Posted on: Tuesday, February 22, 2005

Viacom, Time Warner in licensing deal

By David Lieberman
USA Today

NEW YORK — Viacom CEO Sumner Redstone's 75 percent stake in Midway Games doesn't frighten Time Warner. The companies last week announced a licensing deal that could strengthen the case for Viacom to buy the interactive software company — and might significantly broaden Midway's audience.

Midway, best known for adult-oriented titles including "Mortal Kombat," will go after kids and teens with a four-year license to produce games from eight Cartoon Network shows. It also will get the game rights to two Warner Bros. films.

Neither the names of the films, nor financial terms were disclosed.

The deal is important, Redstone says, because Time Warner is "licensing its treasured product to a company controlled by the CEO of a competing company. I have every expectation that this will be just the beginning."

Redstone became the entertainment industry's top evangelist for video games last year when he disclosed his holding in Midway.

"Every major entertainment company should buy a game company," he says. "It's the fastest-growing part of entertainment, and it's competing with them. Name me another industry where you can buy out a competitor without fear of the antitrust laws."

Because of his ties to Midway — his daughter, Shari, is the board's vice chairman — three independent Viacom directors are weighing whether to buy Midway, or another video-game company.

But Viacom can make a stronger case to buy if it's clear that the combined companies could still do business with other entertainment giants. Before Redstone bought his Midway stock, the company struck a licensing deal with Universal Studios for "Spy Hunter." The arrangement with Time Warner, though, "launches our kids business," says Midway CEO David Zucker.

The company will produce games on multiple platforms beginning this fall for Cartoon Network's child-oriented "Ed, Edd n Eddy," "The Grim Adventures of Billy & Mandy" and "Dexter's Laboratory." Games for teens and young adults will include "Aqua Teen Hunger Force," "The Brak Show," "Harvey Birdman, Attorney At Law," "Sealab 2021" and "Space Ghost Coast to Coast."

Zucker says that he's also "looking actively" at striking a deal with another studio to produce games from computer-animated films.

It's unclear whether investors might think that Midway is taking its eye off the ball. Until recently, Midway has concentrated on "horror and fighting, and they're getting there in action, adventure and over-the-top sports," says analyst Geoffrey Mogilner of Decatur Jones Equity Partners. "Diversification can happen down the road."

But Midway's inexperience with kids doesn't bother Cartoon Network. "Gaming is interactive storytelling, so it's critical to make sure you deal with a company that makes well-rated games," says the Cartoon Network's John Friend.