Stop me if you've heard this one before: An established company that's
losing market share is trying to buy a smaller, more creative
competitor. The second company spurned the offer, but it may just be
trying to get a better one; the first firm has a reputation for getting
what it wants. And the price might not be worth it, because the
problems of the first company can't be solved so easily.

I'm not talking about Microsoft's proposed merger with Yahoo but about the offer that video-game giant Electronic Arts just made for Take-Two Interactive, which makes the profitable and infamous Grand Theft Auto
games. Like Microsoft, EA dominates its industry with reputations for
commercial ingenuity and creative mediocrity — neither of which is
entirely deserved. Like Microsoft, Electronic Arts has recently been
dethroned — in this case by the merger of Activision and Blizzard. Both companies make massive amounts of money in areas where EA barely competes, Activision with Guitar Hero and Blizzard with World of Warcraft.

And, like Microsoft,
Electronic Arts is making its offer out of weakness rather than
strength. For years, the company was the leading third-party software
maker, relying on film tie-ins and sequels to build hit franchises. But
many of those franchises have run their course, gamers have grown sick
of movie games, and EA hasn't found many fresh ideas to offer. EA
expanded in a game business dominated by Sony's PlayStation and
PlayStation 2. For the next few years, gamers will probably be more
evenly divided among Sony's PlayStation 3, Microsoft's Xbox 360, and
Nintendo's Wii.

Like Yahoo, Take-Two has seen better days. The company relies on the popular Grand Theft Auto
franchise, and it suffered through various problems with stock
regulators over the past several years. About a year ago, however, new
management took over, the company's 2K Sports division is doing well, and it enjoyed a surprise hit with BioShock. Grand Theft Auto IV,
due out in April, could cement their comeback. Take-Two may not be
against the idea of selling to EA so much as against the idea of doing
so now — before a surefire hit drives up its stock price.

At the
risk of driving my metaphor into the ground, I don't think that EA can
solve its problems by buying Take-Two any more than Microsoft can fix
its situation by acquiring Yahoo. Like Microsoft, EA needs to learn to
compete in an industry where scale no longer leads to dominance — so
adding scale can't solve its problem. EA might well acquire some fresh
ideas, especially from RockStar, the Take-Two division behind Grand Theft Auto.
But not all of those ideas will work in a large company. The real
advantage for EA could be in 2K Sports, which would give it a virtual
monopoly in sports games — at least temporarily. But even that might
come at too high a price.