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troit · 01-21-2004, 07:23 AM

http://money.cnn.com/2004/01/20/comm...ming/index.htm

It's possible - if gaming companies are willing to make some bold moves.

Quote:

January 21, 2004: 8:30 AM EST

NEW YORK (CNN/Money) – The time has come for some of gaming's biggest companies to go on a buying binge.

Rather than further consolidating their own industry, though, perhaps it's time to focus on other forms of entertainment. Film. Publishing. Music. (But mainly film.)

It might sound a little hair-brained at first, but expanding into other realms is, in fact, a natural evolution for the industry. After all, Hollywood is converting games into films as fast as it can (witness the "Tomb Raider" series as well as pending development deals for "Doom", "Half-Life" and "Max Payne" among others). More and more games (such as "Halo") are spawning published works with original stories. And recording artists have been using games as the launching pad for original songs for years (heck, two tracks from the "NFL Street" game are being made into music videos).

Despite this cross-pollination of industries, gaming is still viewed as the secondary partner. Now, two entertainment conglomerates are looking to expand their turf somewhat by setting up video game divisions.

Warner Bros. (a corporate cousin of CNN/Money) got the ball rolling first, tapping game industry veteran Jason Hall to run its division and ensure, in short, that games based on its properties don't stink. Marvel Enterprises (MVL: Research, Estimates) followed suit the next day, with comics vet Ames Kirshen overseeing all games based on Marvel characters.

Both companies stopped short of announcing their own publishing division, but the announcements lit a speculative fire that mainstream media conglomerates could be setting their sites on buying into the gaming world.

"There are various interesting 'what if' pairing scenarios between the entertainment and videogame companies," RBC Capital Markets' Stewart Halpern wrote in an analyst's note. "THQ and Pixar (PIXR: Research, Estimates) are already in a strategic relationship, both lean toward a younger demographic and have good management complementarity; (Electronic Arts) and Time Warner (TWX: Research, Estimates) are already in business in a big way with the Harry Potter license as well as via AOL and the online games business; (Activision) has significant relationships with both Marvel and DreamWorks; the personality of (Take Two's) RockStar studio suggests a good fit with Viacom's (VIA: Research, Estimates) MTV unit; and it cannot be forgotten that Viacom's Sumner Redstone already personally owns approx. 30 percent of (Midway Games (MWY: Research, Estimates))."

These are all good points, which is why I think it's in the gaming industry's best interest to turn the tables.

Gaming companies aren't small organizations. Electronic Arts has a market cap of $14 billion. Activision's is a smaller, but still significant, $1.7 billion. And Take Two (TTWO: Research, Estimates) is a close third with $1.4 billion.

More columns? Click the shades.

Now, granted, those numbers aren't near high enough to buy a conglomerate like Time Warner or Viacom, but there are smaller film studios who could be approachable. If not, there's always the possibility of buying an individual studio from one of the bigger Hollywood players.

Gaming companies have enormous creative resources from which to draw ideas. Pooling those resources with the creative minds at existing film, publishing or recording studios could help open up new avenues of entertainment. (And let's face it, how many more sequels and remakes can we stand?)

Obviously, I'm not advocating game developers replace Martin Scorsese. And while I love the work Warren Spector has done on "Deus Ex", I can't really picture him as the lead actor in anything. Nor do I want to hear (under any circumstances) Sid Meier, the creator of "Civilization" and "Pirates!", belting out any of Barry White's greatest hits.

But there would be several advantages. First and foremost, gaming companies would save tens of millions of dollars in licensing fees. The last few years have seen phenomenal bidding wars for the rights to high-profile projects, such as "Harry Potter" or "The Matrix".

Activision (ATVI: Research, Estimates) reportedly paid $10 million for the rights to make games based on the Spider-Man films. EA (ERTS: Research, Estimates) is whispered to have paid up to twice for both the Harry Potter and Lord of the Rings franchise rights. THQ (THQI: Research, Estimates) leads the pack, though. The company is rumored to have paid Pixar $250 million for the rights to Finding Nemo, The Cars, and The Incredibles.

The closer coordination between game and film studios would also undoubtedly result in higher quality games based on films (and films based on games, for that matter). So far, there have only been a few examples of this happening (most notably last summer's "Enter The Matrix"). The results have been far from perfect, but have shown creative promise – and boasted substantial financial numbers.

On the publishing side, there's a built in audience for stories about the heroes of these games. Lara Croft as a video game property sure seems to have breathed her last breath. And I suspect we won't see Angelina Jolie putting on the short-shorts anytime soon, either. But continuing her adventures in a pulp fiction series could help revive the brand.

Music? Release those songs only available in video games as singles. You'd not only see sales of the game bump up, you'd be recouping your investment via royalty fees. Need a mental picture? Imagine if OutKast's "Hey Ya" had been exclusive to "Madden 2004".

Yes, the game industry and other forms of entertainment have traditionally mixed about as well as filet mignon and chocolate sauce. But if, in fact, the tide is shifting, isn't it better to be the one in charge of your own destiny?

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