Monday, November 03, 2008

Should Disney Acquire Electronic Arts?

The Wall Street Journal on Saturday, in the Heard on the Street column, speculated on the potential value that could be created if Disney were to make a bid for Electronic Arts. The column focused, in particular, on the fact that EA's stock price had been knocked down recently due to less-than-expected earnings. It's an interesting notion, given the links between the video game publishers and the creators of entertainment content, such as movies and music. Over the past decade, firms such as EA have become more dependent on the film companies, because they have been licensing more and more content for their games. Many entertainment companies, including Disney, have been forward integrating or looking at forward integrating into video game development. The increased dependency on the film studios, as well as the threat of forward integration, both have put pressure on the margins at video game companies such as EA. Perhaps there is some possibility here for a vertical integration play. Of course, there are always downsides to vertical integration. How would Disney handle the possibility of licensing deals with other video game producers? How would EA handle licensing deals with other film studios? At this point, it seems as though the Wall Street Journal report is not indicating rumors of a deal in the works; it appears to simply be a suggestion that this deal might make sense. It will be interesting to watch if anything comes of it.