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Vivendi Leaving Blizzard in Cloud of Uncertainty

As the conglomerate looks to sell assets, a key firm in its PC games unit has been left to guess about its future. Four 'Diablo' creators have quit.

September 01, 2003|Alex Pham | Times Staff Writer

Players of Blizzard Entertainment's epic computer games operate in the "fog of war," with only a hazy notion of the dangers lurking around them.

The founders of Blizzard find themselves in a similar cloud of uncertainty.

Irvine-based Blizzard was put on the auction block earlier this year by the French conglomerate Vivendi Universal, which also is hoping to sell its U.S. movie studio, music company and theme parks. But there haven't been any takers for Vivendi's games unit, and the sale price has reportedly dropped. "We're used to having more control over our destiny," said Blizzard President Mike Morhaime, one of the studio's three co-founders, "and now we're just waiting."

Actually, the developer of the popular "Diablo," "StarCraft" and "Warcraft" game series is no stranger to uncertainty: It has had five corporate owners in 10 years.

But jitters over the future have taken a toll: Four key "Diablo" developers quit earlier this summer because of what they said was frustration over their inability to control their future. That left Blizzard's top-selling franchise without its creators.

"We've seen so much upheaval in the media and entertainment industry," said P.J. McNealy of American Technology Research, a San Francisco investment bank. "Now that turmoil is hitting the games space."

Blizzard is a key piece of Vivendi's video and computer games business, which had sales last year of $750 million, about 11% of Vivendi's 2002 revenue.

Although Blizzard has released just one new title this year -- an expansion to "Warcraft III" -- it accounts for 25% of Vivendi Universal Games' worldwide revenue.

"When new Blizzard titles come out, you're generally going to have a good year," said Luc Vanhal, president of Vivendi's U.S. games operations. Vivendi Universal Games also includes Universal Interactive, Fox Interactive, Sierra Entertainment and Knowledge Adventure.

Early on, Vivendi hoped to sell the entire games unit for $2 billion, but analysts say the price has fallen to about $800 million. Even so, there haven't been any offers, despite flirtations with game publisher Electronic Arts Inc. and Microsoft Corp.

Senior game industry executives describe Blizzard as Vivendi's juiciest games asset. Several publishers have explored purchasing the studio separately. But Vivendi, in need of cash to pay off debts, wants to shed the games unit in its entirety, industry executives say.

A Vivendi spokeswoman declined to comment on the negotiations.

Blizzard's three founders say their lack of control over the studio's fate is nerve-racking, particularly as Blizzard polishes its most ambitious project, the online "World of Warcraft."

"It's not what we're used to," said Morhaime, a programmer who worked briefly at Western Digital before joining former UCLA classmates Allen Adham and Frank Pearce to found Blizzard in 1991.

Each put up $10,000 and a few computers to launch what was then called Silicon & Synapse. The three engineering graduates started with contracts to translate existing titles for other game platforms. In 1994, they released their first original game, "Warcraft: Orcs & Humans," the first in a string of hits.

Adham, 36, attributes Blizzard's success to the fact that the company insists on hiring only gamers.

"That's the secret to our success," he said. "We're the target market. So what's mysterious to other companies is just intuitive to us."

That year, the trio sold their company for $7 million to educational software publisher Davidson & Associates Inc. Their relationship with Davidson executives Jan and Bob Davidson set the tone for Blizzard's dealings with four subsequent corporate owners.

"Bob and Jan never told us what to do," Morhaime said.

Neither did subsequent owners CUC International Inc., Cendant Corp., Havas or Vivendi.

And Blizzard cranked out hit after hit. Its three franchises -- 96% of whose fans are male -- have sold more than 34 million copies worldwide.

"We had a good track record," said Pearce, 35. "And that's what affords us the luxury of being able to do what we want, to ship our games when we want, when we feel they're good enough."

The amount of time Blizzard takes to develop titles is legend in the industry. Its first "Diablo" game shipped Dec. 30, 1996 -- after the holiday shopping season. But the game and its sequel have sold nearly 14 million copies.

"Diablo missing Christmas was the best thing that could have happened to us," Morhaime, 35, said. "It proved that it was way more important to make a better game than it was to release a game before it's ready."

Paul Sams, Blizzard's senior vice president, acknowledged that the studio, which releases a major title about once every two years, rarely gets its products to retailers on time.

"Every single one of our owners wanted us to ship in a particular time frame," Sams said. "And every owner has seen us not do that. But when we do ship, it tends to make believers out of them."

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