On October 27th I wrote a post entitled "Video Games Uber Alles" speculating that Activision (ATVI) and Electronic (ERTS) would be good acquisition candidates for other larger entertainment companies. I put my funny money where my mouth was when I purchased shares of ATVI on www.SocialPicks.com for $19 on November 20, saying that "Guitar Hero was ATVI's Grand Theft Auto." Now Vivendi Universal is buying ATVI for $27 and merging it with its great Blizzard Entertainment massive multiplayer franchise. (By the way, is that an amazing franchise? Blizzard is projected to have $1.1 billion in subscription revenues from 9.3 million World Of Warcraft gamers in 2007. Operating margins of 50%!)
Vivendi Universal understands the power and stickiness of these video gaming franchises understands that no media company of the digital age will thrive without gaming as a core competency. Video gaming, virtual worlds, social networks, Youtube, iTunes, Pixar, Kaneva, its all finally converging.
ERTS is still independent, has an amazing sports video game franchise and would make a nice fit for Disney (DIS)/Pixar/ESPN. It's new CEO from Elevation Partners is a deal maker, who obviously saw opportunity at his former employer EA. Now he's back to make EA a major force. Why else would you leave the cushy and lucrative world of private equity? EA under John Riccitiello has already purchased former Elevation video gaming companies Pandemic and Bioware for over $800 million. A few days before the Vivendi/Activision deal broke, Ricitiello was quoted saying most of the best independents had been bought up. So how do you make your mark and get ERTS stock out of its mid-50s malaise? You sell out to a big entertainment company like Disney or Sony (SNE) the way ATVI did.
So don't cry for Electronic Arts because it's no longer the undisputed VG leader or because it now has formidable foe in Blizzard and Activision. Rejoice because BIG media is finally waking up to the power and potential of a good video gaming franchise. ERTS is now in play.
