Game On!

Posted by Mike Walsh

1/13/05 6:43 AM

Some off the cuff remarks by Peter Chernin, COO of Newscorp, at a recent US investment conference had the Street murmuring that Murdoch might soon make a big play in the videogame space.

Its not the first time media giants have taken a long hard look at the industry whose blockbuster titles and revenues are becoming more and more like the movie and DVD business. Viacom came close to an acquisition of Electronic Arts last year, but ultimately baulked at a $20 billion price tag, which would have been highly dilutive of earnings. That leaves what may be the real Cinderella at the Predators Ball - Activision. As publisher of the Doom and Tony Hawk game series, Activision have close to $600 million in the bank, and based on their current capitalisation, could probably be digested for about $3 billion.

So why all the interest? Here are three possible reasons:

1. The business of movies and games is becoming more similar

There are a lot of similarities these days in the marketing approach for blockbuster games and movies - often because they are based on a similar franchise model. Hollywood studio execs know all to well that the business case for a blockbuster release makes a lot more sense when you have scope for a few sequels up your sleeve. The same goes for video games. Titles like Halo, Doom and Half Life lend themselves to multi year franchises - offering not only high margins but a clear development path.

Increasingly, game developers are also leveraging lucrative licensing deals with movie studios and intellectual property owners such as Marvel comics to tap into new franchise opportunities. Although a diversified media owner could potentially bring their existing content franchises to the table, there is a critical tradeoff between the money they could earn licensing this content to other players with less risk, and the return from developing and marketing a game series in house.

2. Games may be the next big advertising platform

There has been talk for a while about in-game video advertising, but the numbers are now starting to add up. Last year males 8-34 spent 30 billion hours watching TV. They spent the same amount of time playing games, although advertisers spent $8.5 billion reaching them on television and only $20 million on interactive entertainment. Activision are now working with Nielsen to develop a rate card for in game opportunities, and will begin implanting cookies in games to provide advertisers with a real time 100% sample of user interactions. People meters eat your heart out.

3. The industry is already consolidating

Truth is, with high barriers to entry and a wave of consolidations over the last few years - it will be very expensive for the media moguls to buy into the game industry with any degree of scale. Electronic Arts, as the 600 pound gorilla, already acts like a mini Napoleon. They recently acquired a large stake of Ubisoft, and seem to be making pre-emptive attempts to reduce the pool of available acquisitions for other players. In true mogul style, EA also recently resolved disputes in the sports game space by pulling out its cheque book and signing a multi million dollar, five year exclusive license with the NFL and its player associations. Moreover, its recent acquisition of UK developer Criterion also gives it control over RenderWare - the industry standard in cross platform development tools.

With the introduction this year of powerful new wireless mobile gaming consoles from Sony and Nintendo and worldwide broadband penetration rates nearing critical mass - there is no doubt that game publishing and distribution will be a key theme for media consolidation in 2005. But a cautionary note. Just like crippling acquisition of Atari by Warner Communications in the seventies which almost brought the business under - the real question as the gaming landscape shakes out will be who is playing who.


Topics: Media, Gaming

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