Make no mistake; Electronic Arts' acquisition of VG Holdings, the parent company of top studios Pandemic and Bioware, is a monster of a deal. Looming large over the development landscape, it sets a new high water mark for developer valuations - and, of course, raises questions and concerns over the future of two of the industry's most talented studios.
EA is paying USD 620 million in cash for the company, but that only tells part of the story. Add in existing stock options, performance related bonuses and various other financial components, and the eventual price tag could be as high as USD 860 million - pushing the development sector up close to its first billion dollar deal.
Of course, those figures aren't entirely fair, for the simple reason that EA is buying two leading studios for that money, not just one. Even at that, however, the deal still values each studio at a possible USD 430 million - significantly higher than what Microsoft paid for Rare back in 2001, a deal whose value has been roundly criticised ever since.
EA's shareholders clearly don't see any parallel. Even despite a major dilution of the firm's earnings due to the acquisition, EA shares soared to a 52-week high in the wake of the news; a roar of approval from the stock market which is a reflection of just how powerful and respected the reputations of Bioware and Pandemic are in this field.
The deal came as a surprise to a lot of industry insiders - many of whom are now kicking themselves for not seeing it coming. With the benefit of hindsight, it was obvious that a move like this was on the cards. EA's returning CEO John Riccitiello is, after all, the man who originally acquired Bioware and Pandemic for his investment firm, Elevation Partners. Having acquired the pair once, it's obvious that he would still see them as a sound investment after being installed as EA's CEO earlier this year.
On the face of it, EA is a perfect match with VG Holdings; the publisher's output is severely lacking in some of the areas that Bioware and Pandemic do best. Role-playing titles and action titles aren't strong genres for EA, even with Sweden's DICE (creators of the Battlefield series) on board. More importantly, EA still looks anaemic in the crucial field of self-owned IP, with much of the publisher's output still relying on franchises from the worlds of movies or sport.
Bioware and Pandemic can make a significant difference to EA's prowess in those fields, especially the IP issue. That's why the stock market is so pleased with this costly acquisition; it recognises the gap in EA's abilities which will be filled by VG Holdings' studios.
Not everyone is entirely happy to see EA picking up Bioware and Pandemic, though. The stock market's roar of approval has been matched by a cry of anguish from games fans (and even, privately, some developers), who are concerned about what this means for the output of the vastly popular studios.
They may have a point. Electronic Arts' history with the studios it acquires is not so much chequered, as downright bleak. From ancient industry history like Bullfrog through to Westwood, Maxis and even Criterion, EA has consistently demonstrated a propensity to assimilate rather than incubate, absorbing studios into its own structure and rapidly crushing the unique identity which, arguably, made them valuable in the first place.
It doesn't exactly ease concerns over the handling of the studios to calculate just how successful they need to be for EA's USD 860 million gamble to pay off. Analysts at Bank of America have suggested that Bioware and Pandemic need to produce at least two or three hit titles a year for the next five years if EA's going to see a reasonable return on investment. It's not an unreasonable target, given that the studios presently have ten titles in development between them, but it's a sufficient challenge that it's going to take immense willpower for EA's executives to keep their hands off the development process.
To the publisher's credit, however, it does seem to recognise that having spent so much money on geese that lay golden eggs, it's best to leave them unmolested. The assertion that there's no overlap between the operations of EA and its new studios is very promising, suggesting that the publisher has resisted the temptation to try and airlift Pandemic or Bioware's technology into its other internal studios - or, worse still, to impose its existing technology base on the newcomers.
The handling of the Battlefield and Burnout franchises, too, gives some indication that EA is prepared to allow key, high-value IPs the incubation time they require - and some vital room to breathe in the development process - rather than simply forcing them onto a punishing 12 or 18 month franchise timescale, as pessimists had expected.
Of course, such optimism may be entirely misplaced - but it's certain that the next two years will be a crucial test for Electronic Arts. If it can demonstrate an ability to cultivate a strong working relationship with its new studios without actively interfering with them, or damaging their creative culture, the publisher will quite frankly have turned over a new leaf. The prospect is of a relationship as hands-off, but insanely profitable, and Vivendi's relationship with its Blizzard subsidiary must surely be EA's guiding example in this instance.
Getting this balance wrong, on the other hand, is a mistake EA simply cannot afford to make. We suspect that Riccitiello fully understands what needs to be done. The question is whether he can fix EA's internal culture and politics to a point where the firm is an effective incubator for the creativity - all USD 860 million worth of it.