FEATURE: Jamdat's Big Bet

Jamdat's Big Bet
M:Metric's Mark Donovan analyzes the mobile content market and Jamdat's deal to acquire Blue Lava Wireless.

Jamdat's acquisition of Blue Lava Wireless for $136 million in cash and stock is a bold move for a company whose market valuation has recently been hovering around $350 million. Consider that the $60 million cash component of the deal is roughly equal to the capital raised in Jamdat's heralded 2004 IPO.

The logic of the acquisition hinges on three factors: A belief that the mobile gaming market is just beginning to take off, the expected market entrance of much larger companies, and Jamdat's desire to diversify its portfolio and own not just games, but franchises.

M:Metrics data shows that in March, just under 6 million mobile subscribers in the US downloaded a game with nearly half of those subscribers downloading more than one game. While game downloading has just 3.4 percent penetration of the US mobile market, the business enthusiasm for the sector is built on the belief that better merchandising and better game play on increasingly capable handset will lead to continued and substantial growth. 

Given that nearly one-third of US mobile subscribers played a game of some type on their phone -- most playing games preloaded on their handset -- this belief the industry can turn enthusiasm for gaming into revenue seems well founded. It's clearly the bet that has driven several companies to aggressively expand their offerings through acquisitions including InfoSpace's purchase of Atlas Mobile, Digital Chocolate's acquisition of Summea, and Yahoo's purchase of Stadeon and Mforma's purchase or investment in several game developers outside the US.

In this context of this consolidation, Jamdat's acquisition of Blue Lava might seem routine, but Yahoo's entrance into the space and Electronic Arts' announcement that they have spun up a mobile team indicates that competition in this marketplace will rapidly heat up. The Blue Lava acquisition provides Jamdat with multiple opportunities to continue to grow in the face of these much larger competitors.

Jamdat's best known title, Jamdat Bowling, was perhaps the first breakout hit among US mobile games. Jamdat's portfolio is heavy with sports and action/adventure titles with the majority of titles built on licensed brands such as MLB, NBA, NHL, and Tony Hawk. M:Metrics' tracking of carrier games catalogs shows that games in these two genres account for nearly half of the titles in distribution. In contrast, less than one-fourth of gamers who downloaded games chose action/adventure or sports titles.

Faced with a very crowded (yet tiny) merchandising shelf, titles encumbered by IP royalties and the looming threat of EA and its console gaming sport franchises such as Madden NFL, the attraction of Blue Lava is clear and can be summed in one word: Tetris.

In acquiring Blue Lava, Jamdat also acquired the multi-year exclusive rights to Tetris. Tetris is currently one of the few true game franchises in mobile and is the flagship for the arcade puzzle category which includes other Jamdat distributed titles such as Bejeweled and Collapse. Arcade puzzle games are far and away the most popular genre of mobile games, being downloaded by 32 percent of mobile game downloaders in March, despite accounting for only 7 percent of the titles in distribution. This genre appeals evenly to men and women and the Tetris franchise is a family of games including single player and multi-player variants. Blue Lava also produces other puzzle and casual games that will be additive to the Jamdat portfolio.

The success of corporate acquisitions can only be fully measured in hindsight, but in picking up Blue Lava, Jamdat has made a significant move to expand and diversify its portfolio, has acquired an important franchise and has set itself up to better compete in what will be a bruising battle for distribution on a merchandising shelf that's two inches tall.

Mark Donovan is vice president of products and senior analyst for M:Metrics.