Activision Blizzard Merger Case Study Analysis
CASE 3-8: The Activision Blizzard Merger
In December of 2007 the merger of Activision and Blizzard was announced. Blizzard Entertainment, one of four divisions of Vivendi games, was the key ingredient for synergy between the two firms. First, an introduction to the video game software industry is pertinent. This will be followed by some discussion regarding the major trends and major players in the industry. Second, some insight will be provided on the merging companies, Activision and Blizzard. Third, the potential value of the merger will be explored, along with some analysis of the partnership. Lastly, I will give my personal views of the merger itself.
The Industry, domestically the video game software industry was worth $9.5 Billion in 2007, with expected growth to be $12.5 Billion in 2011. Projections for growth were even larger in international markets, with emphasis on Asian countries. There are two basic forms of hardware that can be used to play a video game a computer, or a gaming console, like an Xbox. Some hardware makers also make their own software, but the most successful games usually come from developers, or third-party software manufacturers. Developers specialize in the development of the games itself, leaving the sales and distribution to publishers. Historically the two branches of the value chain were separate, but as the industry evolved and as we dissect the case study, the economic efficiencies to be gained by combining both efforts under one company will be realized. Some problems with independent software development include the potential risk for a game, or piece of software to be a failure, and not sell. This puts enormous pressure on the firm to develop successful games, because a lackluster game could lead to economic loss if the development costs prove to be more than the revenues. Other problems include finding the right partnership between developers and publishers, as the two companies’ goals may not always align.
In December of 2007 the merger of Activision and Blizzard was announced. Blizzard Entertainment, one of four divisions of Vivendi games, was the key ingredient for synergy between the two firms. First, an introduction to the video game software industry is pertinent. This will be followed by some discussion regarding the major trends and major players in the industry. Second, some insight will be provided on the merging companies, Activision and Blizzard. Third, the potential value of the merger will be explored, along with some analysis of the partnership. Lastly, I will give my personal views of the merger itself.
The Industry, domestically the video game software industry was worth $9.5 Billion in 2007, with expected growth to be $12.5 Billion in 2011. Projections for growth were even larger in international markets, with emphasis on Asian countries. There are two basic forms of hardware that can be used to play a video game a computer, or a gaming console, like an Xbox. Some hardware makers also make their own software, but the most successful games usually come from developers, or third-party software manufacturers. Developers specialize in the development of the games itself, leaving the sales and distribution to publishers. Historically the two branches of the value chain were separate, but as the industry evolved and as we dissect the case study, the economic efficiencies to be gained by combining both efforts under one company will be realized. Some problems with independent software development include the potential risk for a game, or piece of software to be a failure, and not sell. This puts enormous pressure on the firm to develop successful games, because a lackluster game could lead to economic loss if the development costs prove to be more than the revenues. Other problems include finding the right partnership between developers and publishers, as the two companies’ goals may not always align.