Individual Questions for Case Analysis
Activision was one of the leaders in content development and publisher of interactive software for various game platforms. It had generated $1510 million revenue in the year 2007 with record increase in net income by 115%. Company’s success lies in the creating sequels.
Vivendi Games was one of the diversified groups of companies in the entertainment industry. It acquired two video game developer companies mainly Sierra and Blizzard in the year 1998. Blizzard was known for its subscription based business model. This case is based on the merger of Activision and Blizzard which created a unique competitive advantage in the video gaming industry.
This case is about entertainment industry and more specifically about video games software and publishing companies generating revenues from various sources. It also included selling it to the individual play stations. This case focused on the video games software industry which was growing at a very fast growth rate and expecting a huge potential and enormous growth in next few years.
Many companies sharing their position in the industry in which Activision and Vivendi games were the major players facing competition from THQ Inc., EA games, and Take Two games. Sony and Microsoft were also have their own in the house production division for the video games software development.
Q1. Assess the strategic relatedness between Activision Inc. & Vivendi Games (FTC Categories or Lubatkin’s Model). Identify the competitive implications (e.g. competitive parity, temporary CA, sustained CA) of the merger with respect to economies of scope?
Answer: Assessment of strategic relatedness between Activision Inc. and Vivendi Games as follows. Strategic relatedness is used to assess the commonness in using competences and skills at corporate level.
Activision Inc. and Vivendi Games both were having different strategy and operating model to run their businesses. Activision believes in acquiring strong brands in video games which are having potential for franchise operations with sustainable brand recognition and able to attract customers. Activision Inc. also emphasize on the strategic alliances with content developers and software developers with significant intellectual property potential to get the license agreement with them. This strategy made Activision a world leader in video games industry. In the year 2007 Activision reported $1510 million revenue with record 115% growth in the profits.
Vivendi Games was a diversified group of companies in the entertainment industry. Vivendi entered into video games industry by acquiring Blizzard and Sierra in the year 1998. Blizzard was one of the most successful divisions of Vivendi group with the development and publisher of its best-selling franchise of Warcraft, Starcraft, Diablo and World of Warcraft. In 2007 Only Blizzard Entertainment registered $973.95 million revenue with 40% growth in profits.
Strategic Relatedness between Activision and Vivendi were the creation of Activision Blizzard due to complimentary nature of portfolio of games. License content and repetition of hit video games sequels by Activision and success of World Craft developed by Blizzard and its subscription base helped to sustain revenue and profits year by year.
Competitive implications of the merger of Activision and Vivendi increased with respect to economies of scope due to proper planning and complementary services. The temporary competitive advantage (Temporary CA) of the merger was that both Activision and Vivendi operating their business in diversified areas and with different business operating model helped them to create synergy instantly. As far as sustainable competitive advantage (Sustainable CA) is concerned content specialty of Activision helped the merger to reduce their dependence on content owners and subscription based revenue model along with marketing experience of Blizzard in Asian market helped them to dominate the market to become the indomitable in the industry. Competitive parity is a method which is used to allocate the advertising and promotional budget as compare to its competitors. In this case advertising and promotional budget of not even a single company has disclosed or discussed.
Economies of scope increased due to competitive implications because of strict quality control, content development and offering diversified product mix by Activision at one end; and subscription based marketing penetration done by Blizzard on the other end helped merger to create synergy by maximizing profits and minimizing costs. Merger helped in lowering the manufacturing and distribution costs with more professional nature of Activision and Blizzard helped to achieve economies of scope.
Q2. Given the information in the case, is Activision Inc. following the rules for bidding firms? Provide specifics.
Answer: No with the information available in the case Activision does not followed the rules for bidding firms. A merger of Activision with Vivendi helped both the companies to acquire a strategic and competitive position in the video game industry. As far as facts are concerned Activision does not allowed other firms to participate in the bidding but offered six director positions in the corporate governance comprises of eleven directors to Vivendi as its holds more than 50% stake in the merger with 52% shares. Several different scenarios were considered to ensure this investment would create positive net present value. In the end Activision merged with the Blizzard to become Activision Blizzard.
Q3. Identify Activision’s motivations for the merger.
Answer: Activision Inc. was aggressively acquiring video games software companies and content management companies in the entertainment industry. The objective and strategy of the company was to become the leader of the industry in development, publishing and distribution of quality entertainment Software Company that provides satisfaction to its customers while using its entertainment software and video games. The motivation behind the merger for Activision was as follows:
- The Blizzard was one of the pioneers in franchise and the subscription model based video games business; and merger helped the Activision to add one of the subscription based business models in its diversified product portfolio.
- Content development was one of the strength of Activision and subscription business model was the strength of Blizzard and merger of both helped to create unique competitive position in the market.
- It was Activision’s vision and objective to become a world leader in the video games market which got fulfilled with the merger with Vivendi games.
- This merger helped Activision to acquire new markets with the integration of subscription business model of Blizzard. It also helped the merger to increase the profits and minimize the risk of failure of products in the market.
- Expertise of Vivendi in music entertainment also helped to modify the new range of video games with the subscription based business model helped the merger in a big way.