Viacom Caught in the Xfire

Old-school media companies keep snapping up new-economy upstarts as trophy wives. Yesterday, Viacom (NYSE: VIA  ) announced that it would acquire Xfire.com in a $102 million deal.

Xfire offers free software that allows Internet gaming enthusiasts to set up matches with their virtual friends and communicate during gameplay. Xfire supports more than 550 titles, including popular multiplayer games such as World of Warcraft, Call of Duty 2, and Counter-Strike: Source.

Viacom may not seem like the ideal suitor at first. If you had to bet on a buyer, more logical sugar daddies would have included software giant Electronic Arts (Nasdaq: ERTS  ) or retailer GameStop (NYSE: GME  ) . They have some serious muscle in the video game niche, and they'd benefit from having a stronger grasp on die-hard gamers.

Then again, this isn't the first traditional broadcasting company to splurge on a bid for online gamers' attention. Last year, News Corp. (NYSE: NWS  ) acquired video game enthusiast site IGN.com.

It's all about keeping up with the Joneses. Or the Murdochs. Viacom's audience does skew young, given its MTV and Nickelodeon networks. Smaller properties like Noggin, The N, and SpikeTV cater to either young television viewers or predominantly male video game aficionados. Viacom also runs active websites for most of its networks, plus viral stand-alone sites like iFilm and NeoPets.

Xfire should fit right in. More than four million people have registered to download the free software. Their loyalty has been pretty solid, with more than a million active users spending an average of 91 hours a month running the Xfire application.

That's a lot of time spent online, which may explain why Internet acquisitions have been so important to conventional broadcasters. With folks spending more time online and less in front of the boob tube, a deal like this allows Viacom to continue to reach out to its desired user base.

Games are big business. Both Electronic Arts and GameStop have been market-crushing selections in the Motley Fool Stock Advisor newsletter service. And GameSpot.com, the popular enthusiast site, is part of CNET Networks (Nasdaq: CNET  ) , a recommendation to Rule Breakers subscribers last year.

Earlier this year, Viacom split its stock into two separate entities. CBS (NYSE: CBS  ) got many of its slower-growing entertainment and leisure subsidiaries, while Viacom maintained the a lot of the company's faster-growing cable properties. Acquisitions like Xfire should pay off for Viacom as it cashes in on the software's growing popularity and its ad-supported interface.

Mergers and acquisitions? Apparently they're the ultimate multiplayer game.

Longtime Fool contributor Rick Munarriz doesn't know if he still wants his MTV, but he knows that Viacom's shareholders wouldn't mind money for nothing. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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