This week the Activision Blizzard merger, which created the second largest video games empire in the world, after EA games, was completed, and the CEO was telling journalists that the next step is to take on iTunes with its Guitar Hero franchise. The transaction was approved by Activision’s stockholders at a special stockholder meeting on July 8.
Once talking of taking on iTunes would have been an empty threat, but now that the company is owned 52% by the holding company of the biggest record label in the world, Vivendi Universal (Universal Music Group) that threat has to be taken at least semi-seriously and even if the company is unable to make a huge dent in iTunes, that doesn’t mean that a game which allows people to play along with their favorite music, which has so far shipped in excess of 20 million units, can’t also ship 20 million music buying relationships, fronted by the UMG catalogue. That wouldn’t kill iTunes, but it might make the company a lot more money.
The deal was announced back in December when Vivendi swapped its own Vivendi Games arm plus $1.7 billion of cash, for a 52% holding in Activision Blizzard in a transaction which the company said was worth $18.9 billion, including debt. Today the merged entity is trading at a market capitalization of some $10.6 billion.
‘The completion of this transaction marks the beginning of an important new chapter in the history of interactive entertainment,’ said Robert Kotick, President and Chief Executive Officer of Activision Blizzard.’By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard has leading market positions across all categories of the rapidly growing interactive entertainment software industry. With more than 10.7 million subscribers on World of Warcraft, and with tens of millions of people playing Guitar Hero, Activision Blizzard’s games are transcending the traditional stereotypes and are more popular as a form of entertainment than ever before.’
With that kind of weight behind it, there was always going to be some major moves afoot to leverage from its existing game brands which including World of Warcraft. Guitar Hero, Call of Duty, Tony Hawk, Crash Bandicoot and the new King Fu Panda.
Already Guitar Hero has bolstered digital music sales of featured artists but there were no details of how the transition into an iTunes rival would be achieved, so watch this space. But in terms of financial performance, Activision Blizzard has just raised its estimate for revenues for the coming quarter, to $650 million from analyst estimates of $516 million and its own earlier estimate of $500 million.
The other major public US gamer, Take Two Interactive, riding high after its 4th edition of Grand Theft Auto emerged this Summer, has been under hostile merger threat from EA, a move which if completed would once again leave Activision Blizzard in a remote second place. While we have never considered the chance that the bid for Take Two would be successful, coming as it did prior to the hugely successful release of the GTA 4 game, its share price is still underneath the share offer of EA $24.45 a share currently valuing the company at $1.9 billion, while the EA bid is at $25.74 per share in cash.
If Take Two was ever to need a white knight, that would leave Activision Blizzard well placed to give Take Two an alternative and leapfrog EA as the global number one gaming specialist. Of course this is not going to happen, given that there are only a handful of acceptances of the EA offer so far.