Activision-Vivendi deal heralds a consolidation phase in the gaming arena

The mammoth and intensely complex $18.9 billion (Rs74,420 crore) tie-up between video game developer and publisher Activision  and French media conglomerate Vivendi shows that video game publishers are looking to consolidate to cover the rising costs of developing games, which now reach tens of millions of dollars.

The merged company, to be called Activision Blizzard, will start with 15 per cent of the worldwide games market, including PC and console games. In 2006, the total video game market was worth some $28 billion. Activision Blizzard''s revenues for 2007 are expected to be about $3.8 billion.

The future of gaming, it seems is moving towards trendy online, multiplayer games such as Blizzard Entertainment’s popular fantasy game World of Warcraft — a Vivendi subsidiary — which has 9.3 million subscribers. It will now be owned and operated by the new joint venture.

Once approved, this deal will effectively realign the industry landscape, creating two massive gaming heavyweights with similarly matched creative clout and global distribution.

But its main rival Electronic Arts (EA), which expects to report 2007 revenues of $3.2 billion, is also retooling its games portfolio to include more online multiplayer games and original content. In October, EA acquired two independent games studios for $860 million.

One of them is developing a massively multiplayer online game, or MMO, which analysts and industry insiders say could challenge World of Warcraft. Earlier, in 2006, EA spent $76 million to acquire Mythic Entertainment, an independent developer of online games.

Activision Blizzard and EA are positioned to achieve greater economies of scale for increasingly costly development budgets for all types of games. Blizzard''s expertise in providing support services for maintaining subscriptions to online games can help Activision develop more online offerings.

Its popular console titles like Guitar Hero and the Tony Hawk skateboarding games could be turned into lucrative multiplayer online franchises. Blizzard''s titles are undoubtedly the most successful Western online games in booming Asian markets like China and Korea. The company''s expertise in marketing to audiences from emerging markets could help open new revenue streams for Activision titles.

Venture capital (VC) players are also showing more interest in socially oriented multiplayer online titles. In October, VC firm Mayfield Fund, which previously restricted itself to biotech and tech companies, announced its first multimillion-dollar investment in online multiplayer games.

The firm is investing in California-based Acclaim Games, a private maker of MMO titles like robot-fighting game Bots, released last year. Acclaim''s CEO is Howard Marks, a co-founder of Activision. The gaming space, it seems, is wide open for new revenue models.