Right now, social media, mobile and browser publishers are attracting most attention, and all the investment dollars. Amongst these is the Brit outfit Zattikka, which recently gained a $5.5m injection to become a global force. Next up, it wants acquisitions and up to another $100m in its war-chest. The ambition level is huge, as you would expect from any company run by former Virgin Interactive boss Tim Chaney.
MCV: The wires were hot a couple of weeks back with news of that $5.5m funding for Zattikka. It was even picked up by USA Today. But what does it really mean for the company?
Chaney: It will allow us to move forward from the first stage, which was to incorporate the company, get started with seed capital, build traffic, bring in strong hires and do a land grab for IP.
The next phase for us is to post revenue and operating profit and to look for a further $50-$100m as an acquisition roll-up fund. We are partly about organic growth, but the founding business vision was get to big quick through acquisition. That $5.5m, which we had to work hard for being pre-revenue, is chump-change in the magnitude of things. Bobby Kotick would spend it on a holiday home.
What did you think about Kongregate’s acquisition by GameStop?
It’s funny, with the deck we went out with this winter for this funding raise, we had a list of possible acquisitions. First on our list was Mindjolt and that was bought by Chris De Wolfe and Austin Ventures. Second on our list was Kongregate – we really liked that business.
When asked about an exit strategy, as always asked by investors, we said the first in the queue of buyers will be games retailers. They are accelerating their own decline with used and rental product. And then Game Stop buys Kongregate. Predictable.
Third on our list, although the best of the lot, was Addicting Games, but that would be beyond us as it was Viacom and a fundamental strategic foothold for MTV, Nick Jnr and Nickelodeon. Plus, Viacom’s owners don’t need to become multi millionaires.
Ah, Viacom. You have history with them? Didn’t they buy Virgin Interactive in the 90s?
Blockbuster bought us in 1994 and Viacom bought Blockbuster in 1996. Viacom sold off Westwood to EA and Mark Dyne and myself did a management buyout of the European business in 1998 and flipped it to Titus in 1999. I once showed Summer Redstone around E3, probably in 1996. I have a photo and looked scared.
Talking of scary, isn’t there lots of scary competition in your preferred space of social network games, browser games and apps?
It’s the end of the beginning. Things are changing, fast. The growth of Zynga, Playcom and Playfish can’t be done any more. Spamming is off the FaceBook activity option page – numbers are dropping. Plagiarism, sorry, derivatives, can still happen but smart money is on iconic IP making serious inroads. If those are plagiarized there will be some billion-dollar lawsuits flying around.
It’s a cost that you have to bury to give you an immediate, loyal audience and some proprietary copyright that isn’t going to be called ville-something, or world-something a month later. It will be interesting to see how the usual suspects plagiarize FIFA Online.
So Zattikka have been quietly doing an IP land-grab?
We have a few contracted and many more in discussion. Neat stuff. Varied.
What do the existing video game giants do? The social game, browser and app business has sharp claws and is scratching away.
They can’t do so much; they are bricks and mortar businesses that need retail. Going to download is the same thing. Users don’t want a ‘learn, shop, pay and wait and then play’ experience. The internet was bound to disrupt that.
Retail and download are the same in that respect. The EA acquisition of Playfish was smart. They wised up in the 12 months after they lashed out on studios like Pandemic. Although, a lot of the original Playfish people’s CVs are on the street. EA are not natural integrators.
Disney will do a better job with Playdom. Some Zynga teams are out as well – such as the ones just signed up by MTV. Which brings us full circle back to video games development fraternity, maybe it’s OK if you’re working on Call of Duty or Starcraft 2 or Sonic and Mario at the Olympics, but most aren’t and that wounded, anxious development resource is falling into our hands.
The price is right and this is brave new world stuff. The talent is there to make great games. Again, part of our founding vision was that traditional video games would suffer. Bear in mind this was pre-Farmville and pre-Pet Society. We knew the development talent from the traditional market would be looking to new markets in order to prosper once again. We have the mindset to be quick off the mark and take advantage.
You must be fed up talking about Farmville when trying to raise money?
It’s part of the process, part of the game. Yes, it does grind after the 30th time you have to explain, in terms of being a game – well, its not really. And the two key releases that have come out since, Treasure Island and Frontierville, are comparatively firing blanks.
Although, I would love to fire blanks like those.
But put real game creative talent inside Zynga and then you have a monster that can be bigger than the monster it is now.
Any predications, given the current Bay Area game of musical chairs?
If Google are going after Facebook, which they are, and has a games objective, they will buy Zynga and move the entire product portfolio onto a Google social network. Facebook should have bought Zynga early on. Now it’s probably too late.
Are you in awe of Farmville? Or shall we move on?
Oh God yes, And yes.
There are already a lot of start-ups and well funded, profitable businesses in your space. How do you select an acquisition target?
They must have revenue, operating profit and multi-million monthly active users or less if they are making a disproportionately high net profit. We want people who can leave their ego at the door and build like crazy. We’re not interested in start-ups or businesses that a vision that only kicks in from 2013. To get the right valuation, we’re targeting companies without institutional investors inside. There are no dumb deals left in town.
As best we can ascertain from sources, the prices paid for Mindjolt and Kongregate were about right although as roll-up buyers we would have paid a premium. We currently have a list of 14 A target (it was 15 until a fortnight ago) and 20 B targets who will be approached in the next six weeks to see if they are up for taking a smaller role in a bigger play.
Would you buy a traditional video game company?
There’s a steep learning curve for those guys. Playing Farmville and buying a pig, or Restaurant City and buying a jukebox, and using Google doesn’t tell you anything. I am still meeting guys working in the video game business who are not playing SNG’s or browser games. All Zattikka’s back-end guys are ex-Yahoo and Qualcomm. Our marketing team is ex-Amazon and Yahoo. Their world is different. To answer your question, if there’s an IP in there, maybe -and we do have one in mind -but probably not.
Finally, you always had this reputation of being hard but fair, charismatic but with a ‘business is war’ mentality. Have you mellowed?
Don’t we all. You included, Mr Dinsey. I remember when you were an aggressive little fucker. I’m certainly not part of a casual cuddle-up programme. It was a long time ago when I worked for Jack Tramiel under the Commodore doctrine of you don’t have competitors, only enemies. But John Lennon got it wrong – war is never over. The zone of conflict just moves.