Wednesday, December 09, 2009

Should Film Studios Acquire Videogame Companies? has a short piece over at about whether film studios should acquire video game makers. Rolfe Winkler and Rob Cox write that:

The argument for entertainment companies buying video-game makers is compelling. Publishing video games is like making movies: Invest millions developing titles and pray for blockbusters... These larger groups could lay claim to content and corporate synergies that offset the volatility in performance of the film business.

I do think a strong argument exists for film companies acquiring video game makers. Disney owns a film studio and a theme park, thereby leveraging a common resource - i.e. its characters. Similarly, it could leverage characters developed in its film studio into the video game business as well. Some arguments can be made that integration makes sense, as opposed to always relying on licensing arrangements.

However, offsetting volatility is NOT a valid argument for acquiring video game firms. That argument smacks of the classic arguments for conglomerates, i.e. diversification of risk. Shareholders can diversify on their own; they don't need firms to do this for them.

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