Intellectual property

Lucasfilm sold to Disney yesterday for $4.05 billion dollars. Meanwhile, Zynga is valued at about $1.76 billion dollars as of close of the market today, or below their book value.

Zynga's thesis for its valuation was always that it had unlocked ways to attract and retain players for any game using its gamification strategies. That story held the promise of vaulting it to trading multiples above those of other gaming companies who had to depend on the usual gaming business model, a hit-driven model more akin to that of a Hollywood studio. In a hit-driven business, you're only as good as your next hit. Past performance is not weighted much in predicting future prospects.

But Lucasfilm's sale, at a price one could argue was a bargain for Disney, is a sign of one thing that Hollywood and other gaming companies have done that Zynga failed to do, and that is to build intellectual property value in the form of franchises and characters. I can't think of any Zynga game characters or narratives that offer any other potential revenue streams. Even Rovio has the characters from Angry Birds, and last I checked, their latest game Bad Piggies, centered around characters from their flagship Angry Birds franchise, was the top paid app in the iTunes App Store. Game franchises like Call of Duty or Madden Football can count on a loyal fan base for each new release, much like movie franchises like James Bond.

Lucasfilm hasn't put out a live action Star Wars film in years (a period that could be longer if you consider Episodes I-III to be more digital cartoons than live action), but the rights to license the Star Wars trademarks and characters continues to spin off cash. Those rights might be termed intangible assets, but the cash they generate is very real.