RealNetworks Acquires GameHouse

RealNetworks has agreed to acquire GameHouse, which provided many of the games for its RealArcade service, in a deal valued at about $35.6 million.

The acquisition adds a games development and publishing business to RealNetworks, which has distributed games through RealArcade for more than two years, RealNetworks President Larry Jacobson said Monday.

"This combines content development and publishing with distribution. It allows us to move into what we believe is a very explosive growth channel for our company," Jacobson says.

Touts Casual Games

GameHouse develops so-called casual games, which are intended to be easy to understand and don't take long to play. RealNetworks has sold more than 2 million casual games through RealArcade over the last two years, many of them made by GameHouse, according to a RealNetworks statement. It entered the game market through a shared project on Sony's PlayStation in 2001.

The market for online PC games is booming. Revenue in the U.S. will total about $648 million in 2004, including money from subscriptions, advertising, and sponsorships, according to research company IDC. About $120 million of that will be generated by games downloaded for purchase.

GameHouse was founded in 1998 and is based in Seattle, also RealNetworks' home town. The company has sold more than a million copies of its games since its inception. In 2003 it earned $5.5 million on revenue of over $10 million, according to RealNetworks. It employs 26 people, all of whom will join RealNetworks, Jacobson says.

RealNetworks will pay about $14.6 million in cash and about $21 million in shares for the company, based on Friday's closing share price. About $18.3 million of the purchase price is subject to certain restrictions over a four-year period. The restrictions include the continued employment of key GameHouse personnel, RealNetworks said.

GameHouse will operate as a wholly owned RealNetworks subsidiary called GameHouse Studios and will be headed by its current chief executive officer, Garr Godfrey, who will become general manager, RealNetworks says. The deal is expected to close within two weeks.

Small Market Shift

RealNetworks' RealArcade competes with products such as Microsoft's MSN Games, Yahoo Games, and Pogo.com from Electronic Arts. Users of RealArcade can try a game free of charge for an hour and then opt to buy it for between $15 and $20, RealNetworks says. RealArcade is also offered through partnerships with ISPs.

RealNetworks' acquisition of GameHouse won't send shivers through the market, but it does give RealNetworks added control over its gaming business, says Schelley Olhava, an IDC program manager.

"By acquiring GameHouse, RealNetworks now has control over the content and no longer has to depend on what third parties develop," Olhava says. RealNetworks can now match the content to its business strategies, such as targeting a specific audience, she says.

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