2009’s The Curse of the Mogul theorizes that a rockstar mentality drives media moguls to make ultimately unsound business decisions. Two prime cornerstones of this theory are that CEOs of leading content providers pursue growth through costly acquisitions in the hope of achieving “synergy” and in the belief that “content is king.”
You’ve guessed where this is going. Although respected analysts such as Michael Pachter have generally supported last month’s acquisition of PopCap by EA as a sound strategic move, some eyebrows have been raised at the price and my own quirked when reading interviews and quotes from EA CEO John Riccitiello. His rationale is strikingly similar to some of the thinking The Curse of the Mogul warns against.
Consider Riccitiello’s statement when the acquisition was announced: “EA and PopCap are a compelling combination…PopCap’s great studio talent and powerful IP add to EA’s momentum…”
And the following tenets from The Curse of the Mogul:
- Talent is highly liquid and generally shouldn’t be a basis for acquisitions
- Content (in this case, PopCap’s IP) isn’t necessarily king as more content equals higher operating costs
- Moguls only pursue (and overpay for) the companies they consider “sexy” (i.e. the companies others want too)
At the very least the similarities should be enough to give pause, but you may be asking yourself if The Curse of the Mogul is really a valid filter through which to analyze EA’s latest move. After all, the games business is not the media business, and EA and PopCap are two strong companies that bring great games to the market. Furthermore, PopCap’s purchase is in line with EA’s other efforts, starting with Playfish’s acquisition in 2009, to develop a strong presence in casual/social/mobile gaming.
That said, there’s speculation that social gaming is a bubble, with companies pulling inflated valuations and prices, and you only need to look at Murdoch’s Myspace mistake to see how a move like this can go south in the long run. EA is a public company: shouldn’t we use every tool at our disposal to make sure that the company’s decisions are coming from the right place and benefiting stockholders?
At its core (economics aside) that’s the lesson The Curse of the Mogul teaches: the powerful people running top companies can be as fallible as the rest of us. In this case Riccitiello seems to have made the right decision – but it’s worth thinking about how he may have come to it.