Google Makes Video Game Maker Kabam An Offer It Can't Refuse

by: Chris Katje

Google (NASDAQ:GOOG) recently launched a new massive multiplayer online game on its networks for free. The game is The Godfather: Five Families. The interesting part of this move is that Kabam, the developer and owner of the social game, chose Google over Facebook. The company’s previous five games (Dragons of Atlantis, Edgeworld, Global Warfare, Glory of Rome, Kingdoms of Camelot) are all available to play on Facebook. Three of those games are also amongst the games offered on Google+. The game is exclusive to Google and will not be available on Facebook for users to play for forty five days. Google will support the deal by doing what it does best, advertising online to gain traffic to the game.

The big difference and possible reason for the deal is the five percent revenue cut Google will be taking in on virtual goods sold in The Godfather game. Facebook in comparison charges thirty percent of virtual good sales for games on its network. The company recently rolled out Facebook credits and made then mandatory for all game developers to use for games being played on Facebook. Zynga (ZYNG) for example previously paid two to ten percent revenue cut on virtual goods bought in its games. With this deal it may become apparent that online game makers are sick of paying the hefty premium Facebook credits carry. The Godfather is one of hundreds of social games online that are offered for free to players.

Kabam of course with this deal loses a shot at attracting a partial base of the 800 million users Facebook currently has. Google on the other hand has 40 million registered users for its Google+ social network. The fact that Google only has 28 games available for play on its social platform could be good news for Kabam as its game will likely not get lost amongst Facebook’s massive network of social games. Google will target advertisements to draw traffic to the game and actually has more to gain by creating ads that try and get users to purchase virtual goods. I actually came across an advertisement for the game today when updating my Fantasy Hockey team on Yahoo (YHOO).

Will this move by Kabam have Facebook question its new Facebook credits and lofty thirty-percent revenue cut model? The answer of course is probably not. Zynga actually attempted to move away from the Facebook model but ended up coming back and signed a five year agreement to keep its games on Facebook and make its games use the Facebook credits purchasing system to buy virtual goods. The deal signed today may however have social gaming companies, especially small ones in revenue and number of games, consider following Kabam’s lead in using Google+ at least initially. Rovio, the maker of Angry Birds, has been outspoken about the thirty percent that both Apple (NASDAQ:AAPL) and Facebook take for a portion of the games it develops.

For me as a fan of The Godfather movies, the game has my interest peaked and will probably become another time consumer on the internet. I am an Activision Blizzard shareholder (NASDAQ:ATVI) but have never gotten into the World of Warcraft, Starcraft, or Diablo games on the computer. However, the chance to play a mafia style game for free has my interest peaked and makes me wonder if World of Warcraft is in for a new slew of subscribing members losses. Obviously The Godfather game isn’t going to take away millions of subscribers but the ability to play this game based on a movie for free along with a similar free based Lord of the Rings MMORPG offered by Warner Brothers (NYSE:TWX) could make a tough decision for budget conscious video gamers.

The game is set in 1935, ten years before the original The Godfather movie. Players are able to compete against each other to become a Don in their respective family through challenges and missions. The game is being licensed by Kabam from Paramount, a subsidiary of Viacom (NYSE:VIA). The game provides realistic game play and video images. Kabam takes pride in creating realistic online games to cater to hardcore video gamers rather than cartoonish images and easy to play games that Zynga has made so much money on. Kabam won an award for Reader’s Choice Facebook Game in 2010 for its Kingdom of Camelot (voted on by readers of Imagine Games Network (IGN) website).

A series of Godfather video games were released by Electronic Arts (ERTS) for PS2, PS3, XBOX, XBOX 360, and the Nintendo Wii. The games sold over 4.25 million copies worldwide across all platforms. It will be interesting to see how many people sign up for The Godfather: Five Families game over the next forty five days. Even more noteworthy is how many virtual goods Kabam’s game sells over that time frame.

Investors should watch the numbers this game generates over the initial forty five day period. The statistics are noteworthy to Google, Facebook, Kabam, Zynga, and others as far as investments go. I think Google shares are worth a look if they come back down to $600.

Disclosure: I am long ATVI.