UPDATE 3-Electronic Arts buys social game maker Playfish
* EA pays $275 mln in cash plus other consideration
* Playfish hits like "Pet Society" are on Facebook, iPhone
* EA shares closed up 2.79 percent (Adds comment from venture capitalist)
NEW YORK, Nov 9 (Reuters) - Electronic Arts Inc (ERTS.O), maker of the "Madden NFL" series of video games, bought venture capital-backed Playfish for $275 million in cash plus other consideration, seeking to expand into the growing social gaming sector.
The two-year-old Playfish, whose investors include Index Ventures and Accel Partners, makes games for people to play on computers with friends, unlike traditional video games that need dedicated consoles such as Microsoft's (MSFT.O) Xbox or Sony's (6758.T) PlayStation.
London-based Playfish's hits include the game show-styled "Who Has the Biggest Brain?" and virtual pet game "Pet Society," which boasts some 21 million users a month.
The games are free, but players can buy or give virtual goods -- such as flowers, clothes, furnishings and weapons.
"The great thing about games is people play and pay for games -- what we are seeing change is the model in which they are doing so," said EA Interactive executive Barry Cottle.
"You typically paid a significant up-front price to play a game, and now we are seeing -- with platforms like Facebook and (Apple's (AAPL.O)) Apps store -- it's a free or near-free environment in order to get into a game," he added. "It's more now play-to-pay, instead of pay-to-play."
The traditional U.S. video game market is expected to continue growing, with software sales seen reaching $19.5 billion in 2013 from $14.7 billion in 2008, according to PricewaterhouseCoopers. But more nontraditional players, also called "casual" gamers, are entering the market through social gaming and other new avenues.
The purchase was an imperative for EA, said Jeremy Liew, managing director of venture firm Lightspeed Partners.
EA assessed the direction of the industry, recognized the ground had shifted, and was "willing to embrace change despite the risk of cannibalization to their core business," he said.
The deal for Playfish -- which had previously raised $21 million in venture capital -- includes another $25 million in equity retention arrangements. The sellers could reap another $100 million contingent upon the achievement of certain performance milestones through 2011, Playfish said.
Playfish is ranked second among the big three social gaming start-ups, behind leader Zynga and before Playdom.
Maha Ibrahim, a general partner at venture capital firm Canaan Partners, said the deal was a good valuation for Playfish. Continued...
