Activision Blizzard

December 2, 2007 - Until today, Sunday wasn't generally regarded as a big news day in this industry. But that changed this afternoon when Vivendi and Activision announced that they were joining forces to create the largest game publisher in the world. The new company, Activision Blizzard, will not only own some of the most prestigious brands in gaming (Warcraft, Call of Duty, Guitar Hero, Crash Bandicoot, and others) but will also have a tremendous PC/console diversity in their catalog and stronger penetration into Asian and online markets.To get a few more details on this deal and to find out just what it means for the Blizzard brand in particular, we recently spoke with Blizzard Entertainment's president and CEO Mike Morhaime.IGN: Thanks for joining us, Mike. I know you're busy today so we won't take up too much of your time. Tell us in general terms what this is all about.Mike Morhaime: Basically, Vivendi announced earlier today that it's going to be contributing Vivendi Games, which includes Blizzard, valued at 8.1 billion dollars plus 1.7 billion dollars in cash in exchange for 52% of Activision Blizzard, which will be the new company once Vivendi Games is injected into Activision.If you look at Activision and Vivendi Games, I'm sure you'll notice that they're very complimentary businesses. Activision has a firm track record on the console side of the business with very strong franchises like Guitar Hero, Call of Duty, and Tony Hawk. Blizzard Entertainment is number one on PC and online. We've got the number one MMORG in the world with over 9.3 million subscribers. We have great geographic penetration in North America and Europe and we're the only western publisher that has a significant penetration in to Asia. We have the number one brand in Korea, China and Taiwan. So when you combine these two companies together, what you get is the world's largest and most profitable video game publisher that is the leader across all platforms, all categories and all geographies.From a development standpoint, at Blizzard Entertainment one of our values of course is commitment to quality. Activision is structured with independent studios and they give their independent studios quite a bit of autonomy. They believe very strongly, like we do, that the way to run a successful business in this industry is through developing high quality games. That's the only way to develop long-term value in your franchises and your businesses. Ultimately the only way to win is to create great games. I think that the combination of these two companies provides us with a very diversified, stable structure with which we can reward talent and continue creating awesome games.IGN: We saw in the release that Vivendi could own as much as 68% of Activision Blizzard by the time the deal is over. Who actually is in charge and what's the management system like? Do you think the new management will preserve the independent approach to managing their developers?Mike Morhaime: When you say "managing their developers," the Blizzard Entertainment structure remains unchanged. I will remain president and CEO of Blizzard Entertainment reporting to Bobby Kotick who is CEO of Activision Blizzard. As far as development and publishing, Blizzard Entertainment will continue to be a publisher of computer games and will continue to be developing and maintaining our intellectual properties as we always have.IGN: Do you know if the new company is planning to publish titles under the Sierra or Vivendi brands?Mike Morhaime: That, I don't know. I think that there's going to be a lot of discussion about what the brand strategy will be going forward. On the Blizzard Entertainment side it's very clear that the branding strategy is what it's always been. The Blizzard Entertainment brand will remain unchanged.IGN: Do you anticipate that Activision Blizzard will gain access now to some of Vivendi's television and film properties that aren't a part of the deal?Mike Morhaime: I don't know about television or film but I do know that Doug Morris [Chairman and CEO of Universal Music Group] will have a seat on the Activision Blizzard board so there are potential opportunities with Universal Music for things like Guitar Hero.IGN: Are there any plans to cut divisions or staff that have been made redundant by the two companies coming together?Mike Morhaime: I think it's really too early to talk about stuff like that. I do know that's not our reason for doing the deal. We felt that the two businesses are very complimentary and I think there's going to have to be an evaluation of projects that are in development and there will be a green light process going forward. Projects that don't look like they're going to be profitable won't get green lit.IGN: The deal indicates that Vivendi as it currently stands is worth 8.1 billion dollars. What's the value of the new combined company?Mike Morhaime: We're estimating the value of the new company at 18.9 billion. The way we calculate that is 8.1 billion dollars plus 1.7 billion dollars in cash divided the stake that Vivendi will be receiving which is 52%.IGN: How long has this deal been in the works? Who approached whom?Mike Morhaime: There have been discussions going on for the better part of a year. Originally Bobby Kotick gave Bruce Hack, CEO of Vivendi Games, a phone call. They met for lunch to chat about potential things the two companies could do together. Very quickly, it became very clear to both of them that there was a potential opportunity to combine the businesses because they were so complimentary.Then Vivendi was brought in and met with the Activision guys and was very impressed. I've met several times with the Activision guys and we've talked at length about Blizzard's philosophy on game development and game publishing and all the things that are important to us at Blizzard. We found that we shared a lot of the same values. We feel pretty comfortable with the Activision executives and feel like they're going to continue being supportive of the way that Blizzard Entertainment runs their business. IGN: It sounds like there are plenty of advantages to the deal. Is there anything about being part of an even larger company that you feel you'll need to watch out for in the future?Mike Morhaime: There isn't really anything right now. I think the biggest change for us is more spotlights from financial press, which we really haven't had to deal with in the past because we've been really insulated from that in the past. One of my jobs as CEO of Blizzard Entertainment is to insulate the developers from that distraction so we can focus on making games like we always have.