French entertainment giant Vivendi's decision to merge its game unit with Los Angeles-based Activision is expected to reshape the lucrative video game world, as the two major players team up to take on industry leader Electronic Arts, analysts said Monday.

Under the deal announced by the two companies Sunday, Vivendi would buy a controlling stake in Activision in a 18.9-billion-dollar transaction that creates a huge challenger to Electronic Arts (EA), which is currently the No. 1 company in the industry.

The new company, which will be called Activision Blizzard with reference to the Blizzard unit of Vivendi Games, would bring best-selling games like "World of Warcraft" and "Guitar Hero" under one corporate roof and knock EA into second place.

Companies in the fast-growing games industry have been racing since last years to get bigger so they can absorb huge costs in the high-risk business. With powerful new game consoles like Sony's PlayStation 3 and Microsoft's Xbox 360, development costs for a major video games have increased to more than 25 million US dollars.

If approved by regulators in the US and Europe, the Vivendi-Activision deal would create the biggest company in the industry, with products in nearly all genres including music simulation, racing, action, sports and multiplayer on-line games.

The new company would be positioned to take advantage of what industry analysts have projected will be double-digit growth in the 40-billion-dollar global games market in the next year.

Activision CEO Bobby Kotick, who will be president and CEO of the new company, said Sunday that the merger deal would accomplish what his company has always aspired to be, the No. 1 in the industry.

For Electronic Arts, the deal creates a new challenger at a critical time in its history. The Redwood City, California-based company has been struggling for years amid the transition to a new generation of game consoles.

And the debate about which company will be the largest in the computer games industry started as soon as the deal was announced.

Jeff Brown, an EA spokesman, said in a statement Sunday that "We wish them luck and welcome the competition. We still believe that EA has the strongest portfolio of perennial game franchises."

Electronic Arts earlier forecasted it would close with revenue of 3.35 billion to 3.65 billion dollars in the current fiscal year, which ends March 31, 2008, while Activision Blizzard now claim it would get 3.8 billion dollars this year.

The new company also said that it would have higher operating margins than EA, meaning more profitable. Activision has 2,000 employees and Vivendi Games has 4,000, while Electronic Arts has 7,500.

The combined company would be "No. 1 in revenue, No. 1 in profit margin, and No. 1 in quality," said the company's CEO Kotick.

(Xinhua News Agency December 4, 2007)