EA buys Playfish for $400 million, jumps into social games

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Electronic Arts, looking to jump into the exploding market for games on social networks, this morning said it has agreed to buy Playfish in a deal valued at $400 million.

The transaction calls for $275 million in cash, plus $25 in retention bonuses for executives of the tiny London-based developer of games such as Pet Society and Restaurant City. It also includes up to $100 million in bonus payments should Playfish meet certain, undisclosed financial targets.

Playfish, a privately held company, does not release its financial data, but has said the venture is ‘substantially profitable,’ so much so that it has not touched the $21 million in venture money it raised in its last round of funding.

With just 125 employees, Playfish has focused on a lean operation with fewer than a dozen games played on popular social networks such as Facebook, MySpace and Bebo. Though rudimentary, the games have attracted hundreds of millions of players. The fact that they are free to play is part of their appeal, but so is their social nature and the fact that players can pull their friends into the games.

EA, based in Redwood City, Calif., has been expanding its reach into free-to-play online games that make money by charging small amounts for extra features.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.