Electronic Arts (EA) Inc has paid $81m for the privilege of programming and running the games channel on America Online Inc for the next five years. EA also bought AOL’s current games provider, Kesmai Corp, from News Corp for $30m. EA is to take responsibility for all game content on AOL.com, CompuServe, NetCenter and ICQ. A new games site is expected to be available on July 1 2000 at AOL Keyword EA. The partners say visitors should look for anything from interactive trivia to online golf to the massive multi-player universe, Ultima Online. While web publishing is something of a departure for EA, the deal exposes to the company’s intellectual property to AOL’s 19 million members, not even counting CompuServe subscribers and visitors to the company’s web sites. Provided the new venture prospers, EA’s core business stands to benefit enormously in its turn.
EA plans to launch a separate business division to handle the partnership, and for the benefit of web-happy investors, to issue a tracking stock. Its partners clearly felt that this was a wise move. AOL wants 10% of the new class of stock and warrants for 5% more. News Corp said it would buy a further 5%. The rest of the shares will be retained by EA and by employees of the new division. Analysts, too, were unanimous in their acclaim for the deal, calling the combination of the number one video game developer with the number one internet content provider a dream team. Separating the online business should unlock the value in these properties, as well as increase the value of the core business, wrote Warburg Dillon Read LLC’s Michael Wallace.
In a separate though possibly related deal, AOL licensed Microsoft Corp’s DirectX multimedia API components. Since users of Windows-based PCs can already access these components as part of their operating system, it’s likely that AOL intends to incorporate DirectX into a browser to facilitate online gaming. For the time being, AOL will make DirectX 7.0 available for free download to its members.
