Vivendi a third wheel in the Activision Blizzard union

The games industry moves pretty fast, and there's a tendency for all involved to look constantly to what's next without so much worrying about what came before. That said, even an industry so entrenched in the now can learn from its past. So to refresh our collective memory and perhaps offer some perspective on our field's history, GamesIndustry.biz runs this monthly feature highlighting happenings in gaming from exactly a decade ago.

Activision Blizzard reshapes the industry

December is supposed to be a quiet time for news in the games industry. All the big holiday releases are out, offices are a skeleton crew of people who don't have any PTO left to take, and it often seems like everyone's quietly agreed to just hibernate until CES. That was not the case 10 years ago, when Activision and Vivendi Games announced a merger to form the world's biggest game publisher, Activision Blizzard.

It was a rare marriage between two titans of the industry simultaneously enjoying historic success. Activision had just launched Call of Duty 4: Modern Warfare, setting a template that the series (and the entire genre) would follow to great success for years to come. The rhythm game phenomenon was just starting to go properly mainstream with the release of Guitar Hero III: Legends of Rock, and previous flagship franchises Spider-Man and Tony Hawk were still relevant and contributing players in the catalog.

Vivendi's total return on its Activision Blizzard investment was about 3.5%. If an ordinary investor held on for the full decade and sold today, their return would be roughly 367%

On the Blizzard side of things, World of Warcraft was still in its ascendency an almost unheard of three years after launch, boasting 9.3 million subscribers at the time of the transaction, and seemingly spawning just as many doomed MMO projects from would-be competitors. The news from earlier in the year that Blizzard was developing Starcraft II just made the deal that much bigger.

And then there was the rest of Vivendi Games, which had recently released, um... F.E.A.R., that Scarface game, and some forgettable Spyro the Dragon and Crash Bandicoot titles.

In exchange for the Vivendi Games business (valued at $8.1 billion at the time) and $1.7 billion in cash, Vivendi would get a 52% stake in the combined Activision Blizzard, with Activision CEO Bobby Kotick at the helm and co-chairman Brian Kelly taking the same roles in the new company.

For all the success the combined Activision Blizzard had after the merger, one might have expected Vivendi to benefit a bit more handsomely from the deal than it did. Less than six years after the original merger, an investment group led by Kotick and Kelly purchased most of Vivendi's stake in Activision Blizzard for $8.2 billion. Vivendi would part with its remaining 12% of the company in a pair of transactions in 2014 and 2016 for a total of $1.95 billion.

All told, Vivendi essentially paid $9.8 billion to get into the Activision business in 2007, and had cashed out a total of $10.15 billion from the experience nine years later. You or I might be happy with an extra $350 million for a decade's investment, but Vivendi's return seems minimal considering how much Activision Blizzard has skyrocketed in value. Vivendi's total return on its Activision Blizzard investment was about 3.5%. An ordinary investor's return would have been about 31% if they sold when Vivendi started selling its shares. If that investor held on for the full decade and sold today, their return would be roughly 367%.

To be fair, selling Activision Blizzard was never the company's first option. Vivendi was €13 billion in debt when it started unloading its share of the publisher, and had been looking to sell off some of its assets for over a year at that point. It clearly hadn't soured on the games sector either, as it had already begun building up its stake in Ubisoft months before it finally sold its last piece of Activision Blizzard. These days Vivendi owns nearly 30% of Ubisoft, with a potential takeover attempt waiting in the wings.

Ripple effects

When a story as big as the Activision-Vivendi merger comes along, it tends to spawn plenty of reaction stories. In this case, that meant lots of talk about mergers and acquisitions for anyone in a position to buy or be bought. It was in this context that EA Partners' Nick Button-Brown said the publisher wouldn't rule out buying a few more promising developers, or as Bullfrog and Westwood fans probably interpreted it, "I have killed and will kill again."

"It would have to work for both parties. There are no hostile takeovers, it has to be right," Button-Brown said. "Look at Bizarre being bought by Activision. Bizarre were independent for so many years but then they felt like they wanted a little bit of shelter and it fitted."

With the benefit of hindsight, we know that Activision-Bizarre is not a good place to seek shelter. We also know the bit about "no hostile takeovers" was a bit questionable. After all, those comments were made while Electronic Arts held an unsolicited stake in Ubisoft of about 15%, prompting all sorts of speculation about an imminent hostile takeover attempt. And it was only two months after Button-Brown's comments that EA offered $2 billion to acquire Take-Two, and when turned down by Take-Two management, took that offer direct to shareholders.

EA never did get Take-Two, and Activision Blizzard held onto its title as the world's largest publisher (albeit with a variety of asterisks to omit platform holders, mega-corps that aren't exclusively involved in games, etc.). While it's tough to say what could have been, all three companies are noticeably better off today than they were 10 years ago, so we can say it worked out pretty well all the way around. (Although a Rockstar-developed Star Wars game would be pretty interesting...)

A Series of Increasingly Wrong Statements

• "We're focused on continuing to bring new brands and cutting-edge gameplay to market with the creation of the 2K Marin studio." - 2K Games president Christoph Hartmann announces the 2K Marin studio, which would go on to produce zero new brands and released BioShock 2 and XCOM: The Bureau Declassified before being shut down by the publisher.
• "I look forward to working with MTV Games to create new original game stories, always looking for ways to innovate the medium." - Hollywood producer Jerry Bruckheimer talks about the multi-game deal between his new development studio (which would never release a game) and MTV Games (which shut down as soon as the rhythm game bubble burst).
• "We are still very keen on establishing franchises - but we take the time in between those sequels to make the best possible game, not just another title of which the previous edition was out twelve months ago." - Ubisoft business development manager Fabrice Pierre-Elien, just as the publisher was about to release 10 stand-alone Assassin's Creed games on consoles over 10 years.
• "Today, I can officially announce that there is no uncanny valley any more, not in real-time." - Quantic Dream's Guillaume de Fondaumière hypes Heavy Rain.