Imagine the game industry dominated by two giants.
That's what could happen if Electronic Arts succeeds in its $2 billion attempt to grab Grand Theft Auto publisher Take-Two Interactive and Activision's planned merger with Blizzard goes through.
As in so many other industries, an EA/Take-Two merger would indicate massive consolidation, especially in the wake of the December announcement that media giant Vivendi was buying Activision to become Activision Blizzard. But gamers probably shouldn't worry that an industry pyramid dominated by EA and Activision will mean less innovation.
After all, even with a wide gap between the No. 1 and No. 2 companies and everyone else, it's important to remember that there would still be plenty of important and respected publishers: Disney, Ubisoft, THQ, Midway, and Infogrames, to name a few, not to mention Microsoft, Sony, and Nintendo.
Still, a successful EA takeover of Take-Two would have far-reaching effects.
"I think we're seeing further consolidation of companies capable of publishing and marketing AAA, expensive-to-develop games, which is to say, those that can cost $20 million or more to create, and as much again to market," said Simon Carless, publisher of both Game Developer magazine and Gamasutra.com. "However, there's still plenty of opportunity for diversity for smaller companies."
One reason Carless thinks small developers can maintain a valuable presence in the industry is EA itself. He points to EA Partners, Electronic Arts' internal development partnership division, as a publishing resource for small developers that have good games in the pipeline.
Additionally, he said, "They can even distribute digitally, which may not require using a publisher at all....So I think this shows that the next-gen retail publishing giants are still consolidating, but I don't believe it is bad for the future of gaming, because there are so many ways to distribute and play games. And digital distribution is starting to create somewhat of a more level playing field."
At the time the Vivendi-Activision merger was announced, it seemed the company could become the world's largest video game publisher, possibly eclipsing EA, which had held that No. 1 position for many years. It also was clear EA would have to do something big if it wanted to keep the undisputed top spot.
Whether the proposed Take-Two acquisition is a direct result of that dynamic--EA said in a conference call Monday morning that it had been talking to Take-Two's management for nearly a year, though it hadn't made any formal moves until at least December--if it goes through, the industry will be a bit top-heavy.
Still, there's no doubt that EA reclaiming its top-dog position does pose some danger to the industry, at least in the minds of those who have watched the company's performance and behavior over the last few years.
"The biggest concern gamers probably have on their mind is that EA has this image of...taking a (title) or franchise and running it into the ground," said Brian Crescente, editor of the popular video game blog, Kotaku.com. "For a number of years, any property EA got its hand on would eventually be burnt out."
But Crescente added that he thinks EA's 2007 reorganization, in which the company split into four distinct labels--EA Sports, EA Games, The Sims, and EA Casual Games--has begun to erode that dynamic.
"I think the whole movement toward the labels initiative that they announced is turning things around for them," Crescente said. "It's probably too early to tell if it's anything more than them paying lip service."
From the standpoint of the overall video game marketplace, Crescente did allow that the current environment--especially if either EA or some other major player, like Microsoft, buys Take-Two--is scary for small developers worrying if they can compete with such behemoths.
"This is a concern, and it's the continuation of a trend that's been happening for at least a year, if not longer," he said. "When you saw companies like Bioware and Pandemic getting bought up, it's pretty frightening if you're a developer."
And even if neither EA nor anyone else buys Take-Two, Crescente said the big companies are still going to be pushing a consolidation agenda. But that's not necessarily a bad thing.
"I think it's inevitable that these smaller companies are going to get bought out," he said. "What makes me feel better about it is that companies like EA and Microsoft are going out of their way to try and get people to do independent game development. At least we're seeing that they understand the importance of not just being one big faceless company."
More EA takeovers ahead?
And to be sure, EA is trying to lay the groundwork for its own continued gobbling up of small competitors, as well as by other big names.
"There's a long history of companies in position 4, 5, 6, 7," EA CEO John Riccitiello said during his conference call Monday morning. "This includes Infogrames, Midway, Acclaim, Giant Interactive....Companies that have strong cash flow positive experience every couple of years and lean times in between have had a very hard time surviving in this business and making the investment in infrastructure that EA's been able to make. They'll be acquired by somebody."
And there's no reason to doubt that he's right, given that there continue to be bigger and bigger deals in the industry and that consolidation seems to be the way of just about every kind of business.
Indeed, The New York Times suggested Monday morning that another big deal to expect in the weeks ahead might be a Disney purchase of THQ Interactive--publisher of such games as the WWE: SmackDown vs. Raw! wrestling games.
In fact, THQ's stock was up 9.53 percent Monday on news of EA's Take-Two takeover bid.
Another company whose stock was way up Monday was Take-Two. Its stock actually rose above EA's $26 a share, closing at $26.89, up 54.9 percent on the day.
"I think (that) shows two things," Crescente said. "One, shareholders, think (the EA bid) is great news. And it also shows that they think it's going to happen."