Warner bids for Midway

Marking one of the movie studios’ most aggressive forays into a burgeoning entertainment business, Warner Bros. has submitted a $33-million bid for most of the assets of Midway Games Inc., the bankrupt video game publisher previously owned by Sumner Redstone.

Should the offer be accepted and approved, Warner will own all of Midway’s intellectual property, including the popular Mortal Kombat fighting series, as well as game development studios in Chicago and Seattle.

Warner Bros. is one of four major studios that has in the last few years started investing in video game production, instead of just making licensing deals with traditional publishers. Along with Walt Disney Co., it stands as the biggest, having spent hundreds of millions of dollars to acquire development studios and publish its own games, which have included Lego Batman and F.E.A.R. 2: Project Origin.


Although Warner Bros. representatives declined to comment, a person familiar with the deal said it had been spearheaded by Kevin Tsujihara, the president of home entertainment who has led Warner Bros.’ move into video games, with mixed results.

It’s not the studio’s first attempt this year to buy a small video game publisher, many of which have been struggling in an increasingly consolidated industry. Warner Bros. made an unsuccessful bid for Eidos, the British maker of Tomb Raider, which was ultimately bought by Japanese publisher Square Enix for $120 million.

Although Warner Bros. and Disney are the only traditional media companies publishing full slates of games, Paramount and Universal have both released several of their own games in the last six months.

In addition, producers Jerry Bruckheimer and Thomas Tull have both recently hired experienced video game industry executives to shape their strategies.

Midway wouldn’t be the most expensive video game investment by a film studio, but it arguably would be the most significant. The company has roots that go back to the 1950s, but it’s best known for its arcade titles from the 1980s and ‘90s. Mortal Kombat, which was released in 1992, has generated more than $1.5 billion in revenue. Midway also has a number of well-known titles in its library such as Joust and Spy Hunter.

If its bid is successful, Warner Bros. would have the right to not only publish these video games but also adapt them into films or other media. Two Mortal Kombat movies were released in the 1990s by Warner subsidiary New Line. One of Midway’s properties, Wheelman, is in development as a film at Paramount with the game’s star, Vin Diesel, attached.

Midway spokesman Geoff Mogilner said Thursday that the Chicago company expected other bidders to emerge by the June 24 deadline. The final buyer of Midway will be determined at a court hearing scheduled for July 1.

The Warner Bros. bid does not include two of Midway’s development studios -- one in Britain that made Wheelman and another in San Diego that works on a licensed wrestling series called TNA Impact. That leaves open the possibility for other suitors to buy the remaining assets or to submit a more comprehensive bid.

From 2004 until late last year, Midway was controlled by Redstone, who sold the company to private investor Mark Thomas for $100,000. The controversial sale triggered a number of debt payments that pushed already struggling Midway into filing for bankruptcy. It also gave Thomas a $30-million secured loan that could allow him to collect most of the money paid by Warner Bros. or another successful bidder. However, many of Midway’s creditors are challenging that deal in Bankruptcy Court.

Creditors sued Redstone, Thomas and five board members this month, alleging that the sale was fraudulent because it was conducted solely to create a $700-million tax write-off for Redstone to the detriment of shareholders.

Ironically, one of Midway’s creditors is Warner Bros., which is owed $7.8 million in licensing fees for games based on its properties, such as Mortal Kombat vs. DC Universe.