First it was the NFL, and now this. Yesterday, Electronic Arts (NASDAQ:ERTS) announced an exclusive 15-year licensing deal with Disney's (NYSE:DIS) ESPN to include ESPN programming content and personalities in its sports games, as well as to potentially create games based on the brand.
In terms of sports video games, rival Take-Two Interactive (NASDAQ:TTWO) has taken a dagger to the heart. The deal re-monopolizes EA's position in the sports gaming world.
Electronic Arts has long dominated the video-game sports-simulation market with its EA Sports-branded games, including the Madden NFL, NHL, and NBA Live series. This past summer, Take-Two and partner Sega made a run at EA's dominance by selling its ESPN-branded NFL 2K5 at a mere $20 per copy in an effort to take market share away from EA's Madden (see Sega's Madden Challenge). The partnership followed through by selling its NBA 2K5 and NHL 2K5 games at $20 upon releasing them in the fall.
Take-Two and Sega were seen as a threat, not just because of the $20 price point, but also because gamers have regarded those companies' games to be as good as -- if not better than -- EA's games for the past several years (see Sega vs. EA Sports). EA responded in November by lowering the prices of its NFL, NBA, and NHL games (see EA Signals Weakness?).
But then last month, EA eased investor fears by signing five-year exclusive deals with the NFL and its players' association (see EA's Perfect Score), virtually shutting Take-Two and Sega out of the football-simulation market. And by hooking up with ESPN for the next 15 years, EA eliminates its only viable competitor's brand value.
The deal begins in 2006, when ESPN's contract with Sega expires, and includes an option to terminate after 10 years. The new partnership opens the door for new sports franchises based on ESPN properties, including poker and the X Games. It also ensures that EA has the dominant sports titles when the new generation of consoles from Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) arrive.
As the most influential game publisher and the dominant sports brand, Electronic Arts is the only company that could have made this deal, especially the pact with the NFL last month. The deal eliminates a substantial amount of business risk for EA for quite a while, and it's a step up for ESPN as well. At the same time, it's also a big blow to Take-Two's aspirations to become a real video-game player in the sports-simulation genre.
Electronic Arts is a Motley Fool Stock Advisor recommendation.
For more related coverage, check out:
Fool contributor Jeff Hwang owns shares of Electronic Arts.
