Activision/Blizzard Merger Shows Video Game Industry Challenges

Activision Inc. had three of the top-10 video games in 2007 and over $1 billion in revenue. But it didn't have a big title in the fast-growing multiplayer online gaming market. It could only envy the leader, World of Warcraft, which boasts upward of 10 million subscribers spending $15 a month to play against each other in a scary gothic fantasyland populated with dwarves, gnomes, night elves and, of course, the undead.

In late 2007, Activision CEO Robert Kotick, the jolly-looking entrepreneur known as one of the smartest and toughest in the business, approached Vivendi Games, which published World of Warcraft through its subsidiary Blizzard Entertainment Inc. Kotick made an offer for Blizzard, but Vivendi countered by suggesting that the two companies merge ' with Kotick at the helm. The merger, which was completed in July 2008, created a publicly traded company, Activision Blizzard Inc., that is the most impressive video game business in the world ' running neck-and-neck in revenues with longtime leader Electronic Arts Inc. ' and surpassing it in profits. “Vivendi acquired a [60%] controlling interest in the new company,” says Wedbush Morgan analyst Michael Pachter, “for the sole purpose of getting Activision management to run the business.”

Adapting to Change

It wasn't just a desire to bulk up in size that prompted the merger. Kotick could see the Internet changing the rules of the video game industry just as it has so many others. Activision's games, like its top seller, Guitar Hero, are played mostly on dedicated gaming consoles, such as Sony PlayStation 3 and the Microsoft Xbox 360. But the market for multiplayer online games, which can be played on any computer, is growing even faster. Indeed, online games are the only way to make much dent in markets like China, where few players can afford a specialized console. There players gather in cafes to play online games on computers, racking up revenue for gaming companies by paying by the hour, or through micro-transactions like buying new clothes for their avatar.

Worldwide, the video game industry is enjoying an exuberant adolescence. By its broadest definition (which includes game hardware and in-game advertising), the video game industry takes in $60 billion a year globally, and is poised to soon overtake the movie industry's box office sales. Hudson Square Research analyst Daniel Ernst predicts a 15% growth rate this year worldwide, though the cratering economy is testing the reputation of video games as an entertainment option that consumers choose in a recession.

Within the entertainment industry, video games were long viewed as an uncouth stepchild, in part because of the genre's reliance on hard-core gamers ' stereotypically geeky young men who break only to grab a can of Red Bull. But the popularity of Nintendo's Wii console ' with a new kind of wireless controller that can detect movement in three dimensions and can be used as a virtual tennis racket or fishing pole in living rooms ' is widening gaming's appeal. Activision is riding the crest of that wave with Guitar Hero, which lets people play along on a plastic guitar to rock out to on-screen tunes. Since its launch in 2005, the game has sold over $1 billion at retail. For the 2008 holiday season, Activision released Madagascar 2, James Bond 007: Quantam of Solace, a highly praised World of Warcraft expansion-pack Wrath of the Lich King, and new versions of Guitar Hero and Call of Duty.

As in other entertainment, intellectual property ' the software itself and the characters, locations and music that inhabit the games ' is the heart and soul of the video game industry. And protecting that IP can be just as difficult and complicated as protecting music or movies. When Electronic Arts' highly anticipated Spore, which allows players to “evolve” a species from a single cell, was launched in September, for instance, it faced a fervent backlash ' including illegal downloads ' over what some users called its “draconian” digital rights management restrictions that allowed each user only three installs.

For now, at least, Blizzard has maintained its own legal staff of five attorneys at its headquarters in Irvine, CA, while an hour's drive north up the palm-tree lined 405 freeway is the combined company's corporate headquarters at Activision's offices in Santa Monica. Activision's legal department consists of eight attorneys, including general counsel George Rose, Gregory Deutsch, director of business and legal affairs, IP litigator Mary Tuck and antipiracy counsel Philip Terzian. Deutsch, who joined Activision eight years ago ' after stints at Procopio, Cory, Hargreaves & Savitch and Heller Ehrman ' is the legal point man on Activision's IP licensing deals.

Using Other Media

One clear benefit of the merger from an IP point of view is that it is easier for Activision to use the extensive music catalogue of Universal Music, which is also owned by Vivendi, without copyright haggling. “We can also do more sophisticated marketing,” Deutsch says. “It's not just licensing a song, but rather co-marketing to promote and break new bands, as well as existing bands' new music.” For the September 2008 release of Metallica's Death Magnetic album (distributed by Warner Brothers in North America and Universal outside of North America), Activision released the album via download through Guitar Hero. Deutsch says Activision is trying to incorporate Universal Music into many of its games, and has already done so with its Tony Hawk skateboarding and True Crime games.

But Deutsch still needs to keep rights flowing from other content and IP creators, including comic book companies and Hollywood studios. Activision has done major deals in recent years, for instance, with Dreamworks SKG, Hasbro Inc. and Marvel Entertainment Inc. These days, especially with adventure films, most contracts between the studio and the star actors have provisions addressing video game and other merchandising rights. Sometimes those contracts specifically leave the video game rights with the actor, as was the case with both Tobey Maguire in Spider-Man (released in 2007) and Hugh Jackman in X-Men (released in 2006). Activision had to go to those actors and deal. The negotiations primarily revolve around the fee, Deutsch says, but also involve the extent to which name and likeness rights will be granted: How will the actor's name be referred to in press materials? How prominent can each image and name appear? The deals also vary depending how much marketing and promotion an actor is willing to do for a game.

An Activision team made up of business unit leaders is responsible for each franchise, licensing executives and members of the legal department collaborates to put together and present a proposal to the movie studio and actors, who may be getting competing proposals from other game publishers. (Activision doesn't typically hire outside lawyers for its license negotiations.) Since games take 18-24 months to develop, says Deutsch, these deals are done a minimum of two years before the release of the movie ' and usually long before that. The video game company typically tries to time the video game's drop as closely to the movie release as possible. With games costing up to $30 million to make and $25 million to market, no publisher can afford to pass up the free advertising ride provided by the movie launch, which can be worth up to $250 million.

Terms of licenses for IP used in video games typically include field of use, duration and termination, plus geographic, warranty and indemnity terms. Field of use might permit a distributor to sell to retailers only and not directly to the consumer. Duration can also vary by party. The publisher, for example, can be licensed the right to distribute the game for a limited time while the end user may be granted a license to play the game for the rest of his or her life. Warranties can cover, for example, that the IP rights don't violate the IP rights of a third party.

International Gaming

Geographic licenses are typically used to publish internationally. Activision Blizzard licenses World of Warcraft in China exclusively to The9 Limited, a pioneer in online gaming there. (The name comes from the belief that MMPOGs ' massive multiplayer online games ' are the “ninth art,” in addition to the eight traditional arts, such as painting, music and drama.) Before the merger, Activision had just 3% of sales in Asia; the combined companies have more than doubled that, to 8%. “Working with a local partner is essential to success,” says Gregory Boyd, a lawyer at Davis & Gilbert who specializes in video game law. “The right local partner can get shelf space and knows where to advertise.”

Games also need to be localized, which means not only language translation but also adjusting cultural references. World of Warcraft has been localized to American English, English for the European Union, German, French, Chinese, Spanish and Russian, allowing American gamers to play with Russian friends, each gamer using his or her own language. “Localization is not a trivial task,” Boyd says. “When it gets messed up, you can really tell. Games with poor translation are mocked.” For instance, a translation appearing in the opening scene of the European version of Zero Wing, a Japanese video game, stated, “All your base are belong to us.” Through video game message boards, the phrase was bandied around the Internet.

As in the movie and music industries, in video games even top executives have a hard time predicting hits and flops. Activision gets flak from dedicated gamers for only wanting to spend money on games where the commercial value is almost guaranteed by a link to a Hollywood movie or by releasing new versions in a franchise ' not necessarily the way to maximize gaming creativity.

Keeping Development In-house

Most games are developed in-house, but for games developed with outside developers, Deutsch says Activision usually approaches a developer with an idea for a game, not the other way around. Activision's modus operandi with third-party developers is to hire them, and if they like them, later acquire them. Buying publisher Red Octane a year after it released Guitar Hero ' but before the game became a big hit ' is one sign of Kotick's acquisition acumen. Owning a development studio can be cheaper than contracting with it and has the bonus of locking a good developer away from the competition. For instance, in November, Activision acquired Iowa City, IA-based Budcat Creations, a studio that had been working with Activision since 2007, when it developed a version of Guitar Hero III for the PS2 console. (The firm has also worked with Electronic Arts on a number of sports titles, including the popular NASCAR and Madden football game series.)

When Activision acquires a developer, it typically buys any IP the company owns and honors any existing licenses to third parties. In some instances, certain IP of the target is excluded from the deal. The owners retain those rights and may “continue to exploit that IP outside of Activision,” says Deutsch. Not every studio wants to be acquired. For instance, Activision recently offered $105 million to acquire independent developer id Software, creator of Doom and Quake, but id turned Activision down, preferring to remain independent.

World of Warcraft was developed in-house by Blizzard before it was acquired by Vivendi, and the game has grown into a cultural phenomenon. Time named the developer, Blizzard's executive vice president of game design Rob Pardo, one of its 100 Most Influential People in 2006.

In addition to software sales and subscription fees, Blizzard charges gamers to move characters among servers and change characters' names. More revenue comes from licensing deals, with vendors including merchandising deals for clothing, card games, the annual BlizzCon conference, and ' yes ' $100 3-D figures based on a player's personally created character.

And that's just from the sanctioned relationships with Blizzard. A recently decided case in the U.S. District Court for the District of Arizona has established that a program created by MDY Industries that plays World of Warcraft when a human gamer is away from his computer infringes Blizzard's copyrights. (Players used the MDY's Glider program, which sells for $25 retail, to advance to higher levels of the game without having to do the more mundane “quests” themselves.) The court accepted the argument of Blizzard's litigators from Sonnenschein Nath & Rosenthal that the game's end-user license agreement was violated by such a computer application (known as a “bot” because the software made a copy of the game and placed it in the user's RAM) doing the work of a human. Judge David Campbell ruled that MDY was guilty of both tortious interference and copyright infringement, and awarded Blizzard $6 million in damages based on lost subscription fees and customer service time spent dealing with problems caused by the bot. See, MDY Industries LLC v. Blizzard Entertainment Inc., CV-06-2555-PHX-DGC (D.Ariz. 2008).

Protecting the IP

Activision antipiracy counsel Philip Terzian keeps an eye out for counterfeit versions of games at borders and monitors message boards, torrents and eBay for pirated games. When pirated goods are found, Activision usually takes civil action against the distributor, says Terzian, not end-users. Activision doesn't want to alienate consumers, he says. Six lawsuits were filed recently in the Central District Court of California for “copying and distributing” Call of Duty and Tony Hawk. Court records show that defendants were ordered to pay up to $100,000 each to Activision, which was represented by Mitchell Silberberg & Knupp. Most of the defendants represented themselves.

In China and other markets with a lot of online gaming, the publisher and distributor have to spend more energy on hacking risks and preventing security breaches than on typical counterfeiting issues. Now that even most video game consoles can connect to the Internet ' turning gaming into a more social experience and allowing advertisers to place ads in games targeting specific kinds of gamers on specific dates ' the video game industry is exposed to the same issues other digital media face from user-generated content. With the latest version of Guitar Hero, for example, Activision launched GH Tunes, which allows users to upload songs created using the supplied instruments. Activision has already had to act upon notices under the Digital Millennium Copyright Act from content owners claiming that their copyright has been infringed.

It hasn't all been songs and roses since the Activision/Blizzard merger. Vivendi-owned Sierra Entertainment, which was included in the merged company and creates console games, has faced financial problems. Many of its games, including Ghostbusters and 50 Cent: Blood on the Sand, have already fallen under the axe. While Blizzard maintained creative freedom, Sierra's games must be approved by Activision prior to development, and the business may eventually be up for sale. Guitar Hero is facing competition from Rock Band, Electronic Arts' music game, which launched in 2007. Rock Band, published by MTV Games and distributed by Electronic Arts, has sold 4 million units as compared with Guitar Hero's 23 million units, but Wedbush's Pachter expects the two games to have split the market 50/50 this past holiday season. Rock Band recently made a big noise by announcing a deal to license the music of the Beatles from their Apple Corps Ltd. for a future game, a particular coup because Apple, the computer company, has so far failed to capture that music for its digital music giant iTunes.

An Industry Watches

Activision Blizzard is shy when talking about its plans, but the industry is looking eagerly to see how Kotick integrates its two parts. Kotick is well aware of the threat and potential of online games, recently telling Portfolio: “Figuring out how to make the game experience more fun than any one of a hundred Facebook applications is going to be a challenge.”

Ultimately, most of the two companies will likely be merged. But don't expect big layoffs of lawyers. The business is big and challenging enough to keep all of them busy.

Theodora Blanchfield is a Staff Reporter for IP Law & Business, an Incisive Media affiliate of Entertainment Law & Finance.

Activision Inc. had three of the top-10 video games in 2007 and over $1 billion in revenue. But it didn't have a big title in the fast-growing multiplayer online gaming market. It could only envy the leader, World of Warcraft, which boasts upward of 10 million subscribers spending $15 a month to play against each other in a scary gothic fantasyland populated with dwarves, gnomes, night elves and, of course, the undead.

In late 2007, Activision CEO Robert Kotick, the jolly-looking entrepreneur known as one of the smartest and toughest in the business, approached Vivendi Games, which published World of Warcraft through its subsidiary Blizzard Entertainment Inc. Kotick made an offer for Blizzard, but Vivendi countered by suggesting that the two companies merge ' with Kotick at the helm. The merger, which was completed in July 2008, created a publicly traded company, Activision Blizzard Inc., that is the most impressive video game business in the world ' running neck-and-neck in revenues with longtime leader Electronic Arts Inc. ' and surpassing it in profits. “Vivendi acquired a [60%] controlling interest in the new company,” says Wedbush Morgan analyst Michael Pachter, “for the sole purpose of getting Activision management to run the business.”

Adapting to Change

It wasn't just a desire to bulk up in size that prompted the merger. Kotick could see the Internet changing the rules of the video game industry just as it has so many others. Activision's games, like its top seller, Guitar Hero, are played mostly on dedicated gaming consoles, such as Sony PlayStation 3 and the Microsoft Xbox 360. But the market for multiplayer online games, which can be played on any computer, is growing even faster. Indeed, online games are the only way to make much dent in markets like China, where few players can afford a specialized console. There players gather in cafes to play online games on computers, racking up revenue for gaming companies by paying by the hour, or through micro-transactions like buying new clothes for their avatar.

Worldwide, the video game industry is enjoying an exuberant adolescence. By its broadest definition (which includes game hardware and in-game advertising), the video game industry takes in $60 billion a year globally, and is poised to soon overtake the movie industry's box office sales. Hudson Square Research analyst Daniel Ernst predicts a 15% growth rate this year worldwide, though the cratering economy is testing the reputation of video games as an entertainment option that consumers choose in a recession.

Within the entertainment industry, video games were long viewed as an uncouth stepchild, in part because of the genre's reliance on hard-core gamers ' stereotypically geeky young men who break only to grab a can of Red Bull. But the popularity of Nintendo's Wii console ' with a new kind of wireless controller that can detect movement in three dimensions and can be used as a virtual tennis racket or fishing pole in living rooms ' is widening gaming's appeal. Activision is riding the crest of that wave with Guitar Hero, which lets people play along on a plastic guitar to rock out to on-screen tunes. Since its launch in 2005, the game has sold over $1 billion at retail. For the 2008 holiday season, Activision released Madagascar 2, James Bond 007: Quantam of Solace, a highly praised World of Warcraft expansion-pack Wrath of the Lich King, and new versions of Guitar Hero and Call of Duty.

As in other entertainment, intellectual property ' the software itself and the characters, locations and music that inhabit the games ' is the heart and soul of the video game industry. And protecting that IP can be just as difficult and complicated as protecting music or movies. When Electronic Arts' highly anticipated Spore, which allows players to “evolve” a species from a single cell, was launched in September, for instance, it faced a fervent backlash ' including illegal downloads ' over what some users called its “draconian” digital rights management restrictions that allowed each user only three installs.

For now, at least, Blizzard has maintained its own legal staff of five attorneys at its headquarters in Irvine, CA, while an hour's drive north up the palm-tree lined 405 freeway is the combined company's corporate headquarters at Activision's offices in Santa Monica. Activision's legal department consists of eight attorneys, including general counsel George Rose, Gregory Deutsch, director of business and legal affairs, IP litigator Mary Tuck and antipiracy counsel Philip Terzian. Deutsch, who joined Activision eight years ago ' after stints at Procopio, Cory, Hargreaves & Savitch and Heller Ehrman ' is the legal point man on Activision's IP licensing deals.

Using Other Media

One clear benefit of the merger from an IP point of view is that it is easier for Activision to use the extensive music catalogue of Universal Music, which is also owned by Vivendi, without copyright haggling. “We can also do more sophisticated marketing,” Deutsch says. “It's not just licensing a song, but rather co-marketing to promote and break new bands, as well as existing bands' new music.” For the September 2008 release of Metallica's Death Magnetic album (distributed by Warner Brothers in North America and Universal outside of North America), Activision released the album via download through Guitar Hero. Deutsch says Activision is trying to incorporate Universal Music into many of its games, and has already done so with its Tony Hawk skateboarding and True Crime games.

But Deutsch still needs to keep rights flowing from other content and IP creators, including comic book companies and Hollywood studios. Activision has done major deals in recent years, for instance, with Dreamworks SKG, Hasbro Inc. and Marvel Entertainment Inc. These days, especially with adventure films, most contracts between the studio and the star actors have provisions addressing video game and other merchandising rights. Sometimes those contracts specifically leave the video game rights with the actor, as was the case with both Tobey Maguire in Spider-Man (released in 2007) and Hugh Jackman in X-Men (released in 2006). Activision had to go to those actors and deal. The negotiations primarily revolve around the fee, Deutsch says, but also involve the extent to which name and likeness rights will be granted: How will the actor's name be referred to in press materials? How prominent can each image and name appear? The deals also vary depending how much marketing and promotion an actor is willing to do for a game.

An Activision team made up of business unit leaders is responsible for each franchise, licensing executives and members of the legal department collaborates to put together and present a proposal to the movie studio and actors, who may be getting competing proposals from other game publishers. (Activision doesn't typically hire outside lawyers for its license negotiations.) Since games take 18-24 months to develop, says Deutsch, these deals are done a minimum of two years before the release of the movie ' and usually long before that. The video game company typically tries to time the video game's drop as closely to the movie release as possible. With games costing up to $30 million to make and $25 million to market, no publisher can afford to pass up the free advertising ride provided by the movie launch, which can be worth up to $250 million.

Terms of licenses for IP used in video games typically include field of use, duration and termination, plus geographic, warranty and indemnity terms. Field of use might permit a distributor to sell to retailers only and not directly to the consumer. Duration can also vary by party. The publisher, for example, can be licensed the right to distribute the game for a limited time while the end user may be granted a license to play the game for the rest of his or her life. Warranties can cover, for example, that the IP rights don't violate the IP rights of a third party.

International Gaming

Geographic licenses are typically used to publish internationally. Activision Blizzard licenses World of Warcraft in China exclusively to The9 Limited, a pioneer in online gaming there. (The name comes from the belief that MMPOGs ' massive multiplayer online games ' are the “ninth art,” in addition to the eight traditional arts, such as painting, music and drama.) Before the merger, Activision had just 3% of sales in Asia; the combined companies have more than doubled that, to 8%. “Working with a local partner is essential to success,” says Gregory Boyd, a lawyer at Davis & Gilbert who specializes in video game law. “The right local partner can get shelf space and knows where to advertise.”

Games also need to be localized, which means not only language translation but also adjusting cultural references. World of Warcraft has been localized to American English, English for the European Union, German, French, Chinese, Spanish and Russian, allowing American gamers to play with Russian friends, each gamer using his or her own language. “Localization is not a trivial task,” Boyd says. “When it gets messed up, you can really tell. Games with poor translation are mocked.” For instance, a translation appearing in the opening scene of the European version of Zero Wing, a Japanese video game, stated, “All your base are belong to us.” Through video game message boards, the phrase was bandied around the Internet.

As in the movie and music industries, in video games even top executives have a hard time predicting hits and flops. Activision gets flak from dedicated gamers for only wanting to spend money on games where the commercial value is almost guaranteed by a link to a Hollywood movie or by releasing new versions in a franchise ' not necessarily the way to maximize gaming creativity.

Keeping Development In-house

Most games are developed in-house, but for games developed with outside developers, Deutsch says Activision usually approaches a developer with an idea for a game, not the other way around. Activision's modus operandi with third-party developers is to hire them, and if they like them, later acquire them. Buying publisher Red Octane a year after it released Guitar Hero ' but before the game became a big hit ' is one sign of Kotick's acquisition acumen. Owning a development studio can be cheaper than contracting with it and has the bonus of locking a good developer away from the competition. For instance, in November, Activision acquired Iowa City, IA-based Budcat Creations, a studio that had been working with Activision since 2007, when it developed a version of Guitar Hero III for the PS2 console. (The firm has also worked with Electronic Arts on a number of sports titles, including the popular NASCAR and Madden football game series.)

When Activision acquires a developer, it typically buys any IP the company owns and honors any existing licenses to third parties. In some instances, certain IP of the target is excluded from the deal. The owners retain those rights and may “continue to exploit that IP outside of Activision,” says Deutsch. Not every studio wants to be acquired. For instance, Activision recently offered $105 million to acquire independent developer id Software, creator of Doom and Quake, but id turned Activision down, preferring to remain independent.

World of Warcraft was developed in-house by Blizzard before it was acquired by Vivendi, and the game has grown into a cultural phenomenon. Time named the developer, Blizzard's executive vice president of game design Rob Pardo, one of its 100 Most Influential People in 2006.

In addition to software sales and subscription fees, Blizzard charges gamers to move characters among servers and change characters' names. More revenue comes from licensing deals, with vendors including merchandising deals for clothing, card games, the annual BlizzCon conference, and ' yes ' $100 3-D figures based on a player's personally created character.

And that's just from the sanctioned relationships with Blizzard. A recently decided case in the U.S. District Court for the District of Arizona has established that a program created by MDY Industries that plays World of Warcraft when a human gamer is away from his computer infringes Blizzard's copyrights. (Players used the MDY's Glider program, which sells for $25 retail, to advance to higher levels of the game without having to do the more mundane “quests” themselves.) The court accepted the argument of Blizzard's litigators from Sonnenschein Nath & Rosenthal that the game's end-user license agreement was violated by such a computer application (known as a “bot” because the software made a copy of the game and placed it in the user's RAM) doing the work of a human. Judge David Campbell ruled that MDY was guilty of both tortious interference and copyright infringement, and awarded Blizzard $6 million in damages based on lost subscription fees and customer service time spent dealing with problems caused by the bot. See, MDY Industries LLC v. Blizzard Entertainment Inc., CV-06-2555-PHX-DGC (D.Ariz. 2008).

Protecting the IP

Activision antipiracy counsel Philip Terzian keeps an eye out for counterfeit versions of games at borders and monitors message boards, torrents and eBay for pirated games. When pirated goods are found, Activision usually takes civil action against the distributor, says Terzian, not end-users. Activision doesn't want to alienate consumers, he says. Six lawsuits were filed recently in the Central District Court of California for “copying and distributing” Call of Duty and Tony Hawk. Court records show that defendants were ordered to pay up to $100,000 each to Activision, which was represented by Mitchell Silberberg & Knupp. Most of the defendants represented themselves.

In China and other markets with a lot of online gaming, the publisher and distributor have to spend more energy on hacking risks and preventing security breaches than on typical counterfeiting issues. Now that even most video game consoles can connect to the Internet ' turning gaming into a more social experience and allowing advertisers to place ads in games targeting specific kinds of gamers on specific dates ' the video game industry is exposed to the same issues other digital media face from user-generated content. With the latest version of Guitar Hero, for example, Activision launched GH Tunes, which allows users to upload songs created using the supplied instruments. Activision has already had to act upon notices under the Digital Millennium Copyright Act from content owners claiming that their copyright has been infringed.

It hasn't all been songs and roses since the Activision/Blizzard merger. Vivendi-owned Sierra Entertainment, which was included in the merged company and creates console games, has faced financial problems. Many of its games, including Ghostbusters and 50 Cent: Blood on the Sand, have already fallen under the axe. While Blizzard maintained creative freedom, Sierra's games must be approved by Activision prior to development, and the business may eventually be up for sale. Guitar Hero is facing competition from Rock Band, Electronic Arts' music game, which launched in 2007. Rock Band, published by MTV Games and distributed by Electronic Arts, has sold 4 million units as compared with Guitar Hero's 23 million units, but Wedbush's Pachter expects the two games to have split the market 50/50 this past holiday season. Rock Band recently made a big noise by announcing a deal to license the music of the Beatles from their Apple Corps Ltd. for a future game, a particular coup because Apple, the computer company, has so far failed to capture that music for its digital music giant iTunes.

An Industry Watches

Activision Blizzard is shy when talking about its plans, but the industry is looking eagerly to see how Kotick integrates its two parts. Kotick is well aware of the threat and potential of online games, recently telling Portfolio: “Figuring out how to make the game experience more fun than any one of a hundred Facebook applications is going to be a challenge.”

Ultimately, most of the two companies will likely be merged. But don't expect big layoffs of lawyers. The business is big and challenging enough to keep all of them busy.

Theodora Blanchfield is a Staff Reporter for IP Law & Business, an Incisive Media affiliate of Entertainment Law & Finance.