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Why video game developer acquisitions scare me

Could video game developer acquisitions spell the end of good times for the gaming industry? Don Reisinger thinks that's a very real possibility.

Bloomberg is reporting that Activision Blizzard, with its $3 billion in cash and no debt, is looking to acquire game developer companies on the cheap as the economic downturn continues to worsen. This is scary.

Am I the only person who's concerned about the consolidation going on in the video game business? Activision surpassed Electronic Arts, formerly the world's largest developer, last year in its merger with Vivendi and now it wants to roll up even more developers to expand internationally and "fill holes in its product line," according to Bloomberg.

In the past five years alone, Electronic Arts has acquired developers JAMDAT Mobile, Mythic Entertainment, Phenomic Game Development, Digital Illusions CE, Headgate Studios, and VG Holding Corp. And it controls 15 percent of Ubisoft. All told, the acquisitions cost the company billions of dollars.

For its own part, Activision has been just as active. The company acquired Vicarious Visions, Toys for Bob, and Beenox in 2005 and followed that up in 2007 by acquiring a controlling stake in Bizarre Creations, which was trailed by its 2008 merger with Vivendi to become Activision Blizzard. In the meantime, its cash-on-hand has grown to more than $3 billion, and over the past four years, the company's revenue has grown from $1.4 billion to almost $3 billion annually.

Why does it matter that the two largest developers in the video game industry incur that much revenue each year? Because smaller developers like Capcom, Konami, Bethesda, and others have less chance than ever to compete. I understand capitalism, but the more we embrace these companies, the greater the chance that we will be left with an industry that mimics Hollywood: titles will be derivative, bank-breaking wastes of time.

If we consider Hollywood--the model to which the video game industry is always compared--it doesn't take long before we realize that it's dominated by a handful of studios that effectively control a large percentage of the industry, while the independent studios are left trying to defy the percentages and get their innovative and artistic films to the masses. Since most fail, it's the big studios that enjoy profits as the independents try to find some way to stay alive.

Who can say that this isn't where the video game industry is headed if companies like Activision and EA continue their acquisition frenzy? What if EA finds a way to acquire Take-Two Interactive? What if Activision decides that it will use its $3 billion to buy up small developers all over the place? There's a very real possibility that if both companies succeed in those endeavors, the video game industry will turn into Hollywood: EA and Activision will cement themselves as the major players in the space and the only other developers who will be able to consistently captivate audiences will be first-party developers, Nintendo, Sony, and Microsoft. All the others will be forced to pick up the scraps.

If that happens, what little innovation that's left in the video game industry could die with the small developers. Sure, there would be some games that would slip through the cracks and appeal to a mass audience, but they would be the exception, not the norm. And in the process, gamers will be inundated with sports games, first-person shooters, MMORPGs, and Grand Theft Auto wannabes.

As a gamer, I fear consolidation in the video game business. From a business standpoint, it might make sense to EA and Activision. But I feel it's the end of innovation and a surefire way to ostracize an entire generation of gamers who still look back fondly at the days of playing games that didn't look so realistic, but that were all about fun and innovation. Based on our experience so far with monolithic developers, they haven't offered anything of the sort. What makes us think that will change when they're the only developers making a real impact on the industry?

The game industry is in desperate need of innovation, and consolidation and acquisitions won't help it achieve that.

Check out Don's Digital Home podcast, Twitter stream, and FriendFeed.