Play Nice Like Electronic Arts

"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.