The Activision/Blizzard Merger: Five Key Points

Early on Sunday, a surprising press release debuted on the wires - one that revealed Activision and Vivendi Games were merging, in a complex, yet-to-be-approved deal that will end (providing regulators and Activision shareholders agree) with a 52% majority Vivendi-owned 'Activision Blizzard' entity trading on NASDAQ. But what are the major points and lessons we should derive from this mammoth deal? There are a plethora, of course, but here are some of the key points we think you should take from the Activision and Vivendi Games merger announcement: 1. Activision Is The Dominant Partner You can read this multiple ways, but in general, the company whose chief exec becomes CEO in a 'merger' such as this is in the driving seat, business-wise. One good, if more extreme example of this was the GameStop/EB 'merger', which concluded with the EB executives and name largely removed from positions of power in the company. In this case, Activision boss Robert Kotick will be President and Chief Executive Officer of Activision Blizzard, and Vivendi Games' Bruce Hack will be CCO of the combined company. Vivendi is still majority shareholder, but as for who's actively running the business - you do the math. 2. Blizzard - New Billing, Same Independence One of the intriguing things about the old Vivendi structure was that, even when Martin Tremblay joined to run Vivendi's publishing, it was specified: "World Of Warcraft creator Blizzard Entertainment has been designated a stand-alone division reporting to VU Games' CEO, and is not part of Tremblay's product development mandate." And it's the same deal, more or less, in the new system - Mike Morhaime will continue to serve as President and Chief Executive Officer of Blizzard Entertainment, and no explicit reporting structure is even discussed in the release. Blizzard will continue to plough its own furrow, then. 3. World Of Warcraft's Revenues: Absolutely Staggering And there's a reason why Blizzard have been and are left well alone - the clout that comes with this mindblowing statistic: "Blizzard Entertainment [which has "over 9.3 million subscribers" to World Of Warcraft] has projected calendar 2007 revenues of $1.1 billion, operating margins of over 40% and approximately $520 million of operating profit." This disclosure separates out Blizzard's revenue from Vivendi Games and Vivendi very explicitly, and shows why the division has been key to holding Vivendi Games together in recent years. 4. Vivendi's Non-Blizzard Assets? Way Downplayed One of the things that came up repeatedly in detailed responses to Game Developer's Top 20 Publishers Report was that Vivendi's non-Blizzard assets, which includes multiple development studios (Radical Entertainment, High Moon, Swordfish, Massive Entertainment) and publishing labels (Sierra, Sierra Online, Vivendi Mobile) have a relatively low profile, with confused brand messaging for the latter - and their relative unimportance (for now) is shown in this announcement. In fact, all that is commented regarding those elements of the business is: "Mike Griffith will serve as President and Chief Executive Officer of Activision Publishing, which after closing will include the Sierra Entertainment, Sierra Online and Vivendi Games Mobile divisions in addition to the Activision business." Sure, it's also noted: "Vivendi Games also owns popular franchises, including Crash Bandicoot and Spyro" - but those franchises are thus far past their prime, minus their original creators. 5. Electronic Arts: Still Bigger, Probably Worried While the release notes that the merger will be "creating the world’s largest pure-play online and console game publisher", with the "highest operating margins of any major third-party video game publisher", it sounds like Electronic Arts is still the largest - predicting net revenue of between $3.8 and $4.0 billion for its 2008 financial year, as opposed to $3.8 billion for Activision's (not concurrent) 2007 calendar year. [UPDATE: It's worth noting that this Electronic Arts revenue figure is excluding the impact of an account change on EA's part - thanks for pointing this out, PC World's Matt Peckham.] However, given that EA's BioWare/Pandemic and Mythic/Warhammer Online acquisitions were partly to plug a gap in the MMO and RPG genres - one that Blizzard is already a master in, then... It's perhaps not a worry for EA CEO John Riccitiello just yet, but rather a pause for thought.