By Louis Bedigian
If you can't beat ‘em…buy ‘em?
That's one philosophy the game industry has taken in the past. But if Activision (NASDAQ:ATVI) is indeed looking to buy Take-Two Interactive (NASDAQ:TTWO) – as a report by MCV suggests – you can bet that it has more to do with the decline of Guitar Hero than anything else.
Don't get me wrong: Activision has been struggling to make a Grand Theft Auto killer for nearly 10 years. Having canceled the long awaited follow-up to the True Crime series (Activision's own Grand Theft Auto wannabe), the Call of Duty publisher would definitely benefit from adding Rockstar's hit franchise to its portfolio.
But at this point, it really doesn't matter if Activision's next hit comes directly from an in-house studio or from a pricey acquisition. The reality is that the company needs to start releasing more hit games, and sooner rather than later.
While Spider-Man and other film and comic licenses have proved to be lucrative sellers for the publisher, their profits pale in comparison to what the Guitar Hero series brought in just a few years ago. And unlike Guitar Hero (which Activision owns), movie licenses are subject to the terms of the contract with a particular film studio. When that contract ends, you must either sign a new deal or lose the license, making it a difficult strategy for producing long-term hits.
Realistically, that could be a better approach for Activision, a company that has all but killed off its long-term success stories. Where's Tony Hawk? Nobody cares. But 10+ years ago, it was the talk of the town. Five years ago, it was still a respected franchise. Today, most consumers consider the franchise to be a joke. With numerous rehashes and overpriced peripherals, Guitar Hero's downfall happened almost as fast as its uprising. Now consumers have lost interest in the franchise.
Still, if Activision is determined to continue down the path to franchise exploitation, Take-Two would be a very compelling buy – and not just for the Grand Theft Auto series. Red Dead Redemption, AKA the western version of GTA, has sold more than 7.4 million copies worldwide. That's huge. Not only is it an enormous leap over the previous title (Red Dead Revolver), but it shows that Take-Two has what it takes to produce more than one mammoth franchise. It also shows that Take-Two is in it for the long haul. There are some publishers that would have ditched the Red Dead series, assuming that its peak had been reached several years ago. By standing by the franchise (and its developers), Take-Two has been rewarded with sales that others may have flushed down the toilet.
In addition to its open-world action games, Take-Two develops and publishes the whole line of 2K Sports titles, which include NBA 2K, NHL 2K, MLB 2K, and the currently defunct NFL 2K. That latter franchise, mind you, could very well be the reason why Electronic Arts (ERTS) fought to secure an exclusive deal with the NFL. Prior to the deal, NFL 2K had proved to be a formidable opponent to EA's Madden franchise, garnering praise from critics and massive sales from consumers.
Meanwhile, NBA 2K has all but dethroned EA's basketball franchise. Last year, EA tried to rebound with a new version of NBA Live (re-branded as NBA Elite), but ultimately pulled the plug on its release. NBA 2K11 then went on to sell around two million copies worldwide.
Further, Take-Two is also the publisher behind Max Payne, a well-known franchise that spawned a successful movie deal. And let's not forget about the Civilization, Manhunt, Midnight Club, and Serious Sam franchises. They may not be the biggest games on the planet, but they have been profitable before and have potential for the future.
Thus, if Activision acquired Take-Two, it would command three of the industry's leading franchises (GTA, Red Dead and BioShock), several niche franchises, and the only collection of sports games that has made EA weep.
In this scenario, however, Take-Two would lose its independence. It would lose the creative and executive freedom that allowed it to become the publisher that it is today. It would also put Grand Theft Auto in danger of becoming a franchise with too many (read: annual) releases – an Activision strategy that ran Tony Hawk and Guitar Hero into the ground.
If Activision could change its ways and take a different approach to game development (perhaps one that more closely resembles Take-Two's strategy), the rumored acquisition could lead to many great things. But at best, this would take a major player out of the industry. If in doing so another game franchise is ruined, or another hundred jobs are lost, then the merger won't prove to be beneficial to anyone.
Anyone, that is, except for those only seeking short-term gain without any regard for what happens in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.