Acquisition of Jamdat ups the ante in Electronic Arts' play for mobile games.

Electronic Arts Inc. has declared open season on mobile game companies.

While its purchase of industry leader Jamdat Mobile Inc. for $680 million was not that surprising--the companies had been rumored to be in talks over the summer--most buyout activity has been limited to mobile game companies gobbling up their own kind.

The acquisition of Jamdat ups the ante. Electronic Arts is known for creating games for video consoles while Jamdat makes games mainly for cell phones, which requires a different skill set.

"The purchase of Jamdat vaults EA into the number one leadership position of the mobile gaming industry," said Gary Cooper, an analyst with Bank of America Securities. That leaves its rivals, including Calabasas-based THQ Inc. and Santa Monica-based Activision Inc., facing a tougher landscape.

THQ was one of the first game publishers to recognize the importance of the mobile business, establishing its THQ Wireless division in 2000. But it's a mid-sized developer; its wireless division brought in about $25 million in revenues last year, compared with Jamdat's $36.6 million.

Activision, meanwhile, mostly licenses titles to mobile game developers to adapt for cell phones. Up until last week, Jamdat was one of its biggest co-publishing partners, launching the "Tony Hawk" franchise onto cell phones. But with Jamdat now part of its biggest rival, Activision will be looking for a new relationship.

"Right now there are literally hundreds of mobile game makers," said Kevin Dede, an analyst with Merriman Curhan Ford & Co. "We've seen a lot of consolidation, and I think you'll continue to see more of it."

Jamdat had been an active acquirer, snatching up Blue Lava Wireless, holder of the "Tetris" game, and Downtown Wireless, holder of the "Downtown Texas Hold'em" poker game, last year.

Others, such as MForma Group Inc. and InfoSpace Inc., both of Bellevue, Wash., have made a practice of gobbling up smaller mobile developers.

Fits and starts

Until now, Electronic Arts had gained little traction in the mobile gaming market. It made licensing deals with smaller firms, but was trying to develop its own wireless games in-house, with limited success, experiencing launch delays and compatibility problems with some handsets.

Buying what it couldn't build solves that problem.

One of the biggest challenges in producing mobile games is the variety of phones available. A game has to be custom-tweaked to fit each mobile phone's specifications--from screen-size to battery power to menus to buttons.

"You can't take the 'Sims' game and pour it into a cell phone," Dede said. "It just can't happen. The game essentially has to be redesigned."

And it has to be redesigned for each of the 350 different types of mobile phones on the market.

European reach

Jamdat has developed a software database that contains the computing specs for almost every handset. "It has to be done for any [phone] that the carrier is supporting at any given time," Dede said. "Managing that database is not trivial."

Electronic Arts, which had been eyeing the mobile game space for some time, tried a similar move last December. It bought a 19.9 percent stake (estimated value close to $100 million) in French video game maker Ubisoft Entertainment S.A., which held a substantial investment in mobile game-maker GameLoft.

Though Ubisoft viewed the investment as hostile, EA so far has done very little with the holding.

GameLoft, founded by Michele Guillemot, brother of Ubisoft founder Yves Guillemot, has since grown to become the European powerhouse in mobile games. It has 1,700 employees worldwide and revenues last year of $28 million.

GameLoft seemed to welcome Jamdat being eliminated from the landscape. "It's quite a positive thing," said spokeswoman Sanette Chao. "It positions us as the alternative to EA."

By GameLoft's reasoning, mobile phone carriers would be reluctant to let one game developer monopolize market share, making way for GameLoft.

"Now we can focus on just competing with EA, as opposed to both EA and Jamdat," Chao said.

At the other end of the mobile rainbow lies scores of privately held mobile game developers in Northern California and elsewhere. Some, like MForma, were founded by former telecom executives seeking to make a mark in mobile games. Others were founded by former video game executives looking to build new empires in the mobile world.

Wall Street wonders

Jamdat founder and Chief Executive Mitch Lasky, who was tapped to run EA's mobile division, is a former Activision executive. Electronic Arts founder Trip Hawkins started his own mobile games company, San Mateo-based Digital Chocolate, funded by venture firm Kleiner Perkins Caufield & Byers. San Mateo-based Sorrent Inc. was founded by former EA and THQ executives, also backed by venture funding.

Wall Street is left wondering which company will be the next to have its number called. "It will be interesting to see how these companies are going to grow--whether or not they'll have to leave their dreams of being standalone companies," Dede said.

Regardless, not all were pleased with Electronic Art's plan. One Jamdat shareholder filed suit last week to block the sale, claiming that directors did not try hard enough to get a higher price. At the same time, some analysts said EA offered too much.

EA offered $27 a share, which was 19 percent above the closing price before the announcement.

Jamdat Mobile Inc.

Stock Prices

[GRAPHIC OMITTED]

Quarterly Net Income (millions)

[GRAPHIC OMITTED]

YEAR (Dec. 31)                  2004        2003

Revenue (millions)             $36.6       $13.5
Total Expenses (millions)       35.2        20.6
Operating Income (millions)      1.3       (7.1)
Net Income (millions)            1.8       (7.1)
Earnings Per Share             $0.20     ($2.67)

SUMMARY

Business: Wireless entertainment publisher
Headquarters: Los Angeles
CEO: Mitch Lasky
Market Cap: $664.6 million    Dividend Yield: N/A
Total Liabilities: $38.3 million    P/E Ratio: 81.8
Long-Term Debt: $10 million