Activision Inc. and Vivendi announced a deal Sunday that would put "Guitar Hero" and "World of Warcraft" under one corporate roof and knock the king of the video game industry, Electronic Arts Inc., into second place.
Vivendi, the French conglomerate that owns Universal Music Group, said it would pay $1.7 billion in cash and contribute its Los Angeles-based games business, valued at $8.1 billion, for a 52% stake in a company to be called Activision Blizzard.
It would be worth an estimated $18.9 billion, eclipsing EA, which has a market capitalization of $17.7 billion.
"We believe the demographics and technology trends very much favor the development of games," said Vivendi Chief Executive Jean-Bernard Levy in an interview. "The growth in video games reflects a shift in where people spend their money to have fun."
Companies in the fast-growing games industry have been racing this year to get bigger so they can absorb skyrocketing costs in a business that sees as many hits as misses. With powerful new game consoles, including the PlayStation 3 and the Xbox 360, that can render movielike graphics, development costs have recently more than doubled to more than $25 million a game.
Activision's rivals -- Electronic Arts, THQ Inc. and others -- have diversified their portfolios of games as a cushion against the higher risks. Last month, EA said it would buy Pandemic Studios and BioWare Corp. for as much as $775 million in cash and stock. Activision has made nine acquisitions in the last five years, including its 2006 purchase of RedOctane Inc., which created "Guitar Hero."
If approved by regulators in the U.S. and Europe, the deal would be completed next year, the companies said. Like Santa Monica-based Activision, Activision Blizzard would be publicly traded, and Activision Chief Executive Bobby Kotick would remain as CEO.
Activision Blizzard would compete in nearly all genres, including music simulation, racing, action, sports and lucrative multiplayer online games. It would be positioned to take advantage of what Wedbush Morgan Securities has projected will be double-digit growth in the $40-billion global games market in the next year.
"It's a very complementary deal," said Michael Pachter, a Wedbush Morgan analyst. "Activision has virtually no online presence and very little in Asia, but Vivendi does. Vivendi also goes from being a minor player in packaged games to becoming a very formidable one."
