4. Venture Capital & Private Equity firms are actively investing in
the casual game sector
▪ Intel Capital
▪ Softbank funds/ companies
▪ Benchmark Capital
▪ IDG funds
▪ Plus many others
Why?
▪ Explosive growth for Game Portals & Online Media Consumption
▪ Casual games are games for the mass market
▪L d i
Low production costs for casual games
f l
▪ Low advertising & distribution costs
▪ Recurring revenue base and scalability are the critical factors
▪ more appealing to financial investors
li t fi i l i t
Avista
Partners
4
5. Investors focus on companies that have the
potential to meet the following:
Great games
Content
Diversified
Multiple games in back catalog and pipeline
Portfolio
Fast growing profitability driven by game/subscription/
g gp y yg p
Monetization
M ti ti
virtual items revenues, advertising revenues (in-game or
in-site) and search revenues
Strong platform required to sustain high quantities of
Technology
Platform customers
Management teams require strong experience in internet,
Management
g
game or entertainment sectors
Avista
Partners
5
7. 34 deals in 2007 with over $135m raised
Largest deals
Trion World Network $30m
IGA Worldwide $25m
K2 Network $16m
et o $ 6
Infocomm Asia Holdings $14.2m
Net ork Game Interaction $ 0m
Network Game Interaction $10m
Avista
Partners
Note: up to 15 July 2007; deals for 2007
7
7
8. Total Deal Value (USD$ millions) Total # of Deals
280.0
280 0 40
266.1
260.0 36
35
240.0 34
220.0
30
200.0
180.0 167.7
6 25
160.0
135.9
140.0 20
120.0
120 0 16
102.0
15
15
100.0
97.5
80.0
10
60.0
60 0 50.0 8
39.7
40.0
5
3 11.2
3
20.0
2
0.0 0
2000 2001 2002 2003 2004 2005 2006 2007
Avista
Year
Partners
Note: up to 15 July 2007.; deals where value is undisclosed are not included in total value but are included in # of deals
8
9. VC firm
fi # of d l
f deals
Intel Capital 8
Softbank funds/ companies 8
Benchmark Capital 7
IDG Ventures 6
Accel Partners 5
JVP 5
Draper related funds 4
Granite Global Ventures 4
New Enterprise Associates 4
Trinity Ventures 4
CDC Games 3
Greylock Ventures 3
Madrona Venture Group 3
Millenium Technology
Ventures 3
WPP related companies 3
108 VC s/ Strategic Investors invested to date
108 VC’s/ Strategic Investors invested to date
Avista
Partners
Note: up to 15 July 2007.; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal
9
10. Company type # of deals % of deals
Game Portal 8 23.5%
In Game Advertising 8 23.5%
Casual MMO 4 11.8%
Multiplayer Network 3 8.8%
Online Game Social Network 2 5.9%
Online Fantasy League 2 5.9%
Casual G
C l Game P bli h
Publisher 2 5.9%
5 9%
Casual Game Developer 2 5.9%
Multiplayer Online Game Developer 1 2.9%
Episodic Game Developer 1 2.9%
Game Search Engine 1 2.9%
Avista
Partners
Note: up to 15 July 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal
10
11. More fundraising deals in 2006 in the sector than
any other full year
Interest in the sector by financial investors is at an
all time high
ll i hi h
Majority of money raised to date has been by
Game Portals, In‐Game Advertising and Casual
MMO companies
Best time ever to raise money
Avista
Partners
11
13. Transaction EV/ EV/
Date Acquirer Target Value Revenue EBITDA
Jul-07 Popcap Retro64 na
Jul-07 CMP Technology How Machines Work na
Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x
Apr-07 Eidos Bluefish Media na
Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x
Feb-07 Vivendi Games Wanako Games na
Feb-07 Google Adscape Media na
Jan 07
Jan-07 MumboJumbo Ritual Entertainment na
Jan-07 Gigamedia TC2N $22.9m (40%)
Nov-06 Realnetworks Atrativa $3.8m
Nov-06 Demand Media Intermix assets na
Oct-06 Boonty Gamehub na
Sep-06 Sony Gamepot (27%) $22m
Sep-06 Spill Group Zlong Games (majority) na
Aug-06 Fun Technologies CDM Fantasy Sports $10m 1.3x
Aug-06 Fun Technologies Teagames na
Aug-06
Aug 06 Viacom Atom Entertainment $200m
Jul-06 GaiaX APE Inc. $1m
18 deals to date in past 12 months worth over $460m
Avista
Partners
Note: up to 15 July 2007
13
14. Total Deal Value (USD$ millions) Total # of Deals
360.0
360 0 18
340.2
2007 is trending to over $400m in
340.0 17
320.0 16
deals for full year
300.0
280.0 14
260.0
240.0 12
227.2
220.0
220 0 208.3
208 3
207.0
207 0
184.1
200.0 10
168.6
180.0 9
8
9
160.0 8
140.0
120.0 6
94.8
100.0
80.0
80 0 4
4
3 3
60.0
2
40.0 2
1
20.0
0.0
00
0.0
0.0 0
Avista
1999 2000 2001 2002 2003 2004 2005 2006 2007
Partners
Year
Note: up to 15 July, 2007; deals where value is undisclosed are not included in total value but are included in # of deals
14
15. Acquiror # of deals
Fun Technologies 6
Electronic Arts 4
Realnetworks 3
Shanda 2
Big Fish Games 2
Media General 2
Viacom (Atom Entertainment)
( ) 2
Popcap 2
Gigamedia 2
Vivendi Games 2
Avista
Partners
Note: up to 15 July, 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal
15
16. Pure casual game M&A
l
Oberon, Bigfish, Popcap have been the most acquisitive
Vi
Various potential giants may acquire
i l i i
Video game publishers
EA has a dedicated casual business now & has Pogo.com
EA has a dedicated casual business now & has Pogo com
Eidos has acquired 1 company
Online content/service companies
Realnetworks has acquired 3 companies & has Realarcade
Microsoft acquired Massive and has MSN Games
Media/ Entertainment Conglomerates
M di / E i C l
MTV Networks/Viacom acquired Atom Entertainment
Time Warner/ AOL acquired Games.com
/ q
Avista
Partners
16
17. 17 acquisitions closed in 2006; most ever
i i i l d i 6
Interest in acquisitions in the sector is at an all
time high
Value of average deal size can only go higher
Consolidation will continue to grow in
momentum
t
Avista
Partners
17
19. Transaction EV/ EV/
Date Acquirer Target Value Revenue EBITDA
Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x na
Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x
Aug-06
A 06 Fun T h l i
F Technologies CDM F t
Fantasy S t
Sports $10m
$10 1.3x
13
Mar-06 Fun Technologies WorldWinner $23m 2.2x
Feb-06 Realnetworks Zylom $21m 2.6x
Nov-05 Liberty Media Fun Technologies (51%) $144m 5.6x
Jun-05 Fun Technologies Fanball Interactive $22m
$ 4.8x
Jul-04 Fun Technologies Skilljam $8m 2.2x
Jan-04 Realnetworks Gamehouse $35.6m 3.6x
Multiples are driven by:
‐ acquiror demand
‐ growth rate of target
‐ strategic value of target
Avista
Partners
19
19
21. Online game companies want to know:
What is the best strategy for my online game
business?
What are VCs looking for in an online game compan ?
What are VCs looking for in an online game company?
For VCs, the question is this:
What type of online game business should I look to
h fl b h ld l k
invest in?
And the large media companies ask:
A d th l di i k
Which online game companies should we look at
acquiring?
Avista
Partners
21
21
24. Currently, many people believe it is World of Warcraft from
Vivendi.
single game generating $1 billion per year in revenues
not the Holy Grail of online games
only attract hard core gamers and not the mass market
l hd d h k
WOW’s eight or nine million subscribers pales in comparison to
the over 50 million users worldwide who play Maplestory from
py p y
Nexon in Korea or the over 66 million registered users of Habbo
Hotel from Sulake in Finland.
Plus MMORPGs do not have much of a life cycle beyond five
y y
years.
Avista
Partners
24
24
25. Not 100% clear that subscription‐based business
Not 100% clear that subscription based business
models are best
especially given the huge success of item‐selling‐based
p yg g g
business models in Asia and the growing success of
companies like Three Rings (Puzzle Pirates) and K2
Network (publisher of Korean developed online games)
Network (publisher of Korean‐developed online games)
One company to watch is Bigpoint
a German company which now offers seven casual
ff
browser‐based games.
In lieu of no subscription fees, Bigpoint generates
revenues by selling items in‐game.
On average, they are generating more revenues per
user than WOW is is.
Avista
Partners
25
25
26. There are many portals like this but very few of these portals are
generating any serious revenues.
Some of the successful companies may not be around in 18 to 24
months.
Aggregation as a standalone strategy does not work unless you are the
number one or two player
b l
What is going to happen when casual game publishers have the
p
power control revenue shares & pricing?
p g
Will not happen overnight but it will happen once there has been
more consolidation in the sector and the publishers are larger or
owned by larger companies.
owned by larger companies
Content owners will always win in the end—and this business is
clearly more about great games and than about great distribution.
Avista
Partners
26
26
27. Some people believe that publishing a huge number
of downloadable games and selling them everywhere
g g y
is the answer.
But is that really a long‐term sustainable business, given
the large (and rapidly growing) number of downloadable
hl (d idl i) b fd l d bl
game publishers and developers
For instance I’m amazed by how many puzzle games
For instance, I m amazed by how many puzzle games
there are in the market currently.
▪ How many puzzle games can the market support?
▪ And how does a consumer differentiate among them?
Doubtful that anyone will succeed long‐term with
undifferentiated content in a saturated market.
undifferentiated content in a saturated market
Avista
Partners
27
27
28. A website that features a casual, mass market‐focused MMO with great
A website that features a casual mass market‐focused MMO with great
game‐play, interactivity, customization, VOIP capability, and user
generated content (games, videos of game‐play and avatars).
Pl s simple a to make friends find friends in ite friends and pla ith
Plus simple way to make friends, find friends, invite friends, and play with
friends.
Mix of different types of advertising, including both onsite banners and
in‐game promos or product placement.
d l
Holy
maple habbo
myspace skype youtube
hotel
Grail
story
1st game website that offers all the key features of this mash‐up will
g y p
indeed be the Holy Grail of online games.
Forget about 10 million or even 50 million users.
L k f
Look for 100 million registered users for one game website
illi i d f bi
Avista
Partners
28
28
30. More developers switching from high end console to casual games
▪ Lower development costs, less risk & higher ROI
▪ PC, XBLA, PSP, DS, Wii
, , ,,
Game Portals/ Aggregators growing in popularity with consumers;
watching less TV; Advertising is a major source of revenue
Mix of Ad‐supported, casual games and paid premium games
In‐game advertising is a new source of revenue for developers/ publishers
Casual MMO’s will grow ie. Runescape
Business models selling items in game growing quickly ie Bigpoint
Social 3d chat games will grow ie Second Life, Habbo Hotel
Micropayments
Avista
Partners
30
31. Acquire or Be Acquired
Raise money to grow and/or acquire
B ild D C b i
Build D2C business on own websites with a focus on community
b it ith f it
Monetise across other platforms by licensing or in‐house for mobile,
console, in addition to PC in store
console, in addition to PC in‐store
Sell items in‐game
Publish games by episode
Build advertising revenues
L
Localize sites for key Non‐English countries
li it f k N E li h ti
Outsource selected development pieces overseas
Develop game widgets for social networks ie. Bunchball
Avista
Partners
31
32. Paul Heydon
Managing Director
gg
Avista Partners
Tel: +44-203-178-6866
Email: paul.heydon@avistapartners.com
Web: www.avistapartners.com
Avista
Partners
32
33. This presentation was prepared by Avista Partners exclusively for the benefit and internal use of the Recipient in order to indicate, on a preliminary basis, the feasibility of a possible
transaction or transactions. This presentation is incomplete without reference to, and should be viewed solely in conjunction with oral briefing provided by Avista Partners. The
presentation is proprietary to Avista Partners and may not be disclosed to any third party or used for any other purpose without the prior written consent of Avista Partners.
The information in this presentation reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing this presentation, we have relied
upon and assumed, without independent verification, the accuracy and completeness of all the information available from public sources or which was provided to us by or on behalf of
the Recipient or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock or the business of the Recipient. Even
when this presentation contains a kind of appraisal, it should be considered preliminary, suitable only for the purpose described herein and not be disclosed or otherwise used without
the prior written consent of Avista Partners. The information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or
potential change of control, which may have significant valuation and other effects. Avista Partners LLP is authorised and regulated by the Financial Services Authority.
Avista
Partners
33