Viacom May Become a Games Player
Viacom Inc. may consider purchasing Midway Games Inc., a money-losing video game company controlled by the media giant’s chief executive, Sumner Redstone.
The 81-year-old mogul, who also controls Viacom, filed regulatory documents Friday signaling the company’s interest in entering the fast-growing video game business. Given Redstone’s large stake in Midway, Viacom has appointed three independent directors on its board to evaluate any potential transactions in the video game market involving the company, according to the filing.
A Viacom spokesman said the new committee was designed to guard against any conflicts of interest that might arise if the company licensed intellectual property to video game producers including Midway, or if it made an acquisition in the gaming arena.
The spokesman said no talks were underway to buy Midway -- best known for its “Mortal Kombat” franchise -- or any other video game company. Redstone didn’t return a phone call seeking comment.
He has personally accumulated a 74% stake in Midway over the last several years and disclosed plans in April to take control of Midway, but said he wasn’t planning to sell the gaming company to Viacom. He told colleagues that Midway was a personal pet project, even as some Viacom executives urged him to bring the asset in-house.
Some analysts questioned why Viacom would consider buying Midway now, after the game company’s stock price had more than tripled this year -- gains attributed almost entirely to Redstone’s investment.
“If Viacom wanted to buy this asset,” why didn’t it buy it nine months ago? said Richard Greenfield, an analyst at Fulcrum Global Partners.
Strategically, however, such an acquisition would make sense, analysts said.
Through its broadcast and cable channels including CBS, UPN, MTV, Nickelodeon, VH1, Comedy Central and Spike TV, Viacom reaches more kids and young adults than any other media company.
These young consumers drive video game revenue, which now surpasses U.S. box-office receipts.
“Video games are one of the hottest sectors of the entertainment business,” said Larry Gerbrandt, head of the entertainment and media practice of Century City-based consulting firm AlixPartners.
As a result, the video game sector could be the next area of acquisition for media giants such as Viacom that are hungry for new growth engines. Studios already license TV and film properties to game makers, and Gerbrandt said they could be seeking to “cut out the middleman” by producing the games themselves.
Just last week, Time Warner Inc., the world’s largest media company, agreed to buy Monolith Productions Inc., the developer of games such as “Aliens vs. Predator 2.”
Gerbrandt said Redstone may have acquired a controlling stake in Midway personally rather than through Viacom because the mogul was unwilling to use the entertainment giant’s stock, which Redstone considers to be undervalued.
Midway has lagged behind rivals such as Electronic Arts Inc. of Redwood City, Calif., and Santa Monica-based Activision Inc. in rebounding from an industrywide slump. Under David Zucker, who took over as chief executive in mid-2003, Midway has begun a turnaround and expects to turn a profit by the end of the year.
A Viacom spokesman said the board members assigned to the new committee were former Secretary of Defense William S. Cohen, former CBS Chairman David McLaughlin and former Verizon Vice Chairman Frederic Salerno.
Viacom’s actively traded Class B shares have declined more than 20% this year. They rose 92 cents Friday to $35.61, while Midway gained 8 cents to $12.53. Both trade on the New York Stock Exchange.
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Reuters was used in compiling this report.
