By MATT SLAGLE
The Associated Press
Monday, December 3, 2007; 9:22 PM
-- Vivendi's planned acquisition of Activision would blend each company's respective strength but won't necessarily lead to cross-pollination among game developers.
Activision Inc., whose shares rose nearly 13 percent on the news, now is strong in console games, with titles that include the music game "Guitar Hero III," the combat game "Call of Duty 4" and skateboarding games starring Tony Hawk.
Vivendi SA's Blizzard Entertainment Inc. leads the market for subscription-based online video games with the widely popular "World of Warcraft" series.
"It's a way to sort of have all their bases covered," said Jeff Green, editor-in-chief of Games for Windows: The Official Magazine. "I don't think this means Tony Hawk is going to show up in World of Warcraft. Everything is going to go along as it had been. This is an uber company has that much more to rely on."
Paris-based Vivendi SA and Santa Monica, Calif.-based Activision Inc. said Sunday that their respective board members had approved a plan to combine Activision with the French company's game unit, Vivendi Games, which includes Blizzard and three other divisions.
The transaction is expected to close in the first half of 2008 pending shareholder and government approval.
The two companies are behind some of the most popular and critically acclaimed video games of all time. The deal would create an $18.9 billion electronic entertainment juggernaut," rivaling the world's current No. 1 publisher, Electronic Arts Inc., in terms of the variety and types of games it would offer worldwide.
Citi Investment Research analyst Brent Thill said he doesn't expect Electronic Arts or other game makers to feel too threatened. Electronic Arts, he said, has plenty of strong offerings such as games based on "The Sims" series.
David Cole, president of DFC Intelligence, said the deal shows how the $40 billion global video games industry is changing from a packaged goods business that makes, sells and distributes boxed video games, to a service business that delivers online PC games such as "Warcraft".
"It's no longer that you can just go out on one platform and be a one trick pony," Cole said. "With the costs of development and distribution you've got to really have international scale."
Cole said it remains to be seen if the transaction would signal future consolidation from large media companies seeking to cash in on gaming's growing popularity.
Blizzard officials said the deal would not affect upcoming titles such as a "Warcraft" expansion pack called "Wrath of the Lich King," or the highly anticipated "StarCraft 2," both due sometime in 2008. Activision said it is already planning new versions of current hits "Guitar Hero" and "Call of Duty."
Colin Sebastian, an analyst at Lazard Capital Markets, called the deal a "very good fit" because the two companies complement each other.
Key is the addition of "World of Warcraft" to the Activision family. Launched in 2004, the persistent online fantasy world has mushroomed to 9.3 million subscribers worldwide, each paying up to $15 per month to battle mythical monsters for treasure and other rewards.
Calling the new company Activision Blizzard instead of Activision Vivendi is a clear acknowledgment of the importance "Warcraft" brings to the mix, Green said.
Thill said Activision would be less tied to the unpredictable highs and lows of console games. Now, each time a new wave of consoles hits the market, game publishers are forced to decide which system will come out on top, without even knowing which one consumers will ultimately snap up the most.
Although Thill predicted about 25 percent of the new company's revenue would come from Warcraft subscription fees, he said the deal isn't foolproof, either.
He questioned how much longer the three-year-old "Warcraft" _ aging by video game standards _ can remain a phenomenon that has become a pop culture hit with an episode of "South Park" and a recent Toyota truck commercial, for example.
Cole said the games business has seen previous waves of consolidation _ the latest one in the mid-1990s _ that haven't panned out for media companies.
"Historically when a company like Time Warner or Viacom says they plan to invest $1 billion in the video game market, investors should expect that they are planning a way to lose $1 billion," he wrote in a recent research report.
Activision Chief Executive Bobby Kotick would stay on as president and CEO of the new company, which would continue to operate as a public company traded on the Nasdaq Stock Market under the ticker ATVI.
Vivendi shares gained 1 percent to close at $46.42 in trading Monday in Paris. Activision shares rose $2.82, or nearly 13 percent, to $24.97 in mid-afternoon trading in New York, while Electronic Arts shares fell $1.06, or 1.9 percent, to $55.13.