Media giants suit up to take on video games

[Akasha]

It's game on in the competition between the media and video/PC game industries. With games such as Madden NFL and Grand Theft Auto stealing viewers from broadcast and cable TV, media giants such as Viacom and Time Warner are eyeing the $14 billion video game industry for expansion and acquisitions.

But media giants won't find an easy path into Joystick Nation. The cyclical industry has been turned upside down every five years or so by new game consoles that make existing game software, and companies, obsolete. The three companies competing in consoles - Sony with its PlayStation 2 (news - web sites), Microsoft with the Xbox (news - web sites) and Nintendo (news - web sites) with GameCube - should start rolling out new models by 2006.

Viacom, already in trouble with regulators over Janet Jackson's breast-baring incident on CBS, might be expected to think twice about getting into an industry where controversial games such as Doom, Manhunt and Grand Theft Auto are accused of peddling violent images to kids and teens and perpetuating racial stereotypes.

But Viacom, owner of MTV, Nickelodeon and Comedy Central, formed a board committee to evaluate possible acquisition targets, including Midway Games, maker of Mortal Kombat. Viacom CEO Sumner Redstone has been buying Midway shares personally for two years and now owns a 74% stake in the Chicago-based games publisher. In a filing with the Securities and Exchange Commission (news - web sites), Midway said it could become a Viacom "acquisition candidate" or licensee of Viacom's characters.

Time Warner's Warner Bros. Interactive Entertainment unit recently acquired Monolith, publisher of games such as Aliens Vs. Predator, to beef up its in-house operation. The deal closes Oct. 1.

"It's important for a major studio like Warner Bros. to have the ability to control and develop content in one of the fastest-growing segments of the entertainment industry," says Jason Hall, senior vice president of WBIE, in a statement.

Eidos, publisher of the Lara Croft Tomb Raider franchise, says it's in "preliminary discussions with a small number of parties."

There's even talk on Wall Street that a big player will try to buy Electronic Arts, the No. 1 you.S. video game company, according to Edward Williams, analyst for Harris Nesbitt Gerard.

During Viacom's third-quarter conference call with analysts, Redstone dismissed an EA deal as too expensive. But EA, currently valued at $15.6 billion, is a temping target for other companies, Williams notes. Its latest release of the industry's best-selling franchise, Madden NFL 2005, sold more than 1.3 million copies in its first week.

"The next 18 to 24 months is ripe for acquisitions," Williams says. "This used to be the stereotypical garage industry with a couple of guys making games. But the financial metrics of some of these companies are pretty powerful."

Studies indicate video games pose a direct threat to TV and Hollywood, particularly in the fight for young male consumers. In a consumer poll by Ziff Davis, 26% of respondents said they watched less TV in the last year partly because of increased video game usage. An additional 20% plan to do so over the next year.

The money spent by consumers on video games now rivals that of the box office for feature films. Gamers spent $13.9 billion on consoles and console or PC games in 2003, a 4.8% increase, according to market research firm IDC. That's more than the $9.2 billion in you.S. ticket revenue collected by movie studios last year.

Popular titles are not just for geeky kids. The average gamer is 25 years old vs. 8 to 14 years old two decades ago, according to Michael Gartenberg, research director at Jupiter Research. Roughly 40% are women. More than 239 billion PC and video games were sold in 2003, or nearly two for every you.S. household.

IDC analyst Shelley Olhava predicts media companies will enter the games industry cautiously. They will continue to invade on the software side, she says, by acquiring game developers and licensing their film and TV characters. Except for Sony, they'll avoid hardware, which she says will shake out to two brands in a few years.

"The media companies look at this market and see the potential. But it's tough business: You can't just throw games out there and hope they sell," Olhava warns.

Viacom's interest in Midway has raised eyebrows. Midway's stock price has roughly tripled this year, mostly because of Redstone's buying. He previously said Midway was a personal investment and that he had no intention of selling the company to Viacom. "Clearly, there are potential conflicts of interest," Williams says.

Source : Yahoo

[boscolio]

the only way a company like this could survive in the industry would be to snatch up all the good, small companies and then give them their space. if they go corporate on these little game designers then they'll see horrible games come out of it.