Electronic Arts Moves Into Middle Age by Buying Pogo.com

Next, Electronic Arts' (ERTS) sideburns go.

The video game leader had already bought a spectrum of button-down shirts at the Gap to cover up its busty-lady tattoos for the AOL crowd in November 1999. This week it stepped into a pair of Dockers as it purchased video-poker and Hearts mainstay Pogo.com for an undisclosed amount Wall Street pegs between $30 million and $50 million. Next stop, frumpy sweaters with the horsy logo.

Hugely popular Pogo.com enhances EA's reputation in the cocktail party world of adult online gamers, quiet competition far from the best-selling burnouts of Nascar 2000 and the bone crunches of Madden NFL 2001. The world's biggest independent video game maker is tinkering with its strategy in an effort to turn newly launched EA.com into a major revenue stream of the future.

EA.com generated $11.2 million in revenue in the third quarter of 2000 ended Dec. 31, compared to $629.9 million in EA's core video games business. Pogo.com's more mature registered audience is 55% female, it logs 70% of its users from the 18-49 age group and 20% of players are over age 50. This is the decidedly unhip territory EA tiptoed into with the AOL deal and development of its own family game efforts. Bite your knuckle over Pogo.com's statistics: an average monthly user play time average of around 3 hours, 17 million registered members and the Jupiter Media Metrix title of "stickiest" site on the Web in January 2001.

Rubber-burning solitaire! Snot-rocketing Spades!

"They're just not the kind of people who are on the site to pay for games. They come to play free games," says Felicia Kantor of Lehman Brothers. She thinks the real benefit to EA will come in the form of technology, not dollars. "I don't think EA made the acquisition for subscribers. I think it made the acquisition to buy Pogo.com advertising and game technology. Pogo.com is five years ahead of the curve vs. EA, technologically."

In fact, Pogo.com is a three-year-strong reincarnation of the Total Entertainment Network, a flashy boy-oriented locker room that sniffed the testosterone in the early days of online gaming. TEN's management realized it had to leave its Peter Pan days behind and straighten up. Its job now is to help EA do the same. Electronic Arts developed its own family-style online games for two segments of its AOL efforts, the Lounge and Club Room.

Pogo.com's popular efforts will enhance that lineup, but some question whether EA can really convince the 20 million combined online users of Pogo and EA to pony up a few bucks a month for a premium feature subscription. With that issue unresolved, the Street expects revenue benefits to be minimal. "I don't think there's a whole lot of expectations that this transaction will affect EA revenues in fiscal 02," says Edward Williams, a research analyst with banking relationship-free Gerard Klauer Mattison. EA maintained its guidance of 2002 to back up that assumption. EA finished the day up $2.31, or 4.6%, to $52.31.

Pogo.com has beneficial experience with interstitial advertising -- where animated commercials run on-screen while the user's game selection loads. Pogo.com also brings long-standing relationships with portal players NBCi ( NBCI), iVillage ( IVIL) and iWon, as well as network operators Nokia ( NOK) and @Home. Excite@Home ( ATHM) planned on purchasing Pogo.com in September 2000 in a stock deal estimated at $150 million, but after its stock lost two-thirds of its value in the following months, falling from the midteens to around $5, the two were forced to abandon the deal in January 2001.

All the better for Electronic Arts, which got to pay a bargain price for the chance to grow up.

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