EA, Zynga Settle Dispute - Analyst Blog
February 19 2013 - 1:50PM
Zacks
Electronic Arts (EA) and Zynga
(ZNGA) have reportedly dropped all charges against each other
related to copyright violations and disputes on recruitment of
employees. Both the companies also settled their lawsuits
permanently in the U.S. District Court for the Northern District of
California.
The lawsuits date back to Aug 2012 when EA alleged that some
characteristics of Zynga’s popular The Ville had
unmistakable similarities with the former’s The Sims
Social, and pointed toward violation of the copyright act.
Zynga countersued EA in late 2012 accusing the latter of
unlawfully preventing employees from shifting to Zynga.
We believe that the legal battle would have been detrimental to
both the parties, as these kind of trials take a long time to yield
any results. Thus, following the settlement, both the companies can
now concentrate on the business they do best -- produce games.
It is noteworthy that Zynga has reduced its investments in
The Ville as it failed to produce expected results. On the
other hand, EA’s The Sims Social has gained traction among
its users.
Moreover, with the lingering macroeconomic sluggishness taking a
toll on the overall video game industry, both parties would rather
concentrate on their core operations to improve their company’s
fundamentals than get into a legal tussle.
From the broader perspective, soft video game industry
performance, particularly due to soft retail sales amid an aging
console system lifecycle and the cannibalizing effect of
free-to-play games remain concerns in the near term for EA, a Zacks
Rank #4 (Sell) stock.
Although we believe that the ongoing transition from the
physical to the digital platform will ultimately benefit the video
game industry (due to the cost effectiveness), low priced digital
games have failed to offset the rapid decline of high-priced retail
sales in recent times.
Zynga, a Zacks Rank #3 (Hold) stock, is well positioned to grow
in the near term based on its innovative product pipeline and
dominant position in the social and mobile gaming sector. The
company’s expansion in the advertising space and renewals from
companies such as McDonald’s (MCD) and
Honda (HMC) are other positives.
However, we also note that barriers to entry are low in the
social gaming market and this will attract new entrants, thereby
further increasing competition for Zynga over the long term.
ELECTR ARTS INC (EA): Free Stock Analysis Report
HONDA MOTOR (HMC): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
ZYNGA INC (ZNGA): Free Stock Analysis Report
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