Time Warner's Got Game

Like a patient kid waiting for his video game-playing buddies to hand over the controller, it is Time Warner's (NYSE:TWX) turn to play. After striking lucrative licensing deals off its hot theatrical properties that also fattened the pocketbooks of software developers, the company is now creating a Warner Bros. Games division.

It's about time. Video games can be a great business, done right. Electronic Arts (NASDAQ:ERTS) commands nearly a $15 billion market cap. Take-Two Interactive (NASDAQ:TTWO) has been a five-bagger since its 2001 lows, primarily on the strength of its Grand Theft Auto series.

However, the relationship between movie studios and their in-house gaming divisions have been dicey at best. Vivendi's (NYSE:V) more successful video game releases haven't been based on Universal Pictures flicks, given the popularity of its Spyro and Crash Bandicoot games. Other studios, like Fox (NYSE:FOX), have simply cashed out. In other words, Time Warner might have a bigger hit on its hands with a gaming franchise based on AOL's Running Man icon than its next box office hit.

There are three questions that Time Warner will need to answer in the affirmative to succeed in this venture. Will it be able to tap its wide content library and single out the properties that are the most marketable to a game-playing audience? Will it create titles that are compelling in their own right, rather than just dole out mediocrity in a lame attempt to piggyback on popular characters? Will it recognize the opportunity to market the games aggressively through its huge distribution channels by doing things like wedging trailers in home video releases and plugging away relentlessly on America Online?

Because, yes, a hit movie will sell games. But those that have stood out, such as the original James Bond titles and Marvel's (NYSE:MVL) Spider-Man, remained top sellers because they were good games. Thanks to the Internet, word of mouth spreads awfully fast these days, especially when we're talking duds. So, good luck, Time Warner! In a world of fickle diehard gamers who will diss anything short of excellence, you're going to need it.

Now What?
David Gardner makes a habit of investing in what he knows and loves. In fact, he's picked Time Warner, Electronic Arts, and Marvel in Motley Fool Stock Advisor. His selections are up 76% in total since April 2002 vs. an 18% gain for the S&P 500 over that same time period. Looking for great stock ideas? Try Motley Fool Stock Advisor risk free for six months.