Electronic Arts in Deal With Gaikai - Analyst Blog

Video game manufacturer and publisher Electronic Arts Inc. (ERTS) recently signed a multi-year deal with online video streaming company Gaikai Inc. Terms of the deal were not disclosed.

Gaikai, a privately held company owned by venture capital firms Benchmark Capital, TriplePoint Capital and Rustic Canyon Partners, among others, allows users to play major PC and console games through its server based cloud computing technology without any downloading or installation. 

Users can have easy access through any standard Web browser that supports Flash and Java, without any special hardware or extra computing power.

This deal will provide worldwide game players access to Electronic Arts titles such as The SimsT, Medal of Honor, Need for Speed and other titles straight to any Web browser.

The gaming industry is going through a major transition. With the advent of smartphones, the iPad, the iPhone and PDAs, buying and installing games and applications have become quite simple for the gamers.

According to a research firm, eMerketer, the total number of mobile Internet users is expected to reach 134 million by 2013 as a result of increasing usage of smartphones.

According to another research firm, DFC Intelligence, the mobile gaming industry is expected to grow to $11.7 billion by 2014. The iPhone alone is estimated to constitute 24% of the total gaming software sales.

Similarly, casual games on social networking sites such as Facebook have added millions of users by making it hassle free to start playing instantly. The success of online and social gaming is anticipated to have a major impact on gaming companies, as they prepare themselves to transition to Internet-based gaming as compared with the conventional gaming.

We believe Electronic Arts with the help of this deal will bring that same ease of use to traditional console and PC games. The deal is expected to boost audience participation at a lower cost for Electronic Arts titles, as Gaikai’s streaming technology eliminates the need for excessive online marketing.

Electronic Arts faces stiff competition from Activison Blizzard (ATVI), Take-Two Interactive Software Inc. (TTWO) and privately held Sony Online Entertainment LLC.

We have a neutral recommendation on Electronic Arts.