MOLI VIEW™

For years Electronic Arts has been the 800-pound gorilla of the video-game business. Other companies — Activision, Take Two, THQ — have vied for the next few spots in terms of market share, but none of them managed to mount a serious challenge. EA enjoys a steady stream of cash from yearly franchises of its Madden NFL games, and it has used its resources to score licenses of hot properties like Harry Potter and Batman.

Activision CEO Robert Kotick always talked about wanting to take EA's No. 1 spot, but few industry observers took him seriously until this year, when Activision's third edition of the Guitar Hero game emerged as a surprise smash, taking in $115 million in revenue during the last week in October. Still, it was hard to see how Activision could ever catch EA as long as that company kept minting money with Madden.

That's because no one expected Activision to join forces with Vivendi Games. In a deal announced Monday, Vivendi will acquire a controlling interest in Activision and merge its game unit into that company to create a new entity called Activision Blizzard, which Kotick will run. In terms of revenue, the new company will be even bigger than EA.

Game over? Not quite. Activision has been on a hot streak — and commanded a price accordingly — but it remains to be seen how much life it will get out of franchises like Guitar Hero and Call of Duty. Vivendi Games is also on a roll, almost entirely because of Blizzard Entertainment, which makes the hit game World of Warcraft. I've written about what an incredible business that is, since many users pay $15 per month to play and the game has 9 million subscribers. No other subscription-based game has come close to that success — which is one reason Activision wanted to get access to Blizzard's expertise. That doesn't necessarily mean that Blizzard can repeat its success. And though the company has another Starcraft game in the works, it will not have the same business model as Warcraft.
Meanwhile, EA's growth stalled as it milked dry franchises like Need for Speed and Medal of Honor; few companies can keep a good thing going forever. The exception is Madden, but that's based on real-life changes in a real-life game.
There's also the possibility that the entire industry is shifting. Electronic Arts came to dominate the games business during the heyday of Sony's PlayStation, which depended on third-party software makers for content. But the success of Nintendo's Wii has shaken up the entire business, in part because Nintendo has always dominated the market for Nintendo games. Third-party companies like EA and Activision work with Sony and Microsoft, but they compete against Nintendo.

Let the games begin again.

Robert Levine is the MOLI View's contributing editor for Technology.

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