February 7, 2006 8:41 am

RealNetworks expands into casual games market

RealNetworks, the digital media company, on Tuesday announced plans to bolster its position in the online gaming market with the $21m acquisition of Netherlands-based rival Zylom.

Privately-held Zylom will add around $8m in annual revenues, around 54 employees and a portfolio of 70 games to RealNetwork’s games business, helping the company position itself against rivals such as Electronic Arts, Microsoft and Yahoo in the casual games market.

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Casual games - simple arcade-style or puzzle games - are a small but rapidly growing part of the global games market.

In contrast to console games, which typically feature shooting, racing or sports and take tens of hours to complete and appeal primarily to younger men, casual games are modelled on traditional card, board, puzzle and word games. They can be picked up easily, played in small time slots of a few minutes and appeal primarily to women over the age of 30, a demographic not otherwise reached by the games industry.

Around 60 to 70 per cent of casual gamers are estimated to be women.

Companies like RealNetworks make money from casual games by either selling games downloads and subscriptions to games sites, or from selling advertising space on games that are free for consumers to access on the internet.

Michael Schutzler, vice president of RealNetworks global gaming operations, estimates that the casual gaming market is worth around $2bn to $3bn globally compared to the $25bn total games market.

In the third quarter, the games business was the fastest-growing business division at RealNetworks, with revenues up more than 60 per cent at $14.7m.

Casual gaming is also one of the more high-margin areas of the games market. Console games can typically cost $10m to develop and are highly dependent on becoming best-sellers in order to recoup investment. In contrast, casual games can be developed for around $100,000 and are less dependent on becoming hits.

A number of games companies have been investing in this area. Electronic Arts runs an online games site called Club Pogo, Disney launched an online Game Cafe in November, and Microsoft launched an online games arcade 16 months ago, which can be accessed through the Xbox console.

The acquisition of Zylom is the RealNetworks’ third deal to expand its online gaming presence. The company bought Mr Goodliving, a Helsinki-based casual games developer for $15m last May, and acquired GameHouse, a Seattle-based games company for $35.6m in 2004.

Rutger Peters and Erik Goossens, who founded Zylom in 2001, will stay on to head the RealNetworks gaming operations in Europe.

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