WBIE ON DEVELOPER SHOPPING SPREE

But because Disney has been in the business longer and Warner Bros. is a relative newcomer, having built its first game in-house just three years ago, well, as they say in the car rental business, No. 2 has to try harder.

Just recently, Warner Bros. Home Entertainment Group acquired its second external developer, U.K.-based developer TT Games. Three years ago it purchased its first, Monolith Prods., but it won't be another three years before it buys its third and its fourth.

Warner has a shopping list and, even if Samantha Ryan won't let anyone peek at it, she won't deny it's a big part of her strategy for success. Ryan is senior VP of development and production at Warner Bros. Interactive Entertainment, overseeing the development and production of all of the company's video games, whether built in-house or out. She was formerly president and CEO of Monolith (where she is still CEO) and came to WBIE when it bought her company.

"I'm a firm believer that internal production gives you, as the publisher, more control and greater insight into the production process," she explains. "I would like to see Warner Bros. acquire more internal studios over time, just as we did TT Games, and I'd like to see a nice diverse set of studios."

Indeed, Kevin Tsujihara, president of WB Home Entertainment, underscores the importance of having what he calls "tentpole games," big franchises like Electronic Arts' "Madden Football" series, RedOctane's "Guitar Hero," Microsoft's "Halo" series and Activision's "Call of Duty."

"It's just like in the movie industry," he observes. "Tentpole games are becoming more and more valuable in the space because people get out of the way of them. We looked at TT Games' incredibly successful 'LEGO Star Wars' and we said that this is the kind of game we need to be associated with. So we acquired the company, and we'll be doing 'LEGO Batman: The Videogame' in the spring and 'LEGO Indiana Jones' later in 2008."

That kind of talk leads Michael Pachter to believe that Warner Bros. may have its eye on at least one if not two other developers -- Codemasters and SCi Eidos. Pachter is a research analyst covering the video game sector at Wedbush Morgan Securities.

Warner Bros. already signed an agreement last year to distribute and sell Codemasters games, but Pachter believes SCi Eidos is the more likely takeover target, especially since Warner already owns 10.3% of SCi, the result of a deal signed last December.

"Eidos has a few impressive franchises, like its 'Hitman' series with its four hit games which 20th Century Fox recently turned into a movie, and its 'Tomb Raider' series which Paramount turned into two films," he says. "Besides, there's a rumor every week that SCi Eidos is in serious acquisition discussions. I believe the only company they could possibly be talking to is Warner Bros., which is very much playing catch-up with Disney and wants to make some very good games from some very strong licenses. Buying a developer like Eidos would give them the jumpstart they're after."

If Ryan is indeed interest in a "diversity of studios," the fact that TT Games primarily builds family-oriented games, while Eidos and Codemasters create games for the older, hardcore gamer seems to fit nicely into her plans.

Similarly, she says that "it might be nice to pick up some developers for the Nintendo Wii, which has become a great platform ... as well as some developers for the [hand-held] Nintendo DS, which is kicking major butt."

But acquisitions aren't the only thing on Warner's mind. It's recently been reported that the company has a $500 million fund to develop games and Tsujihara says he'd "like to make sure that Warner Bros. has a pipeline of 20-25 games each year. It looks like there's going to be consolidation within the industry, which is going to make it look and feel a lot more like the movie industry," he adds.

WBIE released three games in 2007 and expects to release another three in 2008 -- "Speed Racer" in May day-and-date with the Wachowski Brothers' movie of the same name; "LEGO Batman" in the spring; and "Project Origin," the sequel to Monolith's game "F.E.A.R." The company currently has 12 games in production at 11 outside developers.

"We are in this space to play for good," explains Ryan. "This is a very important move for us and, from the product side, I need to deliver a good, wide array of products that keep the channels fed, that keep our sales people going, and that give as much reach as possible to the widest number of consumers to take full advantage of all the Warner Bros. IP."

Given those priorities, Pachter recommends that Warner Bros. "take a look at what Disney has done with relatively low-risk games like 'Hanna Montana' and 'High School Musical.' Even though the audience is mainly 12-and-under girls, those games are selling very well and are actually winning over the Wii and DS households and getting people to buy games who would otherwise never have even considered buying a Disney game.