Regular readers here will be totally unsurprised at this news. Let’s look at the background. There are three fundamental factors at work here.
Firstly the big global media companies like Vivendi (OTCPK:VIVEF) , Warners (NYSE:TWX) and News Corporation (NASDAQ:NWS) are investing very heavily in gaming, which you can read about in this article. They have no option, it is a matter of survival, because gaming (due to fundamental and innate advantages) will grow to be the biggest media business and, in doing so, will supplant older media to a significant degree.
The second reason is that gaming is set to grow 40% in two years, which is covered in this article. Maybe even more with the Nintendo (OTCPK:NTDOY) effect and iPod joining the market as a platform. This makes companies a lot more valuable when the city/street look at their future earnings.
Thirdly, game publishing works with massive competitive advantages of scale. A publisher who can guarantee over a million sales, due to global distribution and quality marketing, before they even start work on a game, has an immense advantage over a publisher that struggles to get to half a million sales with a game of similar quality. Industry insiders will be able to point at lots of examples of this. This scale advantage means that when the dust settles there will only be a handful of global publishers, just as in the music and film industries. Survival, just now, is best served by takeover and merger. Especially cross border.
As ever, there are a couple of caveats to the above. Firstly there could always be a role for niche publishers who cater for genres and platforms that the big boys cannot be bothered with. Secondly digital distribution could upset the whole applecart by removing publisher advantages of scale. In fact it could make publishers redundant. Just look at Valve and their Steam system for a glimpse of where this is going.
Now let´s look at the fallout this has brought to another area, developer consolidation. Here we are seeing three things happening.
Firstly the big global media companies are buying up development capacity. They own the IP but they need the bodies to convert that IP into games. They could do it the hard way by setting up studios from scratch, but they realise that this is a race for survival, so speed is of the essence. Hence good, ready made teams are now very, very attractive. As in the Warners takeover of Traveller’s Tales.
Secondly you have the existing specialist game publishers realising that they are going to be starved of IP as the big media companies keep it for themselves. So developers with their own IP have become extremely valuable. We saw this with the Electronic Arts (ERTS) acquisition of Bioware and Pandemic.
Thirdly Nintendo, Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) are always looking for AAA platform exclusive content. If that means they have to buy studios, then they have many times before and presumably will continue to do. As I say continually, we live in very interesting times.