id Software acquired; How the deal came to be

It has been a day of big surprises and big moves in the video game industry.

Two major publishers have realigned their organizations to adapt to the economy, but the news that still has jaws agape is the acquisition of “Doom” and “Quake” developer id Software by ZeniMax Media, which also owns of Bethesda Softworks (makers of the widely respected “Elder Scrolls” and “Fallout 3” role-playing games).

id, for years, has been the poster child for independent game developers. Founded in 1991, it is the company that literally invented the first person shooter (with 1992’s “Wolfenstein 3D”). And the graphics engines created by co-founder and technology head John Carmack have powered countless titles in the industry.

The popularity of the genre Carmack and id created may ultimately have been the reason the company decided to seek a buyer. Because id focuses on development, it has historically partnered with publishers such as Activision and Electronic Arts to distribute its games.

Over the years, though, those studios have built internal teams that focus on the action genre – and publishers make a lot more money on internally created games than they do on ones from development partners.

“The market dynamics have changed over the past few years,” says id CEO Todd Hollenshead. “One of the problems with being independent was we increasingly found ourselves in competition with our publishers over our own titles. … With ZeniMax, we get a publisher who will be 100 percent focused on our stuff, because it’s their stuff too.”

The popularity of id’s games has extended to Hollywood as well. In 2005, Universal Picures released a cinematic adaptation of “Doom” (though the film’s box office performance wasn’t particularly strong). And “Pulp Fiction” co-writer Roger Avary is working on a script for a film based on the company’s “Wolfenstein” franchise.

Id and ZeniMax began talking a year ago, but neither was thinking about a merger or acquisition at the time.

“It was just a meeting to say ‘hey we’re interested in being involved with id somehow’,” says Hollenshead.

The general thinking of the two companies was it would probably result in a license for id’s graphics engine. As the principals continued the dialogue over the following weeks and months, though, a rapport developed and the suggestion of a buyout came up.

The paperwork took months – and was only finalized and signed yesterday.

“There was just an enormous amount of business sense that the transaction made,” says Hollenshead. “These are two companies that fit together perfectly. We have filled a huge need that they have and they have filled a huge need that we have.”

Carmack, Hollenshead and all of the principals at id have signed long-term contracts to stay with the company and there will be no layoffs at either id or Bethesda. id, in fact, is looking to hire developers to fill out a third development team (allowing the company to work on three titles at a time as well).

The addition of a third team probably won’t mean a flood of new intellectual properties from id. For now, Hollenshead says, the focus will remain on “Doom,” “Quake,” “Wolfenstein” and the forthcoming “Rage”.

“We’ll focus on the franchises we have for the foreseeable future,” he says. “Today’s deal doesn’t preclude us from working on something new, but we feel we have four huge brands and that there’s a lot of things we can do to make more games in those universes.”