Play Nice Like Electronic Arts

Elizabeth Blackwell

CHICAGO -- In a head-on match up, you wouldn't put your money on 72-year-old football commentator John Madden vs. a horde of car-thieving thugs.

But in the videogame world, it looks like Madden may come out on top. Electronic Arts (EA Quote), publisher of the hugely successful Madden NFL video games, looks like it's poised to take over Take-Two Interactive Software (TTWO Quote), which distributes the controversial but very successful Grand Theft Auto.

For months, EA had been on the offensive, threatening to pounce on its rival through a hostile takeover. But this week, EA backed off, opting to pursue private, more conciliatory talks instead. Today, a merger looks more likely than ever.

What can your business learn from EA's strategy? To really get what you want, playing nice can pay off. Especially when your most-valuable assets are people as much as products.

This potentially massive merger highlights the enormous scope of the video-game business -- even if that industry still doesn't get the respect it deserves. Despite a lingering reputation for geekiness and complaints about some games' violent content, gaming is one of the few economic bright spots in the economy these days.

"Historically, video games have always been able to buck a recession," says David Riley, director at market research firm The NPD Group. "It's one of the few industries able to manage that kind of success."

A recent NPD report found that video-game sales are up 35% over last year, to $9.5 billion. (PC games, which are played on a computer rather than a console hooked up to your TV, are a separate, $1 billion business.) Although average retail prices for games range from $40 to $60, they have become so intricate that many offer up to 100 hours of game time, making them a more cost-effective entertainment than movie tickets or DVDs.

"You get real bang for your buck," says Riley. "That's at the core of why the industry has fared so well."

Stiff Competition

This multi-billion-dollar business is in the hands of just a few companies. EA is a powerhouse when it comes to sports games, with Madden NFL as its crown jewel. Take-Two's latest Grand Theft Auto game grossed a staggering $500 million in its first week of release this spring.

But both companies face stiff competition from up-and-coming rivals. Nintendo's Wii has created whole new demographics of gamers, from seniors who play virtual bowling in their retirement homes to moms who use the Wii Fit for living-room workouts. Guitar Hero, made by Activision (ATVI Quote), has been another phenomenally successful interactive title, inspiring countless fans to unleash their inner Keith Richards.

Honey Beats Vinegar

That means EA and Take-Two have a strong motivation to come together. What's critical is the way they're shifting their strategies to do so. From an initially hostile position, with plenty of posturing on both sides, they're now working together quietly to finalize a deal.

Why has Electronic Arts decided to make nice? It all comes down to Take-Two's biggest asset: creative talent. Sure, EA wants to get its hands on Take-Two's best-selling titles. But they're also buying potential future blockbusters, which means keeping Take-Two's designers and developers happy. Come on too strong, and EA would risk pushing that talent away.

"It's all about being able to deliver quality content," says Riley. "It costs more than ever to develop a good game." Companies can spend hundreds of millions of dollars developing and marketing a game. And each time a game breaks new ground in effects or strategy, everyone else must scramble to catch up.

It's tempting to play hardball with a rival. But you never know when your competition might become an ally against an even bigger threat. You can be a bully and grab what you want, while turning off your new team. Or you can work behind the scenes, laying the groundwork quietly to get what you want.

In a video game, you have to tackle -- or blow up -- the competition. But that's not necessarily the way to win in business. If EA makes a deal with Take-Two, it will prove that it sometimes pays to drop your weapons.

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