Redwood City, Calif. (Bloomberg)--Electronic Arts Inc., the No. 1 video-game publisher, said it will be the exclusive supplier for America Online Inc.'s games channel and America Online will buy as much as a 15 percent stake in a new Electronic Arts Internet unit tracking stock.
Electronic Arts also agreed to buy multiplayer game developer Kesmai Corp. from Rupert Murdoch's News Corp. for an undisclosed price. News Corp. will acquire 5 percent of the tracking stock and will distribute its Fox games through EA.com, Electronic Arts's new Internet unit. Electronic Arts rose 7 to 99 in early trading.The five-year agreement with AOL, the No. 1 Internet service provider, gives Electronic Arts a needed Internet distribution network for its games. The maker of games for computers, Nintendo and PlayStation wants to be the No. 1 online-entertainment company, said John Riccitiello, company president.
"This should escalate their rate of growth of Internet revenue," said analyst Edward S. Williams of Gerard Klauer Mattison & Co. He rates the company "buy."
Electronic Arts, with $1.2 billion in fiscal 1999 sales, will form the Internet unit to oversee its own Web site, ea.com, and AOL's Games Channel. Both Web sites will be revamped in the summer of 2000. The Redwood City, California-based company plans to file for an initial public offering of the Internet unit at a later date.
America Online is guaranteed $81 million under terms of the contract. The Dulles, Virginia-based company will buy 10 percent of the tracking stock and warrants for an additional 5 percent. Electronic Arts and employees of the new division will own the rest of the new stock, with the exception of News Corp.'s 5 percent.
Under the AOL contract, Electronic Arts will make its products available to CompuServe members and to visitors to aol.com, Netcenter, ICQ and Digital City.
Kesmai's Air Warrior, Storm Trooper and Multiplayer Battletech games are on AOL's Games Channel. Electronic Arts games include SimCity, Ultima Online and Wing Commander.
This is the company's second purchase of an online game developer in the past three months. In September, Electronic Arts bought Carlsbad, California-based PlayNation and announced in October a minority investment in New York-based Bottle Rocket.
America Online rose 1 5/8 to 160 1/4. News Corp. American depositary receipts, each representing four ordinary shares, fell 1/2 to 33 11/16. The shares of Electronic Arts are up 76 percent this year.