Warner Bros takes control of Rocksteady as groups target video games

Media group strengthens grip in gaming industry in bid to make $1bn by 2013
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The Independent Online

Warner Brothers has taken a majority stake in the video-game company that developed last year's best-selling Batman title, the latest move by the media conglomerate to boost its profits from the $30bn (£19bn) industry.

The media group yesterday announced the deal to take control of Rocksteady Studios, a UK developer that created Urban Chaos: Riot Response and more recently Batman: Arkham Asylum, based on the Warner Brothers character. The game proved a best-seller, shipping more than three million copies worldwide, and a sequel is in the works.

The deal marks an escalation of Warner Brothers' tilt on the video-game market. In 2007, it bought TT Games, the owner of the hugely successful Lego computer-game franchises, and Snowblind Studios last year to work on its Lord of the Rings games series. Before yesterday's deal, it most recently bought Midway Games, the owner of the Mortal Kombat franchise, which has sold 26 million games around the world.

Josh Berger, the president and managing director of Warner Brothers Entertainment UK, said: "We decided to become a substantial player in this space. Different players have been in the video-game business with varying degrees of success and failure. For us, the content is in our lifeblood, and we're in for the long haul." The company hopes to make $1bn (£650m) from gaming by 2013.

Piers Harding-Rolls, a senior analyst at Screen Digest, called the deal a "pretty positive move. Warner Brothers' background strategy is moving from a licensing business to a publishing and games-development business".

Media groups have been forced to consider moves into video games, as the games industry has cannibalised business from television, music and film. Mr Harding-Rolls said: "The media conglomerates are ramping up their exposure to the video-games market. It's a strategy to move up the value chain. They know that licensing is risk-free, but they don't see the returns. Publishing the game will get a much bigger share of the profits on those hits."

The studios are following the audience, Mr Harding-Rolls continued. "It is a natural progression from films into computer games, especially with brands like Batman. Companies want to wring the most out of their intellectual property."

Sony and Vivendi were the trailblazers among the media conglomerates. In a recent report into the sector, Screen Digest said: "Those two remain the only media giants for whom games make a material contribution to their overall financial performance. The others have made numerous efforts between them to enter the games market in a meaningful way, but most of those, especially during the Nineties, ended in failure and a market withdrawal."

Yet their rivals are ramping up quickly. Mr Harding-Rolls said Disney was also heavily pushing into games. This will become increasingly lucrative after the company's $4bn (£2.6bn) acquisition of Marvel Entertainment last year.

The company pointed out that the deal brings with it a treasure trove of comic and cartoon characters including X-Men, Iron Man, The Hulk and Thor. All of these comic-book characters have film and computer-game tie-ins. "The Marvel deal fits in very well with Disney's increasing exposure to games," Mr Harding-Rolls said.

NBC Universal has just "dipped its toe in the water" of the gaming industry with some licensing deals, while News Corporation bought the games web editorial business IGN Entertainment for $650m (£420m) and mobile entertainment group Jamba for $387m (£250m). Screen Digest said this gave it "limited exposure" to the highest growth sectors in the market, adding it was "highly conspicuous" among its rivals for not producing games. Elsewhere, Viacom bought five companies between 2005 and 2006 at a cost of $637m (£415m). One of these was Harmonix Music Systems, the creator of Rock Band, for $176m (£114m) in 2006 on behalf of its MTV subsidiary. Mike Hickey, an entertainment software analyst at Janco Partners, said: "This is a relevant entertainment medium, and the studios feel they can capitalise on their assets."

This comes after a tough year for the video-game industry. It hit a wall in 2009 because of the recession, unemployment and some of the pricing on certain hardware, Mr Hickey said. This was backed up by disappointing results reported by Electronic Arts and Activision Blizzard this month. Yet the industry is expected to recover quickly, and Mr Hickey said: "You find high-quality development talent and it will bring in interest, and set the company up in gaming for the longer term."

Mr Berger of Warner Brothers said: "The market took a dip in 2009, and certain segments are taking a beating. There are pockets of good news. We're growing quite substantially. More and more people are moving into the space."