Part 4: The Collapse (1999-2008)
So the billionaires behind this ludicrous merger were confident that their investment in media would pay off right? Recall how they wanted to take on Time Warner in the new millennium. Well, funny story about that.
Phase 1: The Bubble
The late ’90s in business was dominated by the dot-com bubble, a market frenzy for any properties even remotely related to the Internet. That meant a wide range of companies from retail to entertainment to communications were racing to outspend each other, largely without much of a plan to make up those expenses down the road.
In 2000, at the same time that the Vivendi Universal merger took place, Time Warner also merged with AOL, creating a more massive entity that kept VU at number two. But as with Vivendi, the AOL Time Warner deal was also controversial. Add to that a worrying decision in federal court in April, that Microsoft had choked out its competition and thus violated antitrust law. Appeals aside, an order was made in June to split Microsoft in two.
Could that have happened to these giants? Or to any other companies trying to recklessly merge as well?
Regardless of possible outcomes, the writing was on the wall. Investors started backing away from dot-com stocks at an exponential rate. Entertainment companies could feel it as well, but the effects were of course uneven.
Phase 2: The Board
Despite the dot-com burst, Vivendi’s Jean-Marie Messier continued to spend. In 2001, he acquired Houghton Mifflin and USA Networks. The latter was actually sold by Seagram before the merger, and had since gotten a boost from airing WWF/WWE during the Attitude Era, so it was being bought back at a premium.
However, these purchases started adding up fast. We’re talking billions of dollars for each sale. So by mid-2002, Vivendi reported a $12 billion loss, which would quickly spiral into $25 billion the next year.
But right there in July, the board of directors forced Messier to resign. Not only that, but he was quickly sued by the FCC for falsely inflating profits in 2001 to soften the merger costs. Where have we heard that before…?
As soon as Messier was out of the picture, Vivendi went into fire sale mode. Among many deals, they made one in 2004 with General Electric to merge their longtime NBC empire with Universal. Crucially, the merger included everything except their music and game operations. So Universal Music Group remained with Vivendi, as did Vivendi Universal Games.
Actually, they were now simply Vivendi Games. The last vestiges of the Universal name in the business ended at that point, and the game projects from then on were moved into its divisions. Chiefly, Crash and Spyro were assigned to Sierra Entertainment, the actual remaining publishing operation. Vivendi Games would never use its new name on any release in the last years of its existence.
Phase 3: The Battle
Alongside the fire sale was a bureaucratic brushup that pitted two aggressively-growing partners against each other.
In 2002, Valve announced Steam, in part a replacement of Sierra’s World Opponent Network, which they purchased from them. Half-Life and Counter-Strike were declared the top PC games in the world, and Valve’s amended distribution deal with Sierra in 2001 made sure retail ran smoothly with a healthy flow returning to Vivendi.
However, Vivendi allegedly made deals with cyber-cafe providers in Asia and Europe, even going so far as to partner with a local distributor to crack down on piracy in the Phillipines. Official CDs of Counter-Strike there were listed as low as $2 each. In any case, these were completely unattached to Valve, so their plans to attach the future Source engine to Steam would inevitably clash with this business model.
Starting in October 2002, and continuing up through 2005, their counsel duked it out in court. Valve released Counter-Strike: Condition Zero and Half-Life 2 through Sierra while this went on, but they also started releasing games exclusively through Steam. Finally, the battle ended with Vivendi agreeing to sever the agreement, and just to rub salt in the wound, Valve partnered with EA to bring Half-Life 2 to more consoles with The Orange Box.
Valve’s titles were not a deal-breaking proportion of Vivendi’s game library – just look at Blizzard – but nonetheless, the court and settlement costs were significant.
Phase 4: The Bonding
Bobby Kotick took over Activision in 1991, back at a time when it was deep in debt after attempting to expand into a more diverse outfit called Mediagenic. Without going to deep into it, because Kotick is not very popular these days, Activision was made public in 1993 and had a more successful spending spree for the next decade and a half.
By 2006, the compounding of the first three phases of collapse made Vivendi Games a shell of its former self. The biggest asset of that group, and what Kotick sought, was an MMO game unlike anything in Activision’s lineup – World of Warcraft. Yes, one game was enough to spark a deal in 2008 to last a lifetime.
While Kotick had to give up majority stake in Activision to Vivendi, he remained CEO of the combined Activision Blizzard, and would continue to reap the benefits, much to the rage of James Stephanie Sterling and anti-capitalists everywhere.
As a condition of the merger, all of Vivendi’s properties and pending projects were subject to “Activision standards”, dropping many games in the process and leaving some IP in limbo for years. In addition, the publishing marquees were streamlined – Blizzard stays autonomous, while Activision handles the rest.