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Game coin goes mobile

App-maker ngmoco touches up Japanese firm DeNA for $400 mil

As social gaming companies get snatched for ever-escalating amounts, the wave of acquisitions and investment money has turned to makers of mobile videogames.

Over the last two weeks, there have been three substantial buyouts and investments in the mobile market — and the transactions could signal the beginning of a larger trend in use of mobile devices for gaming.

Electronic Arts bought Chillingo, publisher of the massive iPhone hits “Angry Birds” and “Cut the Rope,” for $20 million. Aurora Feint, creator of the mobile social gaming network OpenFeint, picked up $8 million in financing from venture capitalists.

But both deals pale in comparison with the buyout of ngmoco, a maker of iPhone and iPod touch games that was founded by game industry vet Neil Young. Japanese company DeNA paid an eye-popping $400 million in cash and stock for the company earlier this month.

The interest in social network gaming companies grew fast and has reached feverish levels. It began with Electronic Arts, which paid $300 million for PlayFish in late 2009. The price shocked the industry — but it didn’t stop there. In July, Disney paid up to $763 million for PlayDom, a smaller company headed by former EA chief operating officer John Pleasants. And social gaming’s largest developer — Zynga — has a valuation of well over $1 billion.

That same bubble appears to be enveloping mobile gaming companies, particularly after ngmoco’s buyout. While EA’s purchase price for Chillingo might seem to argue otherwise, the company did not develop and does not hold the rights to its most popular games. And the “Angry Birds” team has hinted it has plans to self-publish in the future.

In 2009, the mobile games sector generated roughly $2 billion in annual sales to the videogame industry, according to the Entertainment Software Assn.; Communications market research firm TMNG expects the business to grow at an annual compound rate of nearly 25% for the next two years.

Some of that, of course, is due to the rise of smart phones. But the gaming segment has maintained a much faster growth rate — spurred by low-priced apps and bite-sized gaming experiences that have allowed people to play games for brief interludes throughout their day.

But there is still plenty of room for growth. An estimated 4.6 billion people subscribed to a mobile phone service at the end of 2009.

The challenge for potential buyers is identifying acquisition targets. Some of the biggest app store hits have come from small development houses. To date, few companies have emerged as solid hit-makers.

“It’s entirely possible to imagine that traditional media giants are looking at the mobile space,” said Scott Steinberg, CEO and lead analyst at TechSavvy Global. “It would be foolish to assume they’re not. These games are, by their very nature, short (and) family friendly. And who better to acquire them than a Disney, with a suite of familiar characters that are tailor made for family audiences.”

Time Warner and Fox are just as likely to be on the hunt, Steinberg added.

Since gaming apps are the most popular category in the App store, they can be effective marketing tools for media companies looking to promote their next film. The apps themselves are cheap to make and if they fail to catch on, it’s still a significantly lower loss than a failed traditional campaign.

But by grabbing companies that have proven track records in the mobile space, buyers have a better chance at standing out from the crowd. Traditional marketing, to date, has not worked well for mobile apps. It’s word of mouth and rankings on sales charts that move new franchises.

By buying companies with established customer bases, these newer, larger players have a chance to leapfrog over competitors and quickly capitalize on the growing strength of the market.

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