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Disney has thrown over three quarters of a billion dollars to bring it up to Goliath status in the online gaming world, acquiring two and a half year old Playdom, which offers games for social networks – the new buzzword in gaming that has all the VCs on the planet hopping onto investments.

Playdom offers Social City, Sorority Life, Market Street and Bola, and reckons that it has 42 million active players each month. It's a lot, but is it worth the $563.2m it is paying up front, as well as the $200m it may pay on top of that if things keeping growing as they are?

At Playdom's last round of financing the company was done at a value of at $345m, less than half the figure Disney is paying, despite the fact that the company has only raised $76m to get where it is today.

Investors in Disney may see this as “desperate” and there is an element of that about it. Disney is determined to be big in the games business, but Interactive Media is its smallest segment by a long way. It appears to be hoping that it can give its own long lived Disney characters, and perhaps those it bought with the Marvel Entertainment deal it did last September for $4bn, and have Playdom drop them in game form onto social networking sites.

The Marvel deal was mostly about making money from films and from consumer products – DVDs and the like, but it can exploit characters like X-Men, Spiderman and Iron Man in other ways too, except where deals have already been done with other studios.

Show me the money

What IS desperate about this deal is that it is the largest amount paid so far for a social gaming company – a specialist at putting games on social networks for playing habitually online. The largest of these is Zynga which cut a strategic deal with Facebook as recently as May, to use Facebook Credits in Zynga games such as Farmville, Café World, Treasure Isle and Mafia Wars and this week cut a deal in Japan to work with Softbank there.

Back in November Electronic Arts took the plunge in spending $300m acquiring Playfish, which promotes online games where players can make money by selling virtual goods. Playfish shareholders still stands to earn an additional $100m if it performs well.

Playdom has been trying to fight toe to toe with Playfish and after that deal perhaps felt the need of a bigger parent. Disney for its part lost $295m last year on revenues for Interactive Media of $712m and is clearly in it for the long haul. Last quarter Disney lost $55m on $155m of Interactive Media revenues and needs all the help it can get.

Almost simultaneously US video game retail giant GameStop said it would buy social gaming website Kongregate for an undisclosed sum and would diversify the business into digital game distribution. GameStop operates 6,486 retail stores in 17 countries, and said of the deal that “Kongregate advances GameStop's digital strategy by providing a gaming platform for casual, mobile and browser games that can be promoted and played by our existing gamers.”

Kongregation

By comparison Kongregate serves only 10 million players a month who spend on average 23 million hours on the site. That may be only a quarter of the users of Playdom, but that seems to us like a very high engagement figure of over two hours each. Kongregate's business model is to share ad revenue with games developers. Playdom goes about its business mostly by acquiring games, buying Hive, Metaplace, Acclaim, Merscom, Three Melons, a piece of MetroGames and Offbeat Creations, Trippert Labs and Green Patch, all acquired in the last 8 months.

But somehow there is something incongruous between the Facebook generation and the older Disney characters, and we hope the management has the sense to keep them apart, and only seed Playdom with the brands it WANTS to promote, rather than those thrust on it by Disney.

"We see strong growth potential in bringing together Playdom's talented team and capabilities with our great creative properties, people and world-renowned brands like Disney, ABC, ESPN and Marvel." said Robert Iger, President and CEO, The Walt Disney Company.

"This acquisition furthers our strategy of allocating capital to high- growth businesses that can benefit from our many characters, stories and brands, delivering them in a creatively compelling way to a new generation of fans on the platforms they prefer," Iger added.

Playdom now has 15 game development studios, and will remain headquartered in Mountain View, California with its existing CEO becoming an Executive Vice President of Disney Interactive Media.

Copyright © 2010, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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