Big media: Time to play games
The video-game business isn't child's play for big media firms like Viacom, News Corp. and Time Warner.
NEW YORK (CNNMoney.com) – Video games aren't just for sullen, antisocial teens. And big media companies have taken notice.
The deal is the latest in a flurry of acquisitions and investments made by large media firms, which are looking for new customers as more and more people seek alternative forms of entertainment on the Web and with handheld devices like cell phones and portable media players.
Time Warner's Turner Broadcasting System unit also launched GameTap, an online subscription service that features classic arcade and console games like Pac-Man and Sonic the Hedgehog, last year.
And News Corp (Research), which owns the Fox movie and television studios, bought IGN Entertainment, a company that owns several Web sites catering to gaming enthusiasts such as IGN, GameSpy and TeamXBox, for $650 million.
"The landscape is changing," said David Gosen, chief executive officer of privately held I-play, a London-based maker of games for cell phones.
Gosen said that he expects the big media firms to become even more interested in gaming.
He added that the market for mobile games tends to be evenly split between men and women. So mobile games could have a broader appeal to advertisers than the typically more male-dominated world of online and console gaming.
Another way to cash in on online ad growth
Alan Gould, a media analyst with Natexis Bleichroeder, thinks that it behooves big media firms to make more moves into gaming. For one, the core gaming crowd tends to be in the age group that is most attractive to mainstream advertisers.
"If 18- to 34-year olds are spending more time playing video games then that's where the media companies are going to go," he said. "These are content companies trying to attract demographics so gaming makes perfect sense."
Gaming sites like Xfire and IGN also could mesh well with other youth-oriented sites owned by major media companies. News Corp. has made the biggest splash in this area through its purchase last year of Intermix Media, the parent company of popular social networking site MySpace.
Viacom, meanwhile, has purchased online community site NeoPets and video streaming site iFilm.
Media firms are likely to make more acquisitions in the gaming area. In fact, online news site CNet Networks, which also owns video game site GameSpot, has often been mentioned as a possible buyout target for a larger traditional media firm.
"I think that it's wise for media companies to be interested in electronic gaming," said Dan Ahrens, manager of the Gaming and Casino fund, a new mutual fund (GACFX) that focuses on both video-game companies and casino operators. "Gaming revenue should continue to grow at a faster rate than the overall market so I'd expect more consolidation online."
But mergers won't be the only way for media giants to cash in on this business.
I-play, for example, has partnerships with several entertainment companies to make games based on TV programs and movies, including the hit Fox TV show "24" and Universal' Studios "The Fast and the Furious" franchise of films. Universal is part of NBC Universal, which is part of General Electric (Research).
Gould said that licensing may be a less expensive way for media companies to make money off of the gaming business.
But instead of buying a game publisher, Disney ultimately wound up announcing a 15-year deal last year with leading game company Electronic Arts that allows EA to make sports games using Disney's ESPN brand name.
"Acquisitions will depend on valuation," Gould said. "It could be better to just have licensing deals with gaming companies. It's all a function of the price."
Ahrens, whose fund owns a stake in Activision, thinks big media firms are unlikely to make a play for software developers.
"Smaller gaming companies are interested in partnering with larger media companies because of their brand-name content and online access. We'll see more partnerships than true acquisitions or mergers," he said.
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Gould owns shares of Viacom and News Corp. but his firm has no investment banking ties to the companies.