VentureBeat

John Riccitiello has been driving a lot of change at Electronic Arts. He was president and chief operating officer of the big independent video game publisher from 1997 to 2004. Then he left to co-found Elevation Partners. He engineered a deal to invest $400 million in acquiring a majority stake in the game development firms, BioWare and Pandemic. While he was gone, EA suffered lackluster financial performance and its games were often mocked as dull and uninspired. Riccitiello rejoined EA as CEO in May 2007, and reorganized EA so that it could operate its game studios as a bunch of city-states. EA acquired BioWare/Pandemic for $800 million. The aim is to get the game maker out of its funk and to produce original content that hardcore gamers won’t sneer at and nongamers will try out. EA’s games are indeed looking better; I put three of them on my list of the top 10 games of E3. But it may be some time before anyone can declare that Riccitiello has engineered a turnaround.

VB: It seems like your drive to higher quality is a tough thing to measure.
JR: I don’t think so. You’re a gamer. What do you think?

VB: The question is what these games will really look like when they come out.
JR: A lot of this stuff is close to coming out. You might not like cheesecake. There are different tastes. If you can’t see it, wait for it to sell. Then we can look at the results. I don’t think you can look at Mirror’s Edge and not think it’s innovative. The same with Dead Space (pictured left). Or look at Warhammer Online (our Q&A) and not think it’s a high quality game. Or look at Madden and not see massive innovation from a year ago. Or look at Hasbro and see how it’s great on the different platforms. We’ve got Tetris and Scrabble on the iPhone. Those are good executions. EA has had a couple of years where it’s been tough.

VB: If you come in as a new CEO, and you want to improve game development, how do people benchmark it? Do they just wait a couple of years to see if what comes out is good stuff? It’s a little squishy.
JR: For core games, there is the Metacritic rating. Go to the Miss Universe contest. There are pretty girls there. Somebody has to make the judgment. You do the best you can. You try to stay objective. The lion’s share of the people writing about our product and consumers playing our games are noticing there are better games here. Battlefield Bad Company is better than the title that preceded it. BoomBlox is a surprisingly good title. Nascar got a sizably better rating than a year ago. NCAA is getting better reviews. People look at NBA Live and say it’s really cool. People think Spore (below) is a candidate for game of the show. Or Warhammer. We could be wrong. But we did things on purpose to get those reactions. I’m fine if you remain a skeptic.

VB: No, I’m thinking more of investors and shareholders. Maybe they can’t tell as easily. The stock hasn’t moved in any great directions.
JR: I don’t think the investors give a shit about our quality. They care about our earnings per share. They wait for it to happen. We had three years where we didn’t make our expectations. If I were an investor, I would wait and see. That’s fine with me. Read the rest of this entry »

Palm Inc., the smart-phone maker, will reportedly sell a 25 percent stake to a private equity firm Elevation Partners, of Silicon Valley, for $325 million.

The move, reported by the WSJ, comes after two years of a sideways trading stock (see chart below), a recognition that Palm faces ever increasing competition, and indecision about what strategy it should pursue.

It also comes after a former employee of Palm, Gibu Thomas, argued in a column at VentureBeat recently that Palm should not sell to a private equity firm. There, he argued that Palm should get over aspirations to be the “next Apple,” and sell to a corporate strategic investor — because the forces of competition are too great.

Selling a stake to a private equity buyer keeps Palm’s independent aspirations alive — because a private equity buyer is more likely to try to want to restructure Palm and sell off its stake again down the road.

Notably, Elevation Partners has ties with Apple, and it plans to introduce some former Apple talent to the Sunnyvale, Calif.-based Palm. Jon Rubinstein (pictured above left), Apple’s former head of hardware who helped oversee the creation of the iPod music player, will join Palm as executive chairman and head up product development, according to the WSJ. Fred Anderson, a partner at Elevation, was a former Apple chief financial officer, will join Palm’s board (recently his relationship has soured with Apple’s Steve Jobs). Another Elevation partner, U2’s Bono, helped introduce the U2 iPod. And of course, Roger McNamee, another partner at Elevation, known for the prolific devices that adorn his belt — now likely to carry both a Palm Treo and an iPod — will also reportedly join the board.

This all comes, of course, just as Apple is to unleash its highly anticipated iPhone. And Palm recently unveiled the rather perplexing Foleo — designed to be a companion to Palm’s smartphones, but never quite making the case as to why it is any better than a laptop (at least in our view).

According to the WSJ, Palm will “pay $940 million in cash, or about $9 a share, to existing shareholders whose ownership of the company will drop to 75 percent under the deal’s terms. The company will fund the restructuring with the $325 million from Elevation, $400 million in new debt and more than $200 million of cash on its balance sheet to complete the transaction.

According to the terms, Elevation is paying a 16 percent premium on Palm’s price, the WSJ said.

Catching up:

YouTube is making $7.5 million a month –Everyone has been guessing whether YouTube is profitable, given the high costs it faces hosting all its videos. This guy says YouTube is doing $7.5 million a month in ads, and is profitable.

FON, the company that wants to encourage people to share their WiFi routers, having problems? — The general manager of US division has left. We’re beginning to think this Fon idea my be too clunky to fly. You buy a router to let other people use it, and it lets you tap into other peoples’ FON routers when you travel. It is a chicken and egg problem; Why buy it, unless you know lots of others have bought it too? Problem is, there are so many ways to get online these days. For starters, FON’s own backer, Google, is building out free networks. Google is using a WiFi router built by Mountain View’s Meraki.

Filmloop to launch online version — Filmloop, which let people create slideshows on their desktops and then have friends see updated versions automatically on their own computers, has created an online (browser) version too. It’s facing plenty of competition, but says more than 1 million users have uploaded 42 million photos.

Time for these podcasting services to make money — Evan Williams, of podcasting start-up Odeo, is making some public confessions about having trouble, and he is shutting Audioblogger, which allowed you to post on your blog via a telephone call. (Details here.) So eyes have turned to how these companies can make money. PodZinger, an audio and video search engine of Cambridge, Mass., has just launched a way for podcasters to insert advertising in both audio and video files. It says it has “content classification” technology which allows it to match ads to the podcaster’s content. It also says it has algorithms for analyzing a user’s “intent” and provides ad matches that way. The content creators, or podcasters, can decide whether or not they want the service, which can bring them extra revenue — which they share with PodZinger.

Ning’s video & photo move — The Silicon Valley start-up Ning, backed in part by Netscape founder Marc Andreessen, gives you multiple tools you build your own web site, as we’ve mentioned. Now it has released more stuff, including letting you customize your own niche, YouTube-like video site, or Flickr-like photo site. The company took us through a demo last week, and it’s easy to use. The video site gives your own embedded player that you can brand as your own, which you can place in your blog or at MySpace — but which runs on Ning’s servers, and so you aren’t paying hosting costs. Ning bets it can cover the costs by taking a share of the advertising revenue. It says its advertising is lucrative compared to some other sites, because its users are creating content-focused sites, and so can be targeted by advertisers appropriately. The ads are generating $2 or more per 1,000 page views, the company said.

Rebtel raises $20 million for (complicated) online calls — Like Jajah, this Stokholm company (co-founder Greg Spector is here in Redwood City office, though) Rebtel lets you make calls cheaply by accessing its own system of low-cost Internet lines. But it gets complicated. It works when you dial a local number it has assigned for the person you are calling (yep, a different number than the one you already have for him or her). Once you call the other person, they have to hang up, and call you back. There’s logic to it: The system is trying to find the cheapest combination of Internet and local lines. It has raised $20 million in venture capital, including from Benchmark and Index. They charge $1 a week, and calls are otherwise free. We’re seeing a lot of these cheaply built phone services emerging; they’ll appeal to the frugal phone user, but not to those of us who want simplicity. (More here).

Asides:

Speaking of ads, there’s not enough place online to host them all — Here’s news that 100 million people watched online videos in July, and evidence that advertisers can’t find enough online inventory to put their ads.

New VC podcast — Levensohn Venture Partners, a venture firm in SF has started a podcast series called VC — Inside Out.

Bono’s direct connection with Apple, gone — Apple said Fred Anderson, who served as the company’s chief financial officer from 1996 until 2004, resigned from the board, because of the option scandal. Anderson remains a partner at the Silicon Valley buyout firm Elevation Partners, which as you’ll remember is where U2’s Bono hangs out, and who promoted the U2 iPod.

Google executive, Marissa Mayer, shows how to hold meetings efficiently — Meetings can be a waste of time. What if your company had the same discipline as Marrisa? You’d get a lot more done. This shows the Google trait of schizophrenia — creativity and discipline in one.

Google has a bunch of new products — No wonder Google co-founder Sergey Brin recently burst out, criticizing his developers for releasing too many products, and not focusing on making them work well. Here’s a recap of last week’s bombardment alone. One lets you restrict the sites you are searching (details here). Next, here’s the latest on the Google gadgets you can put on your Web site (choose from 1,200 of them). Google has also launched an experimental site, called Searchmash, tracking behavior of users off its main site. There’s a new initiative to allow you to build Web apps on top of Google search, whereby Google has opened its APIs to allow an AJAX search box for videos (click on one of the videos to see), for example. Finally, Google launched Code Search, a way to search for source code from around the Web.

Yahoo’s flip-flop– Yahoo has donated $1 million to Stanford University’s John S. Knight Fellowships for Professional Journalists, seven months after handing over information about a professional journalist to Chinese authorities. You may view it cynically, but this is a good move, nevertheless — it is earmarked to support journalists from countries where there are restrictions on freedom of the press.