Hollywood vs. Silicon Valley: The Battle for Social Gaming

Ten years ago, or even five years ago, most people would have reacted with disbelief if told that shortly some of the biggest companies in Silicon Valley and Hollywood would be in a madcap race to get a piece of companies that facilitate the purchasing of virtual pink tractors.

But that's exactly what's happening in the world of social gaming. The companies that make games with names like Sorority Life, FarmVille, and Pet Society have become some of the most sought-after in the digital-media industry, and now huge companies are starting to take sides. We already knew that there was a lot of money being thrown around in social gaming, but now it's evident that there's far more money at stake even than that. Billions of dollars, even.

A recap: Walt Disney announced on Tuesday that it's acquiring Playdom, one of the biggest social-game manufacturers, for $563.2 million plus a potential $200 million more in performance-based payments. That makes Playdom Disney's third major casual-gaming buy in the past few years, after Club Penguin (about $300 million) and Tapulous, a mobile game manufacturer. This follows Electronic Arts' acquisition of Playfish last winter and GameStop's purchase of Kongregate, a smaller but still significant player in the market, this month. Keep in mind that virtual goods were already big among a more subcultural set, with virtual world Second Life and role-playing game "World of Warcraft" continuing to tick along as cult phenomena.

So, then, on Wednesday, The Wall Street Journal ran a story suggesting that Google was in talks with all the big social-gaming companies--Playfish, Playdom, and Zynga among them--to develop a kind of "broader social-networking service" that would go head-to-head with Facebook and would be relatively games-centric. This, the Journal article suggested, would be Google's big social-media push.

Well, sort of. Google has been making one foray after another into offering "a social-networking service" for years now: from Orkut, which remains popular enough in Brazil to provide a barrier to Facebook's growth in the region; to Buzz, a head-scratching Twitter-like service with a launch that was maligned because of privacy concerns; to the allegedly forthcoming Google.Me, the Mountain View, Calif., behemoth's latest attempt to take a chunk out of Facebook's still-fast-growing market share.

And this "Google Games" thing has been rumored for some time, ever since word got out a few months ago that Google had invested over $100 million in Zynga.

But if Google wants to poke Facebook where it hurts, then yes, social gaming is a ripe target (and perhaps the ripest, considering Google's tepid track record elsewhere in social media). There are no concrete numbers onto just how significantly social games have benefited Facebook, traffic- and revenue-wise, but it's clearly a pretty sizable figure. One of the reasons why Facebook's advertising revenue was boosted so significantly over the past few years is that social-gaming companies were so eager to pull in new players, as well as convert existing players to fresher game titles, that they started buying up millions of dollars in Facebook advertisements. Games like FarmVille have proven so addictive that some of Facebook's 500 million users are logging on to the site almost exclusively for gaming. They're putting real money into it, too.

Yet relations between Facebook and game developers, particularly Zynga, have been chilly at times. Facebook's Credits virtual currency, which is finally opening up after significant delays and testing, gives Facebook a 30 percent cut of transactions, and not all developers like the fact that they're being encouraged to make the jump to Credits.

As much as social-gaming companies like to talk themselves up as "platform-agnostic" and able to be flexibly deployed across the Web--sometimes as a quasi-defensive statement to assert that they aren't as dependent on Facebook as skeptics think they might be--it's evident that sides are being taken now. Zynga now has financial ties to Google. Playdom will soon be the property of Disney, which has both Apple CEO Steve Jobs and Facebook COO Sheryl Sandberg on its board of directors. (Jobs, because of Disney's $7.4 billion merger with Pixar Animation Studios in 2006, is also the Mouse House's biggest individual shareholder.) The presence of huge industry powers as well as the hit-driven way that titles are pushed out is making some independent developers nervous or outright frustrated.

Still, the interesting space to watch ahead isn't just which bigwigs have selected their teams, so as to speak, but also which ones haven't yet made moves. Dan Porter, the CEO of a independent social-gaming company called OMGPOP, wrote a blog post on Wednesday morning that brought up the number of big media, tech, and gaming companies (notably those in Asia) that haven't jumped fully into the social-games craze yet.

"Expect more deals as competing media companies like Viacom, Fox, IAC and others as well as large public game developers and Asian gaming giants roll through and answer back," Porter wrote.

Well, Viacom's MTV Networks just launched a new tie-in game for its hit "Jersey Shore" reality show in which you can throw virtual pickles at an animated version of its self-professed "guido" protagonists, who have nicknames like "Snooki" and "The Situation." So there's that.