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OPINIONS

Vivendi Games and Activision Merger
By: Barzan "Tony" Antal
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    2008-03-12

    Table of Contents:
  • Vivendi Games and Activision Merger
  • Introducing Vivendi and Activision
  • Let’s Talk Business
  • Our Analysis
  • Closing Thoughts

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    Vivendi Games and Activision Merger - Our Analysis


    (Page 4 of 5 )

    In this section we are going to discuss the effects of this Vivendi-Activision alliance, adopting the tone of a consumer-level user, but also an analyst in the field. This means that everything you’ll read here is nothing but opinions. Neither the future predictions nor the ideas regarding the further plans of any company should be taken for granted. So don’t buy shares based on our analysis!

    Oh, but wait! We promised a reality check. How old are you?! Say your birthday out loud. Now, think of an apple. How does a FedEx truck look? That’s enough!

    First of all, it’s quite evident that both parties are going to reap the results of this mega-merger. Vivendi no doubt feels powerful sporting the ownership and director majority. Then comes Activision, and to be honest, harvesting (or farming – to use a World of Warcraft slang term) gold from the excessively high revenue of Blizzard is something that every video game software company dreams about.

    Blizzard’s World of Warcraft is truely the chicken that lays golden eggs; pardon the comparison, gold mine sounds more appropriate. But we cannot forget that it is currently the number one subscription-based MMORPG, having more than 9.3 million players. Each WoW player is passionately paying the US$13-$15 (€11-€13) monthly fee. And the total number of players continues to increase. 

    Furthermore, Blizzard is one of the very few companies that hasn't received any assaults on their reputation. Their image is still flawless and outstanding. Simply put, throughout the years they have built a brand that exudes quality and trustworthiness. As a result, they enjoy an excellent reputation and name recognition with their customers, current and potential. 

    This is especially important when creating a new company. I guess that's why Vivendi opted for Blizzard as a suffix in the newly formed “Activision Blizzard” name. Keep in mind that Blizzard Entertainment is just a division of Vivendi Games. They could easily use the name of another division, such as Sierra, or just go with Vivendi.

    Nevertheless, none of the games that were developed by Blizzard Entertainment have faced any issues and they were instant successes. These games include Diablo, Starcraft, Warcraft, and the aforementioned World of Warcraft. They were and still are admired and respected mostly for their quality and revolutionary aspects.

    On the other hand, Activision developed video games mostly on the basis of brands that were already famous. They acquired the necessary intellectual rights to develop and publish games based on already successful movies. Here we can enroll titles like X-Men, Spider-Man, James Bond, and so forth. You see, that’s what we’re talking about.

    Needless to say, if you combine their experience, initiative, professionalism, and yes, also their budget, you end up with a quick success formula. As you can already expect, Activision Blizzard’s portfolio simply exploded and subsequently warned Electronic Arts. Add to this the fact that a new expansion pack for World of Warcraft, called Wrath of the Lich-King, is in development and should hit the market very soon. The same goes for the continuation of the famous Starcraft franchise; Starcraft II is coming in 2008.

    The time has come for us to talk about competition. What business analysis are we doing if we forget to cover the main competitors? So, let’s check out the top ten percent of the video-game industry. Yeah, I hear you — Electronic Arts, Ubisoft, THQ, Take-Two Interactive, Sony Computer Entertainment, and perhaps Microsoft Game Studios. We’ve intentionally left out Activision, as well as Nintendo and Sega (console market).

    As you can see from the above enumeration, the main competition is from EA and Ubisoft. Relax, Electronic Arts owns a 20% stake in Ubisoft, so that’s a start. Microsoft’s primary purpose never was the gaming industry, and neither was Sony's. Take-2’s subsidiary Rockstar Games shocks the public every now and then with the Grand Theft Auto series. Likewise, their other subsidiary 2K Games brings some profit.

    THQ’s portfolio is also impressive, holding various internally created and externally licensed content. Some of their titles include S.T.A.L.K.E.R., Warhammer 40,000, and numerous other franchises. They own more than a dozen studios. However, their annual revenue doesn’t match Electronic Arts’ yet.

    This means we can narrow down the competition to just Electronic Arts. Voila! Here, we arrived at the exact same situation that happened in the U.S. automotive industry. Sounds familiar? Two amazingly powerful and dominant corporations are setting the tone, defining innovation, competing with each other, and totally destroying the chances of other smaller companies to stand out. It's the beauty of business!

    Oh, and just to clarify the hype that’s surrounding Crysis — the manufacturer of Crysis is Crytek and they are indeed independent, but their publisher is Electronic Arts. Also, we cannot forget that not that long ago EA bought BioWare! Furthermore, we cannot exclude that EA has plans for Ubisoft. Acquiring only  an additional 31% of their shares would place them at a 51% (20+31) stake majority.

    All in all, this is akin to a heated competition. Apparently, everybody is awaiting EA’s reaction; however, publicly they have only wished success to the newly formed company. Of course, gamers should already know that competition is great for the consumers, especially since it “forces” companies to come up with quality new titles.

    Why did we place emphasis on the “quality” adjective? Well, we’re fairly sure that you have noticed the latest trend. The giants of the video game industry are somewhat relying on the principle of “build upon the past successes.” How many franchises put new titles on the market with a changed year number or perhaps make another version of the game, huh?

    Need a hint? Just think of Electronic Arts: FIFA, NHL, NFL, NBA, Need for Speed. Or what about Activision building games on already successful movie titles? We’ve already mentioned this. Blizzard Entertainment, Vivendi’s division, was always trying to put something new in the field — creating the WoW that exceeded expectations and then building on it by launching add-ons is simply a smart business model.

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