E3 06: Activision buys RedOctane

LOS ANGELES--Activision today announced that it will acquire RedOctane, publisher of last year's PlayStation 2 surprise hit Guitar Hero. The publisher said that the acquisition will give it "an early leadership position in music-based gaming, which the company expects to be one of the fastest growing genres in the coming years."

While details on new Guitar Hero projects weren't given, Activision director and strategic adviser Ron Doornik's explanation for what the publisher can get out of RedOctane leaves little to the imagination.

"The success we are seeing today is a strong indicator that Guitar Hero and the many potential extensions, new platform exploitations and international versions appear to be somewhat transition proof, as consumers are responding to this product on current-generation platforms in a manner that defies traditional late-cycle behavior," Doornik said. "We think the online capabilities of the next-generation platforms offer new and well differentiated opportunities to create additional revenues from downloadable music, which today represents one of the most popular downloadable content categories."

As part of the deal, RedOctane management and key employees will be signing long-term contracts with Activision. Financial terms were not disclosed. Activision expects to have the deal closed sometime during its current fiscal quarter (which runs through June), but doesn't expect the move to have a material impact on its earnings for the full fiscal year.