been confirmed as “under $20 million in cash plus other undisclosed considerations.”

Compare that with the eye-watering figure that DeNA paid for ngMoco earlier in the month, and you have to ask if ngMoco was really worth 20x the value of Chillingo.

Yes, I think it was

A number of analysts expressed surprise that EA did not get the Angry Birds Intellectual Property when they bought Chillingo. If they were surprised, they must be pretty rubbish analysts.

Chillingo is a publisher of traditional-style iPhone games. The two key words are “publisher” and traditional.

• Traditional: its successful games have generally been $0.99 one-off purchases; it has not made the transition to free-to-play virtual goods style games which make *much* more money on a sustainable basis
• Publisher: Chillingo is a publisher, not a developer. That does not, by itself, confirm that it does not own the Intellectual Property to its games. Broadly speaking, whoever pays for the development owns the IP. For many iPhone publishers, they have been marketing/distribution machines, not providers of development finance.

So what has EA bought?

Electronic Arts is committed to smart-phones. It has strong intellectual properties and an existing portfolio of games. What it lacks is a powerful cross-promotional platform that is already embedded in millions of games that it can use to drive gamers between games in its portfolio. Just like Zynga cross promotes the hell out its own new titles.

With Chillingo, EA buys:

• A company with games installed on millions of handsets (Chillingo has had seven #1s including Angry Birds and Cut the Rope)
• A cross-platform promotional tool called Crystal. (If you are unclear why this is valuable, look up Applifier in my list of Ten games companies that are blessed
• A management team that has good relationships with third-party smartphone developers the world over and has shown its ability to pivot, shifting from Flash-based casual gaming to iPhone publishing in the early days of Apple’s platform.

What has EA not bought?

Compared to DeNA’s acquisition of ngMoco, EA has not bought:

• Access to a whole new geographical market: one of DeNA’s stated rationales for the acquisition
• Expertise in virtual goods on smartphones: ngMoco is the clear market leader in this area, and to my knowledge, Chillingo hasn’t even tried to make steps in this direction
• Intellectual Property: At least not game-based IP; there is IP in Crystal

So does the value makes sense?

ngMoco will make $30 million in revenues in 2010, according to TechCrunch, up from $3 million in 2009.

That revenue is coming from their own intellectual property and based on continually serving the players of the free-to-play games.

In contrast Chillingo, like all traditional publishers, is dependent on finding the “next big thing”. To be fair, they have proven to be very good at it to date, but with developers like Rovio saying that they won’t use Chillingo again, it’s a hit-driven, speculative venture.

I think EA have probably done a good deal to get Crystal and the existing installed base; I think that Joe Wee and Chris Byatte at Chillingo have shown how successful pivoting can lead to rapid success, so all kudos to them.

I also think that the difference value between ngMoco and Chillingo is rational and logical.

But I don’t have access to any numbers; what do you think?

Related Posts

• 

  Valuation multiples for F2P games–the Innogames valuation
  Valuation multiples for F2P games–the Innogames valuation
• Bigpoint gets bought, but for half a billion dollars less than its most recent investment valuation, a fall of over 80% in 5 years
  Bigpoint gets bought, but for half a billion dollars less than its most recent investment valuation, a fall of over 80% in 5 years
• 

  EA is earning $650 million a year from a F2P style add-on to FIFA and other sports franchises
  EA is earning $650 million a year from a F2P style add-on to FIFA and other sports franchises
• 

  Imaginary friends are better than no friends at all #f2ptoolbox
  Imaginary friends are better than no friends at all #f2ptoolbox