With no other bidders emerging for Midway Games, Warner Bros. has bought most of the company’s assets for $33 million, including the “Mortal Kombat” franchise as well as the company’s legacy arcade games, such as “Joust” and “Spy Hunter”.

The bankruptcy judge overseeing the sale apparently wasn’t swayed by Threshold Entertainment’s argument that film producer Larry Kasanoff was the driving creative force in the franchise. (The Chicago Tribune quotes the judge as saying the objections, as well as those of Vin Diesel-owned development studio Tigon Games were ‘resolved’.

A pair of development studios that Warner opted not to buy will be shuttered in just under two months if no bidders emerge for them. The Newcastle studio has worked on the “Wheelman” franchise, while the San Diego studio has created the “TNA” games. Warner did purchase rights to the “Wheelman” games, but not the development studio behind it.

Warner picked up some valuable assets at firesale prices in this deal. Expect another “Mortal Kombat”/DC crossover in the years to come and possibly some re-imaginings of classic titles. The company has been beefing up its video game division steadily over the past few years and has managed to assemble some talented teams. It should be interesting to see what they do with some of the licenses they now own.

The firesale at Midway Games may have hit a hurdle. Lawrence Kasanoff, through his company Threshold Entertainment, has sued Midway saying it owns intellectual property rights in the “Mortal Kombat” franchise, which is the video game publisher’s largest property.

he suit could affect Warner Bros.’ $33 million bid for select Midway assets (including “Mortal Kombat”), as rights to the franchise will need to be determined before a sale can take place. Threshold also wants to retain the film rights to the franchise.

The complaint, filed Wednesday in U.S. bankruptcy court, alleges the film adaptations of the game, rather than the game itself, gave the “Mortal Kombat” universe its mythology.

Launched in 1992, “Mortal Kombat” wasn’t the first fighter game the industry had seen, but it was the first to really capture the public’s attention. Not all of the attention was good, though, as parents groups and others objected to the game’s violent finishing moves. 

Nonetheless, it was deemed big enough to make a film adaptation in 1995.

Threshold alleges his contributions to the franchise were what made it into more than a run-of-the-mill video game.

"The 'Mortal Kombat' franchise, as it stands today, is far more a creation of Threshold and Kasanoff than of Midway," says the court filing. “ Midway's creative input was almost entirely limited to the videogames. On their own, the videogames provided only minimal back-story and mythology, and only flat, 'stock' characters. ... Kasanoff and Threshold were responsible for virtually all of the creative input that went into turning the videogame concept into a multimedia enterprise.”

Threshold produced two “Mortal Kombat” films (along with their soundtracks) in 1995 and 1997. It has also produced an animated series and owns the mortalkombat.com web site.

Warner’s bid for assets is scheduled to go before a bankruptcy judge in Delaware on July 1.

GamePolitics has a copy of the filing here for those interested in giving it a thorough read.

Warner Bros., which already had a solid presence in the video game world, is looking to expand its turf. The company today offered $33 million to buy several key components of Midway Games.

Midway, which filed for Chapter 11 bankruptcy protection in February, has been on the block for some time. What’s interesting is what Warner wants – and what it plans to leave on the curb.

The “Mortal Kombat” franchise, natch, is on the ‘gimme’ list, as are development studios in Chicago and Seattle. Warner’s also interested in Midway’s legacy games, including arcade standards “Gauntlet,” “Joust” and “Defender”.

But Warner has no interest in Midway’s license to create games based on the TNA wrestling franchise or its other studios in San Diego and Newcastle.

The two companies have a recent history together, having worked on last year’s “Mortal Kombat VS. DC Universe,” so Warner’s familiar with the Midway team and the strengths and weaknesses of the company, giving it an advantage should it acquire the assets.

But Warner’s bid is really the start of a longer process. Once it’s made formal before the bankruptcy judge, other companies will be able to submit counterbids for roughly 30 days. (Look for Ubisoft to give this serious consideration.)

From there, it’s an old-fashioned auction. The submitted offers will act as opening bids, but companies will be able to increase them. And a Midway spokesperson says he expects Warner to get some competition.

“We do expect other bidders to come in,” says Geoffrey Mogilner, director of corporate communications for Midway. “We’ve been talking with a number of parties throughout this process. There’s always the possibility they’ll come in for all portions [of the company].”

Sorry for the unexplained delay. I was out of town and didn't get a chance to warn my faithful reader(s) I'd be away. More original reporting and other good stuff coming tomorrow, but here's the big stuff that happened while I was away:

-More rumors that Warner Bros. is one of the bidders for Midway. Wouldn't be surprising at all. The studio would get a lot of IP, and a good brand name, pretty damned cheap, to further its video game ambitions.

-The last remaining in-production Sierra game passed on by Activision Blizzard without a publisher, "Wet," finally found one: Bethesda Softworks.

-Speaking of Bethesda, it landed hot-again Oscar nominee Mickey Rourke to do the voice for its upcoming military shooter "Rogue Warrior."

-Another realistic military shooter, "Six Days in Fallujah," has lost its publisher. Konami chickened out in the face of public controversy and dropped the game. More specifically, the word is that Konami's conservative Japanese executives had no idea what kind of criticism the game might face and quickly told their enthusiastic American subsidiary, which made the deal, to reverse course. Really disappointing news for those of us who would like to see publishers taking risks and pushing the boundaries of the medium and the kind of stories it could tell. And yet more evidence that we're not likely to get that from any of the big Japanese companies.

-Microsoft isn't exactly off to a good start in its efforts to produce original video content for Xbox Live. Writing on his blog, horror director James Gunn, who made a short as part of the "Horror Does Comedy" series the Xbox 360 maker did with Saffran Digital Media to produce its first original video for the service, wrote "Microsoft/XBox was by far the most dreadful, non-talent friendly company I've ever worked for." In short, the company repeatedly censored and cut Gunn's piece (totally rejecting the first one, in fact), acting as if they didn't know what they would get from the maker of "Slither."

This is obviously an attitude and reputation Microsoft is going to have to change since it really does aspirations to be, as Gunn wrote, "their own network, as well as a gaming console, DVR, and way to buy movies."

Already rumored on several blogs, Warner Bros. and its many partners today revealed that "Lego Rock Band" is indeed real and coming out for the holidays.

Talk about a marketer's wet dream: You've got two of the biggest brands in the video game world merging along with two of the biggest genres (music and kids/family). This is one of those games that won't take any explaining in the advertising: the name says it all. And practically guarantees good initial sales.

When you think about it, "Lego Rock Band" is the perfect complement to this fall's "Rock Band: Beatles Edition." The latter is looking to extend the franchise's demographics older and the former to move them younger. In both cases, they could help to ease Viacom's "Rock Band"-related financial woes -- Despite solid sales, the games have so far been money losers.

All the merging makes for quite a complex business deal, however. Warner Bros. is publishing the game. Its wholly owned subsidiary TT Games, which has the rights from the Lego Group to make video games based on that license, is developing "Lego Rock Band." MTV is essentially serving as the licensor here, giving Warner the rights to make a game based on its video game brand. And of course "Rock Band" developer Harmonix will be consulting.

What will "Lego Rock Band" be? Essentially "Rock Band," but with adorable, fully customizable characters, and more family-friendly songs like Carl Douglas' "Kung Fu Fighting" and Pink's "So What." No Ramones or Beastie Boys in this game, I'm betting.

I've confirmed that it will be compatible with all the existing "Rock Band" instruments (and probably most of the "Guitar Hero" ones). No official word on whether there will be any unique guitar, drum and microphone controllers made out Legos (or faux Legos), but , c'mon. The odds of that happenings are about the same as the odds of there not being any new "Guitar Hero" games this year

I'm definitely a fan of games that limit their scope and fulfill all of their ambitions as expertly as possible. It's much better than games that do too many things half-assed. But no matter how good the execution, there's such a thing as too limited a scope, particularly given current business realities.

Case in point: "Wanted: Weapons of Fate." Universal definitely impressed me with its first self-published AAA title. It's almost impeccably executed. The studio took a risk waiting seven months after the movie's release, and three months after the DVD, in order to get the game to a high quality bar, but it was worth it, as I wrote in my recently posted review:

But with a full priced 360/PS3 title, gamers can reasonably expect they'll have a lot to do with these awesome mechanics. That's where "Weapons of Fate" fails. The single player campaign takes about five hours to complete. That's it. Unless you're really compelled by harder difficulty settings or the option to play through the game as a different character from the movie, the game is over. There's no multi-player, even though the bending bullets and slo-mo shooting could have made for a fantastic twist on the standard online deathmatches (tough to execute, I'm sure; but nonetheless it feels like a glaring omission).

In today's market, putting out "Wanted" with so little content seems like a crazy choice by Universal. "Weapons of Fate" screams rent it or buy it used (no surprise, then, that it topped Gamefly's rental charts for this week). Games rely on selling a certain number of new, full-priced copies to turn a profit. But players have too many options to skip that step if a title isn't compelling enough to justify buying it at $60. And there's simply no reasin in the world to buy and keep "Weapons of Fate." Helll, there are plenty of downloadable titles for $10 or $20 with substantially more gameplay.

Which means, I suspect, "Wanted: Weapons of Fate" will be played and enjoyed by many, but still not do much for Universal's bottom line. The best case scenario might be taking the mechanics of "Weapons of Fate" and expanding them into a sequel with ambitions high enough to justify a $60 disc.

Full review: Wanted: Weapons of Fate

February video game sales data was just released today and all the data, including the top 10 titles, console sales, and industry growth, are below. But here are your key points:

The industry is slowing, but still growing despite the recession

It's nothing close to the phenomenal 34% growth of the U.S. video game business last year. But 10% when the rest of the economy is contracting is still quite impressive. And software and hardware are contributing virtually evenly to the mix -- a good sign that the hardware cycle isn't slowing and that current gamers aren't cutting back disproportionately on buying new titles.

Microsoft had a good comparison, Sony had a bad one

The 54% jump in Xbox 360 sales is impressive. But you have to remember that last February Xbox 360 sales were dismal, due largely to supply constraints post-holiday and in anticipation of "Grand Theft Auto IV." This past Fall's price cut helped too of course. But nothing as amazing as that 54% number would indicate actually happened for Microsoft. It's just back to where it should be.

Sony, meanwhile, had a decent month, given its recent problems. Sales were almost flat, despite the fact that the PS3 sold unusually well last February (thanks in part to the then-recent victory of Blu-ray, as well as the 360's supply problems). Still, I'm sure Sony would love to see PS3 sales actually grow for a change. The PSP, meanwhile, continues to suffer. No wonder Sony's pushing aggressively for big new titles like "Hannah Montana," "Assassin's Creed," and "LittleBigPlanet" on the device.

 Killzone 2, Street Fighter IV both had solid launches

323,000 units in fifth place isn't bad for a PS3 exclusive that launched on the last Friday of the month. Quite good, in fact.

And Capcom kicked ass, at least as far as February releases go, with "Street Fighter IV," selling 849,000 units across the two high-end consoles. By contrast, Capcom's big sequel last February, "Devil May Cry 4," sold 528,700 on the same platforms.

FEAR 2 and 50 Cent, not so much

Warner Bros.' heavily hyped "FEAR 2: Project Origin," it's first stab at a non-licensed title for the  hard-core market, flopped. Despite launching early in the month, both the PS3 nor 360 versions sold less than 136,000 units. There are all sorts of possible reasons, most notably that in the current economy mid-level hard core titles simply aren't selling. But it's still a bad sign for the studios' ambitions to compete with major publishers that a sequel with relatively good reviews couldn't do better.

"50 Cent: Blood on the Sand," had the same problem, though it did launch late in the month. Still, THQ's expectations may have been more modest, since it bought the former Sierra title from Activision at what was likely a sizable discount off the full development cost.

Remember Nintendo? They're still dominating

There were no major new Nintendo releases, but that didn't slow the House of Mario down too much. It still claimed five of the top 10 games, with another, "Guitar Hero: World Tour" breaking into the top 10 only with its Wii version. Notably, the newest Nintendo game on the top 10, was at #1, "Wii Fit." It's "only" nine months old. "Mario Kart DS," meanwhile, is on the top 10 over three years after its debut.

And the Wii, once again, topped the market, growing 74% -- helped, of course, by easing supply. DS sales were flat, but still well ahead of every other console except the Wii.

It appears that Frodo is coming home. Not to the Shire, but to Warner Bros.

Though neither company said anything about it, New Line's licensing deal with Electronic Arts for "Lord of the Rings" games expired at the end of last year. Originally set to end in 2007, the two companies agreed on an extension that March until the end of 2008 (the pact also included literary rights holder Tolkien Enterprises).

The last game released under the deal was January's poorly received, soft selling "Lord of the Rings: Conquest" (one of the reasons the game turned out so badly may have been that developer Pandemic had to get it done before EA's rights expired at the end of 2008, though apparently the publisher got a two-week reprieve to release it in early January).

Since EA first got its hands on the "Lord of the Rings" license back in 2001, New Line has transitioned from an independent studio under the Time Warner corporate umbrella to a label for Warner Bros., which now handles most of its business operations. Warner, of course, has its own videogame unit, Warner Bros. Interactive Entertainment, that has grown from a licensing unit to a full-fledged publisher with its own slate of AAA titles.

So, you own a major publisher... you just got back the interactive rights to one of the top entertainment properties in the world... Can you guess where I'm going? It's a safe bet that Warner Bros. won't be licensing out "Lord of the Rings" again. Instead, based on logic and what some sources have told me, expect Warner Bros. to start producing "Lord of the Rings" games itself soon (whether they're based solely on its films, or also stuff from the books, will depend whether it makes a deal with Tolkien Enterprises).

What, oh what, kind of games might Warner do with the "Lord of the Rings" license? Well, there are two "Hobbit" movies that New Line is producing with MGM for 2011 and 2012. Not only is there an obvious movie tie-in or two, but that could also help revive interest in any games set in Middle Earth.

A Warner Bros. Interactive Entertainment rep declined to comment.

As movie studios increasingly handle their own videogame publishing, this will continue be the trend. Why keep licensing out your best stuff if you can make the games yourself? Disney, for instance, is in the process of taking back the Pixar license from THQ, which has the rights to make games based on "Up" and one more film, most likely 2011's "Newt" (Disney is doing 2010's "Toy Story 3").

Of course, while "Lord of the Rings" is big, Warner Bros. has another videogame license currently in the hands of EA that it's no doubt salivating to bring back home: Harry Potter. That won't happen for a while, though. EA's deal extends through Warner Bros.' last film, which will be part 2 of "Harry Potter and the Deathly Hallows" in 2011. (Although, according to reports, WB may already have its studio Traveller's Tales working on "Lego Harry Potter," perhaps in some kind of co-publishing deal with EA.)

Update: Joystiq picked up this post and added a good additional point I forgot about: Warner Bros. is a major equity holder in Turbine, developer of "Lord of the Rings Online,"  and published the most recent expansion "Mines of Moria." That means it has the "LOTR" console and MMO videogame rights all wrapped up internally. How precious.

Update 2: Another bit of evidence confirming this report comes from GamesIndustry, which reports that an animator at developer Traveller's Tales revealed on a resume that her company had pitched Peter Jackson on a "Lego Lord of the Rings" game. Traveller's Tales is owned by Warner Bros.

Imagine how annoyed fans we would all be if Hollywood took our favorite video games and turned them into movies by simply remaking existing films and inserting the games' characters and settings.

Yet that's exactly what we tolerate, again and again, the other way around when games adapt movies. The latest example is "Watchmen," for which the creative process appeared to consist of answering the question: "Into what existing game genre can we just drop some characters from the movie and comic?"

The answer, of course, is a brawler, and so we get "Watchmen: The End is Nigh," which might better be called "Bad WatchDudes" or "Who Watches the Double Dragon?" (If they wanted to give the game a title in the form of a horrible pun, that is)

That might be fine, if you were dealing with a property that's all about kicking ass and taking names, with a somewhat ironic take to make up for the fact that the gameplay is so very retro. It does help that brawler games were popular in the '80s, when "Watchmen" came out, but the comic and movie are decidedly not ironic.

As I wrote in my review for Variety, "The End is Nigh" turns a "dense and cerebral comics classic into a distressingly shallow videogame in which there's nothing for players to do but beat the living crap out of everyone they see."

Sure, there's some excuse in that the game takes place in the '70s when playable characters Rorsach and Nite Owl were kicking ass as crimefighting partners, but it's still "Watchmen." There should be something to do besides take down literally every single person you encounter (isn't there a single innnocent citizen walking around New York?). But that's literally all you do for six chapters, culminating in a lame boss fight where you have to take out a guy wearing body armor, which means it takes several dozen punches, kicks, and crowbars to the head to knock him out.

There is a plot that attempts to be "Watchmen"-esque, but it's just as old fashioned as the brawling in the sense that it's not connected at all to the gameplay. To make matters worse, it's not even connected to the characters. Rorsach and Nite Owl are just clueless pawns in somebody else's conspiracy, a conspiracy pretty thoroughly described in the comic, meaning anyone who read it won't be very surprised to see what happens.

The result, unsurprisingly, is that it's hard to build up much motivation to engage in 20 year-old gameplay with no connection to the story.

That being said, players who just want a brawler will appreciate that it's well made. The animations are fluid and detailed, the controls are responsive (if a bit too easy for hard core players), and the graphics are out outstanding, especially for a $20 downloadable title.

But I couldn't escape the same feeling I had while playing "Quantum of Solace," which basically just took "Call of Duty: Modern Warfare" and slapped James Bond and some scenes from the movie into it. Of course we have to be respectful of the fact that we're unlikely to get the most originality out of movie-based games, since they're always made on tight schedules (although allegedly "Watchmen" was made downloadable to help ameliorate that problem). But if you're going to turn a movie (or any source material) into a video game, I really feel strongly that you need an idea that respects the spirit of the source material. Not just an existing genre and set of mechanics that you can justify, somehow, using for the movie's purposes.

Full review: Watchmen: The End is Nigh

I'll have my full review of "Watchmen: The End is Nigh" online tomorrow, but playing the game the last couple of days brought an issue to the forefront of my mind: Shipping a game with offline-only co-op in the year 2009 is an abomination.

When you play a game like "Watchmen" or, to bring up the last major release that spring to mind, "Kane and Lynch," in which co-op is key and there's no online component. It's almost like the publisher is giving you the finger. "We recognize that playing with a friend is key to enjoying this game," they seem to be saying to you. "But we were just too cheap or too rushed to hit our release date to bother making it possible in the way most people play with their friends today. Enjoy this game in the same way you would have if it had come out in 1985."

And when the game in question is a downloadable title, like "Watchmen," meaning that every single person playing it has an Internet connection and therefore (unless they are playing it on an Xbox 360 and are not an Xbox Live gold subscriber) has the ability to play it online, it's like they gave you the finger and then flicked you in the ear for good measure.

To be honest, there's virtually no reason for split-screen co-op anymore. The only genre for which it still makes sense is racing games, because it's a competitive game suitable for short play sessions. That makes it appropriate to play with friends in the same room. And unlike most sports games (also short and competitive), everyone can't play off the same camera.

I suppose there's nothing wrong with including split-screen co-op as an option. "Gears of War" (1 or 2) via split-screen sucks, because it's really hard to see get a good view of the battlefield when there's so little vertical space and everything is so frikking tiny. But if your buddy doesn't have an Xbox 360 online, or the two of you can only afford one copy of the game, it's better than nothing.

But split-screen co-op on a game that takes at least a few hours to play, isn't competitive, and is harmed by a constrained view space, like "Watchmen: The End is Nigh," is inexcusable. The fact that you can't play online is so annoying, in fact, that I think I might have preferred it if Warner Bros. had just shipped the game with no co-op at all, so it wouldn't be so painfully obvious what's missing.

Four years ago, Warner Bros. Interactive was a little publisher within a movie studio formed to make “The Matrix Online.” Despite some setbacks along the way (like sales of that first game), it has since expanded into a major publisher, buying developers like Monolith, Traveller’s Tales and Snowblind and putting out substantial games like “Lego Batman,” “Speed Racer” and “Justice League Heroes.”

This week marks a milestone, however. “F.E.A.R. 2” is the first major game (I won’t count “Guinness World Records”) published by Warner Bros. that’s not based on one of the studio’s existing properties. It’s proof that WB is ready to invest tens of millions of dollars to play in what’s pretty much the most competitive market out there: PC/PS3/360 shooters. (And so far it’s getting solid, if not spectacular, reviews.)

Of course, it’s not the ultimate risk of a new IP. The original “F.E.A.R.” was published by Vivendi Games in 2005. However Monolith held onto the rights to the property – but not the name – which means it’s now owned by Warner Bros. Last year, after Vivendi Games merged with Activision, WB bought the name to go with its game, which had been called “Project Origin” (that's now the subtitle).

Given what a big step it is for a movie studio to enter this space, I spoke yesterday to WB’s senior VP of production Samantha Ryan about why WB decided to do “F.E.A.R. 2” and whether it’s ready to play in the shooter space.

Ben Fritz: Why did you guys decide to make “F.E.A.R. 2” and get into the 360/PS3/PC shooter category. It seems much riskier than what you’ve done in the past. Is it important for you to have a franchise in that category?

Samantha Ryan: I think it’s essential in order for Warner Bros. to be viewed as genuine, full fledged game publisher. Most people wouldn’t ask a THQ or EA whether they needed to be in the shooter space. They would say it’s one of the biggest categories out there, so if you want to be a true publisher, you need to be making the products people want.

People want shooters. We happen to own one of the finest shooter studios in the world. So it makes lot of sense for Monolith to do something in the shooter category.

Warner wants to be a true publisher in every sense. That means taking our own franchises and doing them big and also embracing original IP upon occasion.

 BF: So it sounds like it’s important you have a game like this for Warner Bros. to be viewed as the kind of publisher you want to be?

SR: I wasn’t thinking perception. I was thinking that financially we want to be a true publisher. That means you have to compete in spaces that are considered a bit more hard core, such as the shooter space. If you look at some of the most successful franchises, they’re shooters. For us to be as financially robust as possibly can and healthy, we need to have the best possible product mix. We want to be in all the same spaces as any normal publisher. We want to be in casual, hardcore, shooters, rpgs, platformers.

BF: How long after buying Monolith and the first “F.E.A.R.” coming out did you decide to go ahead with the sequel? Was it a tough decision to start that expensive, risky process relatively early in WBIE’s life?

SR: It didn’t take a lot of internal debate. The “F.EA.R.” franchise was immediately successful and Warner Bros. responded. Warner is also responsive to the needs of creative people. It was important for the creators at Monolith that we do a sequel.

BF: How big a deal was it that you were able to get the name back?

SR: It was very helpful. But I don’t think it was necessary. If you look at “Goldeneye,” or “Perfect Dark,” that type of thing can work when you’re transitioning to a slightly different game that’s basically in the same universe. That being said, the name and IP belong together.

BF: Was producing, and now marketing, a shooter that’s not based on a film or TV show a very different process for the company?

SR: There was some adjustment because it’s aimed at a slightly different audience. I don’t see it as a huge adjustment. I think Warner Bros. has a strong tradition of understanding what sells, what people want. That applies across the board. I don’t see it as outside Warner’s core competency. One of the things Warner Bros. really gets is how to make content that people really like and how to market it.

BF: The fall is the most obvious time to launch a AAA action game. Why did you decide on February? Was it a matter of production schedule or this was the best date?

SR: We’ve done research and early springtime is one of the most successful launch windows for hardcore IP. If you analyze the entire year, of course Christmas is great. But a hardcore gamer who buys 10, 11, 12 games a year is not a Christmas buyer. Look at the next “Resident Evil” launching in March.

It’s a great game for hardcore gamers and those folks are buying games year round. They’re not the casual Christmas buyer who swoops in in November.

BF: Did many of the same people who worked on the first “F.E.A.R.” work on the sequel? And as  someone who has been around Monolith since then, how do you think the sequel compares to the original and is different?

SR: It’s a mix. Quite a few of the folks who worked on “F.E.A.R” 1 and also some new talent…

Sequels are challenging in that you have an expectation that you will deliver new stuff, but you don’t want to stray from what people want. I’m really happy with the result. I think we did a good job balancing everything people told us they like the most in the “F.E.A.R.” franchise.

BF: I also wanted to ask about your recent acquisition of Snowblind Studios. I know they’re very close to Monolith geographically. So you must know them all?

SR: Seattle is a very small game community. We have known Ryan and those guys for a long time. We have a lot of respect for them. They’re a really solid developer. We played most of their past games before they ever joined Warner Bros. It makes it really nice that they’re not that far away, so communication is easy.

BF: But they’ll retain their own identity and leadership separate from Monolith?
 
SR: Absolutely. We totally respect what they’ve been able to do.and respect that their brand has value for consumers. We want to acquire the best talent that we can. We will do more acquisitions in the future. If there’s a great studio out there that we feel brings great talent to table, we’re interested

After several years of poor results and a bad holiday season for the latest iteration of its key franchise, "Tomb Raider: Underworld," Eidos is throwing in the towel and agreeing to sell itself to Japanese videogame publisher Square Enix for a measly $120 million. Shareholders still have to approve the deal, which appears likely.

Given the dismal current state of affairs for the company's finances, it probably couldn't do much better. There was little hope its nearly worthless stock would rise anytime soon. And in the fiscal year ending June 30, it lost 143 million pounds (not sure what the exchange rate would have been at the time) and had only 25.9 million pounds in cash left.

But while it's probably the best move for Eidos and its shareholders right now, it's a very sad state of affairs. While the offer of 32 pence per share is a 129 percent premium compared to yesterday's closing price of 14 pence, it's about 40% less than what the stock was trading at as recently as this summer and a tiny fraction of the trading price in early 2008.

As one of Eidos' largest shareholders, Warner Bros. is particularly screwed. In December of 2006, it bought 10% of the game publisher for $86.8 million. Then in April of 2008, it agreed to invest about $30 million for another 10%. Today, as part of the Square Enix announcement, Eidos announced that Warner Bros. will be ponying up its 20% stake. Its payment? Approximately $24 million. Which means the movie studio has lost around $93 million on its Eidos investment. Ouch.

(Of course, Warner Bros. has long been considering buying Eidos. The fact that it would rather take that big a loss than spend another $100 million or so to buy the whole thing tells you what it thinks of the publisher's prospects.)

In addition, Warner Bros. had a deal to distribute and market all of Eidos' games in North America. Square Enix will surely take over those duties once it takes control (though I wouldn't be surprised if WB still handles "Arkham Asylum," since it comes out soon -- this spring -- and it's based on a Warner property). Given Eidos' recent performance, it's hardly a huge blow, but still, it's the end of a plan announced with much gusto about two years ago.

Eidos was the last publisher using Warner Bros. for North American distribution and marketing. Back in late 2006 and 2007, it signed partnerships with companies including Eidos, Codemasters, Empire and Brash to handle those duties as part of a larger strategy of becoming a videogame distributor. But that didn't work out and all the partners left WB fairly quickly. Now the studio is back to just handling its own games from Warner Bros. Interactive (though it does have the upcoming one-off "Wanted" that it's handling for Universal).

Assuming the deal gets approved at a shareholders meeting early next month, it will be interesting to see what this means for Square Enix. Best known for the "Final Fantasy" franchise, the publisher is very Japanese. Eidos' assets -- development studios in the UK and North America along with franchises like "Tomb Raider" and "Kane and Lynch" -- are very Western. Which means Square Enix will be a much more global company.

Warner Bros. Interactive Entertainment is building quite the little videogame development hub in metro Seattle. The first game developer it bought was Monolith, back in 2005, which made the studio's first self-published game, "The Matrix Online." Monolith has gone on to form the core of WBIE's operations in many ways -- former Monolith head Jason Hall was WBIE's first top executive; the next Monolith head Samantha Ryan is now SVP production; many of the publisher's producers and other staff actually work out of Monolith's offices in Washington state, rather than WB headquarters in Burbank, CA.

Today WBIE bought Snowblind Studios, developer of its 2006 so-so seller "Justice League Heroes," as well as.two "Champions of Norrath" games for Sony Online and "Baldur's Gate: Dark Alliance" for Vivendi. It's almost certainly no coincidence that Snowblind is located in Bothell, WA, a whole seven miles from Monolith's HQ in Kirland, WA. I'm going to take a wild guess and say that given that they're in the same industry in the same community and have worked together on one game so far, the folks at both studios probably know each other really well.

WBIE's other developer, of course, is Traveller's Tales in the U.K., which it acquired in 2007 when "Lego Batman" was in the works. That's an entirely different animal, since it was a premium $200 million acquisition (no word what Snowblind cost, but I'd bet a lot less) and is pretty much off in its own universe making Lego games for family auds.

Snowblind was clearly bought to join Monolith in making titles aimed more at the core gamer crowd.

The only thing all three studios have in common, of course, is that they made the three biggest games that Warner Bros. has self published so far.

No word yet on what Snowblind will be doing for WBIE. The only game officially on its slate is XBLA actioner "Death Tank." WB may handle distribution on that, but I'd imagine it has much bigger plans.

In an otherwise dismal earnings report (is "dismal" becoming redundant before "earnings report" these days?), Time Warner pointed out a bright spot in its Warner Bros. entertainment unit: video games.

Particularly, "Lego Indiana Jones" and "Lego Batman," both of which were developed by Traveller's Tales, which WB bought in late 2007. In addition, "Lego Batman" was also published by Warner Bros., which means all the money it made came straight into WB's coffers, while most of the "Indy" moolah went to LucasArts.

After going through the declined in TV and DVD revenue at WB, Time Warner's earnings report notes that, "These decreases were offset partially by growth in interactive video games revenues, due primarily to the releases of LEGO Indiana Jones and LEGO Batman."

Of course, the first full year of owning any new subsidiary is always going to look good, because everything it makes is new revenue compared to the previous year. And of course we still don't know whether or when all that revenue can make up for the hefty $200 million or so that WB paid for the studio.

But still, hits are hits and WB could use them. And without Traveller's Tales, its only major videogame release would have been "Speed Racer," as well as "Tomb Raider: Underworld," which it distributed for Eidos. I doubt either one of those would merit a positive mention in earnings.

No wonder, then, that WB has a new Lego game, "Lego Battles," coming this summer, a DS-only title that reproduces classic fighting scenarios with the blocks like castles, pirates, and space. It's the first "Lego" game that won't be developed by Traveller's Tales, which has the Lego interactive rights. Instead it's being made by Canadian studio Hellbent Games.

The Lego franchise may be getting so big now that Traveller's Tales doesn't have the bandwidth to handle it all. The British studio hasn't announced its next project, though it's widely rumored to be "Lego Harry Potter," which sounds like about as surefire a hit as WB could conceive.

Last year there were rumors about a "Dark Knight" game from EA that might have come out with the blockbuster film's DVD, and then further rumors that the game had been killed, which it obviously was.

Kotaku Australia has a good story of how things went wrong. Why Kotaku Australia? The game was in development at EA subsidiary Pandemic Studios' Brisbane office (which has recently gotten the axe amongst EA layoffs). The basic story is the oldest one in the book when it comes to licensed games: Not enough time to make the game (only 18 months) so then, when the studio encountered technology problems (as happens so often with videogame development) it couldn't possibly hit its date in time with the movie, not even the DVD date. 

With all the talk about quality and making sure games, especially licensed ones, have the necessary development time from both EA and Warner Bros., it's pretty sad that it's the same old story here.

It's a shame for numerous obvious reasons, not the least of which is that a game based on the biggest movie of the year could have made a lot of money, even if it wasn't all that good.

Of course it won't be too long until we get a new Batman game, since Eidos is working on "Arkham Asylum," based on its license of the comic book IP in 2006.

Warner Bros. has upped its stake in "Tomb Raider" publisher Eidos (which happily no longer has an official corporate name of Sci that we all have to pretend to care about ) from 16.1% to 19.9%. Eidos didn't have to disclose how much Warner spent, but based on the company's pathetic trading price of about 18 pence, it's likely about $2.75 million. Or practically nothing.

Does this mean Warner Bros. is moving toward buying Eidos and moving it into its growing WB Interactive videogame division? Possibly, but not necessarily. Warner recently got permission from Eidos to buy as much as 30%, so the studio could just be taking the opportunity of a very low trading price to get more of a stake in anticipation of things improving next year thanks to games like "Arkham Asylum." (For which Warner is also licensor and U.S. distributor) It might even be upping its stake in anticipation of somebody else buying Eidos, which could net Warner a nice profit. Or really it maybe is moving closer toward the goal of buying the storied but troubled British publisher.

All I know for sure is that Warner is very interested in the potential Eidos offers and is, at a minimum, taking a very cheap opportunity to increase its bet on the company's future.

Here's a very cool use of videogames for a great cause.

As part of a larger corporate partnership with the U.S. government, Warner Bros. Interactive Entertainment is launching a free multi-player PC game in Kenya intended to change HIV risk perception, attitude and behavior. Called "Pamoja Mtaani" ("Together in the Hood"), it's launching in youth centers in Nairobi, Kenya.

This is how WBIE describes it:

The “Pamoja Mtaani” game, developed by noted serious games developer, Virtual Heroes, Inc., follows five strangers who are brought together through unforeseen circumstances, losing what is most precious to each of them. Working their way through various East African neighborhoods, players must recover the stolen items and help an injured woman on their quest. Along the way, they will experience barriers and facilitators to behavior change through a variety of missions and mini-games.

The five person game, which can be played via LAN, also has music from Kenyan hip-hop artists. All of the characters are being introduced via trailers that the studio is producing.

"Pamoja Mtaani" is part of the Partnership for an HIV-Free Generation, a public-private partnership that's part of the President's Emergency Plan for AIDS Relief.

Kudos to Warner Bros. for not only getting involved, but using its videogame unit to engage young people in this vital issue.

CVG is reporting that the next Lego game from Traveller's Tales will be "Lego Harry Potter." This sounds like a very good bet to me.

After all, Traveller's Tales chief Jon Burton told Variety freelancer Leigh Alexander over the summer that the developer was getting started on Lego games based on the IP of its new corporate parent Warner Bros. Given that Harry Potter is one of WB's most valuable properties, not to mention probably the one that's most kid-friendly and thus appropriate for the Lego formula, it's almost a no-brainer. I'm kind of embarassed I didn't think of it earlier.

I have a feeling we'll all be collecting lego pieces around Hogwarts by the end of 2009.

(This is the fourth of eight or so posts going up throughout the holiday weekend tied to an article I have in the forthcoming weekly Variety that looks at the promise of Brash Entertainment, the first Hollywood videogame publisher, and the reasons it went from $400 million to out-of-business in a year and a half. The article and posts are all based on extensive interviews with nearly a dozen former employees, executives and developers who worked at or with Brash, most of whom understandably spoke only on background. The posts here on the Cut Scene will summarize and expand some of the key points from the Variety article and also provide some interesting details and anecdotes that didn't make print.

You can read the entire article here.

You can see all of my related posts, and get all the important background, on the Cut Scene's Brash category page.)

One of Brash's well, brashest (I had to say it at some point) moves came over the summer, after an unheralded break up with Warner Bros.

When it launched last year, Brash's partnership with Warner Bros. was one of its big selling points. The movie studio, which already had its own videogame unit, would handle worldwide distribution (for a fee, of course) through its home entertainment division. That freed the start-up publisher from the expense of building a distribution infrastructure and establishing relationships with major retailers. It was also part of a bigger partnership with Warner Bros. built in large part of the connections of Thomas Tull, Brash's co-founder, who's chairman of Legendary Pictures, the co-financier of a number of WB's biggest tentpoles.

By late spring or early summer, Brash ended its deal with WB. Some insiders told me it was because relationships between the two had totally soured. Others said it was purely a business decision, as Brash executives concluded they could build and maintain their own distribution network for less money than the fees they were paying Warner Bros. Some also pointed out that by building its own distribution network, Brash would actually have a valuable asset should it ever try to find a buyer (since a bunch of licenses and a brand name aren't exactly worth that much).

The move was kept pretty quiet, known only to some in the industry and none of us in the press. Brash apparently got things together enough to self-distribute "Space Chimps" in July (albeit only to sales of 59,000 in the US, though that may have been due mostly to the low quality and weak theatrical performance of the film). Apparently Brash was doing a decent job setting up distribution in the U.S. -- where there are really only a few key retailers anyway -- but had a tougher time in Europe (not even sure if they were distributing in Asia).

It's tough to say how successful Brash was, since at this point, it's moot. Some say building up internal distribution in a relatively short amount of time was one of the company's notable achievements. Others say it was a waste of resources and an enormous distraction at a time when the company was falling apart.

(It should be noted that Brash isn't the only partner to stop having Warner Bros. distribute its games in North America. Codemasters ended its deal after a year and Empire Interactive worked with WB a bit then stopped. Eidos, in  which Warner Bros. owns a stake of more than 16%, is the only publisher that still does so. )

Want a solidly crafted "Tomb Raider" game that does most things right, gets a few annoying things wrong, and doesn't really push any boundaries? According to Variety critic Leigh Alexander, "Underworld" is the game for you.

In other words, it captures most of the qualities that have made for good "Tomb Raider" games in the past, and has been missing in the many not-so-good ones:

As Lara investigates diverse settings including caves, jungles and ruins, the world around her acts as a subtle puzzle. The player must navigate her across dizzying heights, precarious ledges, and just-made-it leaps. Although it’s old hat for cucumber-cool Lara, awesome visuals married to tight design make it appropriately thrilling for the couch jockey.

There's only one new feature that really caught Leigh's attention: the ability to tweak everything from Lara Croft's health relative to her enemies to how much ammo she has to how easily she can avoid being grabbed. That level of precise adjustment is unusual, and a nice touch to open the game up to all sorts of players.

But there's also the problems so many "Tomb Raider" games have had that this one can't solve: lame combat; an opaque and pointless story; a camera that, as Leigh writes, "keeps getting wedged between the wall and [Lara's] butt."

My favorite part of the review, though, is Leigh's brief exploration of a larger issue in the world of "Tomb Raider" games that really does bear further exploration:

Even veteran players may find themselves faced with a vexing question as this ninth series entry hits the market: “What does Lara Croft do, exactly?” Contrary to the title, she doesn’t seem to spend much time in tombs. Whatever her work entails, it’s brought her an enormous mansion, a fancy boat, and no shortage of Bond-like gadgets, all of which she uses to launch her latest escapade into ancient ruins, undersea caverns, deserted temples and the like.

Full review: Tomb Raider: Underworld

You may have already seen today's announcement that there's a "Terminator: Salvation" videogame coming this May along with the movie. Not exactly a surprise, especially since Halcyon Games, a division of "Terminator" rights holder Halcyon, said last year it was going to make that game.

But things have evolved since then. Today's announcement featured five separate companies involved in the game. I spoke to Warner Bros. and Halcyon today to sort it all out. Here's everyone involved:

-Halcyon Games. It owns the rights and is the licensor. Halcyon Games president Cos Lazouras (who used to run Vin Diesel's videogame procdution company Tigon) is overseeing the development at...

-Grin, the Swedish maker of "GRAW" and the upcoming "Bionic Commando" game.

-Equity Games Productions, a Swiss copany that's funding production of the game, along with...

-Evolved Games, a Brithsh/American firm that's apparently closely tied to Equity and helping fund it.

-Warner Bros, which is distributing the game, as well as handling PR and marketing, worldwide, through its Warner Bros. Interactive Entertainment division. WB is also distributing the film domestically, while Sony Pictures is handling it internationally.

Got it? Good. Now what about the game? I don't know too much, except that it's an action game in which players control John Connor, who's played by Christian Bale in the film. Apparently movie director McG has been involved in the game production. No consoles have been announced, but since it's an action game based on a likely R-rated movie (which means a T- or M-rated game), Playstation 3 and Xbox 360 are very safe bets, with possibly a PC version too.

I think "Terminator: Salvation" now replaces "Arkham Asylum" as the most convoluted videogame business deal fo the year.

Given the their frequent cross-over into sci-fi fandom, I'm sure many gamers will be interested in the news in today's Daily Variety that Warner Bros. is developing a new version of the '80s TV mini-series V for ABC (lizard invade in a Nazi/holcaust allegory -- it's cheesy now but was creepy then).

Perhaps even more interesting to gamers, however, is that Jason Hall is attached as an executive producer. Formerly the head of Warner Bros. Interactive Entertainment (and before that, Monolith, developer of "F.E.A.R." and "the Matrix Online"), Hall is now a producer and also an online personality as host of "The Jace Hall Show" on Crackle.com.

The article by my colleague Michael Schneider doesn't say much about Hall's involvement besides that he might extend "V" into other platforms, including gaming. We can only speculate exactly what Jason will do, since he wasn't available to talk, but his company HD Films has been focused on cross-media content ("The Jace Hall Show," machinima series "Chadam" for Warner, the "Brothers in Arms" movie in development), so his involvement indicates ABC and Warner are thinking bigger than just a few nights of TV for "V."

Hard to say exactly what that means -- an ARG? a virtual world? extensions of the story via gaming or online? All of the above? The only thing clear right now is that involving someone with Hall's background means the new "V" team is probably aiming to do interactive stuff that's developed from early on a cohesive part of the property's re-launch, instead of just licensing out a crappy mobile game at the last minute.

It's also a sign that Hall, who exited his post atop Warner Bros' videogame division with the kind of "production deal" that's often's nothing more than a face-saving way for executives to be shown the door, is making a real go of it as a producer. As far as I know, he's the first former videogame executive to do that.

One of the advantages of being part of a major media conglomerate is the ability to put on a huge marketing push in multiple media with relative ease.

That's what Warner Bros. has done for "Lego Batman," as Variety reporter Marc Graser details in this story. There's a tie-in to an animated "Justice League" DVD, a DC Comic, ads on Cartoon Network and KidsWB.com, trailers on Warner  Bros. DVDs, and even a toy tie-in at McDonalds.

Warner Bros. of course has a good relationship with McDonalds for Happy Meal toys. But when was the last time you saw a videogame company score a tie-in with McDonalds? I don't remember one.

"There are tentpole films and we're trying to create tentpole games," Warner Bros. Interactive president Martin Tremblay told Marc.

As more and more traditional media congloms get into videogames (Warner Bros. and Disney have big operations, Universal and Paramount are just getting started), these multi-media promotional blitzes are a big advantage they have over traditional publishers, which do videogames and not much else.

Consider, for example, the partnerships EA has had to make just to get a "Dead Space" comic and animated direct-to-DVD movie. That's the kind of thing Warner Bros. or Disney can do with ease.

Of course, it's a bit easy to do this with "Lego Batman," since the caped crusader is a known quantity in every corner of the Time Warner world. It'll be really interesting to see if Warner Bros. Interactive can produce equal excitement with its corporate siblings for a more hardcore title like February's "F.E.A.R. 2."

You can get all the details on the "Lego Batman" marketing assault in Marc's story here.

Related: Lego Batman review

My review of "Lego Batman" just got published, and I just haven't got many negative things to say. If you like Lego games, if you like Batman, and/or if you're under 13 or so, it works. Big time.

My problem with "Lego Indiana Jones" was that the property was so ill suited for the format. It didn't work as "cute" and there just weren't many interesting characters and settings to see made out of toy bricks.

"Lego Batman" is the exact opposite, which is exactly why it works so well. Gotham City is literally teeming with fun characters, gadgets, vehicles, etc., and you get to play with them all and be amused a their Lego interpretation. Especially the rogue's gallery. There are 15 different Batman villains here, from the ultra-famous (Joker, Catwoman, Penguin) to the obscure known by geeks only (Mad Hatter, Clayface). And the very cool part is that you get to play them all. By giving the villains their own playable levels, "Lego Batman" essentially doubles the content in previous Lego games.

But still, the formula is the formula. If you're tired of button mashing combat and simple puzzles, you'll get bored with "Lego Batman." But if you like that formula, it's done better than ever here. And if you're 10 (the real intended audience, I'd wager), you'll love it.

One detail that didn't wasn't exactly worth of inclusion in my review: Sexy most definitely doesn't translate in Lego form. I never knew Poison Ivy and Catwoman could be so unalluring as when they are made out of blocks. When Catwoman kisses Batman, I was basically thinking "Man, you could do much better."

Also, if you're a fan of Danny Elfman's music from Tim Burton's two Batman movies, be warned: The music is used so repetitively here, and in such an adorable context, that his score may stop seeming original and moody and become annoying and comical. That's what happened to me. Please, Traveller's Tales, start expanding your musical scores.

Here's an excerpt of my review:

Making a game like this work depends on a wealth of characters and settings that can amuse and entertain with their Lego brick interpretations. With more than a dozen colorful villains like the Joker, Penguin, Catwoman and Mr. Freeze, as well as allies Robin, Alfred and Batgirl to go along with a Batmobile, Batplane, and Batcycle, the source material feels endless. This decidedly non-gritty interpretation of Gotham City is more compatible than "Indiana Jones" and even "Star Wars" with a simple plot for tykes, though the original script lacks the charm of seeing classic movie scenes re-interpreted in Lego form.

And you can read the whole thing here.

I hadn't thought about this before, but it makes perfect sense that Activision Blizzard's clearance sale of all Sierra's assets would work well for Warner Bros. Now that ActiBlizzard is abandoning the F.E.A.R. franchise (it wasn't in that much vaunted list of five surviving franchises), WB was probably able to buy the name, presumably pretty cheap. And so the upcoming "F.E.A.R." sequel being made by Monolith Productions, developer of the original, and published by Monolith's corporate parent WB finally gets the "F.E.A.R." name back. The new name is "F.E.A.R. 2: Project Origin." After going through a whole contest to let fans come up with a new "F.E.A.R."-free name for the game when it didn't own the rights, it's nice of Warner Bros. to keep "Project Origin" in there. The game comes out February 10, which is interestingly right about when "Turok" came out last year. Which perhaps makes sense, since based on what I saw at E3, "Project Origin" appears to be, like "Turok," a perfectly solid but not incredibly innovative FPS.

Also of note today, the producer of the "Max Payne" movie has an agreement with 3D Realms to develop a "Duke Nukem" movie, says Kotaku. Now all they need is a take on the movie, a funding source and/or a studio. It's a positive development for "Duke" fans, but not exactly a reason to start lining up at the multiplex in the next five years.

I'll be spending most of the rest of the day playing more "Spore" and "Rock Band 2" to finish those damned reviews, so apologies for light posting...

The fact that Electronic Arts today officially delayed its "Harry Potter and the Half Blood Prince" game from November to next summer is of course not news at all, since anyone who did just a bit of reporting and had a smidge of common sense would have known that was happening the moment Warner Bros. delayed the movie last month (as I wrote at the time).

What is interesting, however, is that the delay has forced EA, in an SEC filing, to disclose exactly what kind of revenue and profit it expected from the game. And it's impressive: $120 million in revenue and a profit of 13 cents per share, which, based on a simple calculation, looks like it would be about $41 million. While it's tough to say how many units $120 million equals, given the varying prices for different SKUs and the various players (retailers, console makers, licensor Warner Bros.) who get a cut, but suffice it to say, that's many millions. Plus a very healthy profit margin of around one-third of revenues, which is very impressive and indicates that the game doesn't cost that much to make (perhaps not a surprise for a licensed sequel).

EA will of course be fine, with the same revenue and profits just pushed back to its next fiscal year. But it's pretty impressive that this one game represents about 2.5% of this mega-publisher's expected revenue and a much more hefty 10% of profits (both on a non-GAAP basis, for the accountants out there).

Goes to show that despite all the talk about the importance of original IP, a license based on a hit property with broad appeal around the world and in all demo's can be extremely valuable to a videogame publisher.

On a related note, Reuters' assertion that the delay is the reason for a 3% drop in EA stock today seems highly dubious. Anyone who trades EA shares and didn't immediately assume the the movie's delay last month meant the same thing for the game would have to be a total fool.

By now you probably know the basic details about "Batman: Arkham Asylum," the new game coming out next year in which the Caped Crusader has to fight his way out of the home for the criminally insane where most of his infamous villains are incarcerated (if you haven't heard, check it out here or here).

Beyond the game deatails, though, there's an intricately convoluted business relationship. According to the release, Warner Bros. Interactive Entertainment and Eidos will "co-publish Batman: Arkham Asylum in North America," while "Eidos Interactive will publish the game in all other territories."

So what does that mean? Well, Warner Bros. has licensed Batman to Eidos. So it's the British publisher that is completely funding and overseeing all the development at RockSteady Studios. In that sense, it's just like Warner Bros. licensing to EA or Activision or whoever else. As with those deals, I assume WB is getting some kind of a multi-million dollar advance against royalties for the use of one of its prime pieces of intellectual property.

But there's more to it, because Warner Bros. owns a 20% stake in Eidos (for details, see this April story). So it's more like a license to a favorite son. With the promise that if the game is successful, 20% of the profits flow right back.

And that's not the only way Warner Bros. has a stake in the game. It has an existing deal in place with Eidos to distribute and market all of its game in North America (That's why it's listed as co-publisher in North America.). That means it gets a fee, and/or a cut of sales revenue, for Eidos games sold here, for its trouble.

Long story short:Warner Bros. has a lot more fingers in the "Batman: Arkham Asylum" honey pot than on a standard licensed game

It was just three years ago, when I was a relatively fresh reporter covering videogames for Variety, that I wrote with a colleague that Turner was making "a surprising jump into the videogame biz."

At the time, executive VP of business development said that Time Warner division Turner, which operates TBS, TNT, the Cartoon Network, and other cable stations, was "looking to replicate our business model with the next best thing -- games."

The basic business model was, and is, that subscribers would pay $10 per month to access hundreds of games on the Web -- mostly classics from the arcades and earlier consoles. Since then things have changed a bit. It started introducing original episodic games like "Sam and Max" (pictured left). It launched, and then shut down, GameTap TV -- a video offering with original stuff like a new "Tomb Raider" cartoon and even original episodes of "Space Ghost: Coast to Coast." Last year it even briefly had an editorial section that competed with IGN, GameSpot, etc.

Turner never revealed subscription numbers, but my sense is that while GameTap was far from a disaster, it never achieved the kind of scale the company was hoping for. Efforts to grow the brand beyond subscriptions, like the editorial and video, failed. And it was never effectively integrated into other parts of Turner, not even Cartoon Network's Adult Swim, which is aimed at a similar demo.

So perhaps it's not surprising that Time Warner is moving on. In today's earnings, the conglomerate revealed that it has taken an $18 million impairment charge for GameTap. Essentially, that means it was calculating GameTap as being worth $18 million more than it now thinks it is, or it now thinks it can sell it for. Again, not a big success, but given that it has been around for three years and surely spent much more than $18 million, not a debacle.

It's worth noting that Turner is in general pulling back on its separate digital brands. Just recently it decided to shut down SuperDeluxe, the comedy video website it launched in 2007.

Turner's corporate statement on the matter isn't enlightening at all, but for what it's worth:

There is considerable marketplace interest in the GameTap business and brand.  We are considering various strategic options but have reached no final agreement as yet.

Online gaming is a growing business and there's increasing interest in episodic content, not to mention that Turner has spent plenty building gamer awareness of the GameTap brand, so I think it's very likely Time Warner will find a buyer. For GameTap's sake, hopefully it'll be somebody with a stronger commitment to the videogame business.

One obvious question: I wonder if anybody at Time Warner ever thought about folding GameTap into Warner Bros. Interactive Entertainment (the studio's videogame division). Not sure if WBIE would have wanted it, but it seems like it would have been a better strategic fit than Turner, at least. However I'm told by a source that such a move was never seriously considered.

Continuing our series of excerpts from the interviews we conducted for Variety's videogame impact report, here's an interview with Jon Burton, president of "Lego Star Wars" developer Traveller's Tales, which was acquired by Warner Bros. last year for a reported $200 million-plus. The interview was conducted by Variety reviewer, GamaSutra news director, and SexyVideogameLand proprietor Leigh Alexander.

Leigh finds out some fun things from Jon, including why getting acquired by a big publisher like Activision wouldn't have been a good fit, indications that there are more Lego games based on Warner Bros. properties beyond "Lego Batman" in the works, and hints that he's interested in making animated films.

Previous videogames impact report interviews with Penny Arcade auteurs Mike Holkins and Gabe Krahulik, "Metal Gear Solid" creator Hideo Kojima and Bungie Studios CEO Harold Ryan are already online. A few more will be coming soon.

How did Travellers' Tales Begin?

We started the company about 19 years ago –- just myself and a colleague worked out of a back bedroom, slaving away, and making our first game.

Which was?

Leander, for the Commodore Amiga way back when. We actually developed it and took it to Psygnosis, which became Sony Europe. They liked it, and signed it right there and then, and we said, "Give us a month!" You know, to make sure we can deliver what we say we can.

It was a bit like walking into a film studio and pitching a film… and then saying, “well, I’m not sure yet!” But a month later, they still wanted the game. Since then we've worked on loads of big IPs. Several Sonics, several Crash Bandicoots, Mickey Mouse... obviously, the Pixar films Finding Nemo and Toy Story. And Narnia, with Disney.

In recent times, the LEGO series. Four years ago, Travellers' Tales acquired Giant Interactive, the publisher which had the rights to the LEGO IP... [it was] unusual for a developer to acquire a publisher, but it was because we've done well with our games. We took a punt creating LEGO Star Wars, published it ourselves and it sold 6.5 million units. It was the one we’d taken a gamble on, so that worked out quite nicely.

How did it lead to you guys being acquired by Warner Bros.?

We got sort of a reputation for treating people's IPs well, and we did a lot of work... we did Transformers last year, lots of film stuff. We got talking with Warner Bros. about LEGO Batman, and it's from that initial conversation... we went ahead making that game with them, and it's from there we thought... we work really well with them, and it sort of grew from that initial discussion into what we are now, which is part of the Warner Bros. family. That worked really well, with us being so used to working with IPs.

And Warner Bros. has the biggest IPs on the planet, really, and obviously with Batman, and Harry Potter and the New Line roll-in stuff, these are great IPs you want to work with as a developer. And we sort of kept our independence - even though we're part of Warner Bros., we still have a degree of autonomy, which is what we wanted for our staff and for the company.

So with all their big IPs, Warner Bros. arguably could have chosen to partner with any studio, or to acquire probably any one they wanted. Why you guys?

I think we're fairly unusual - in the industry, anyway, in that we would always work with very aggressive timelines from very early on... with Toy Story way back in 1993, we were given seven months to make that game by Disney, which we did, and that was the first game ever that came out with  the film. And it went on to sell 3 million units, which at the time was huge. That became our bread and butter - deadlines with film tie-ins - because film couldn’t move. So we could deliver these top IP games… on time with the movies.

How do you think it serves these big film IPs?

We have the LEGO license, which when coupled with older brands - for instance, Star Wars... could reinvigorate that license completely. LEGO Star Wars sold 15 million copies so far, and yet there hasn’t been a film for a good few years. We partner with lots of stable movie properties and breathe new life into them. And the more classic and revered they are, the older players have the fun of the parody and gentle humor.

Plus, it introduces kids into the property, and we make money! We've got a great bottom line, so it made sense.

What else is good for you guys about the Warner partnership?

Warner, with building and establishing their presence in the game space... being there early on, and Warner's now experimenting and looking to build out its game division seriously… and to be there at the start and be influential is great. They appreciate my input. I'm suddenly able to influence the growth of their interactive entertainment division, which is really exciting for me.

So what’s next for you?

We’ve gotten started doing some LEGO games on the Warner IP... down the line. And for me personally, I think further in the future we’re making a kids’ TV show... using some of the tech we've developed for games. In the mid-distance, personally, to be able to dabble around in CG and film would be interesting, and Warner allows me to push in those directions without "quitting the day job," so to speak. So for me, to look to the future and think, "I wouldn’t mind [doing a film]..." And Warner allows me to take a step in that direction, and if I suck? Great, I'll make games.

I've got experience in top-level design and direction and have spent 18 years analyzing movies, so it’s "how do you build that into a game?" It's very interesting and exciting, but it’s just one possible avenue that’s available for me personally within this deal. If I'd wanted to do this in another arena – if we'd been acquired by, say, an Activision, I'd have to leave, and then I'm out of the industry.

If we did get to making movies... we could make the game and the film at the same time, and there are so many things you could build at the same time. My dream is combining the two, and making a property that you can share all the assets across everything taking place.

Time Warner's recent lead role in a recent $40 million investment round for Turbine Entertainment is already bearing fruit. The conglomerate's Warner Bros. Interactive Entertainment videogame publisher has landed distribution rights for "Mines of Moria," the first retail expansion to Turbine's "Lord of the Rings Online." Apparently investing tens of millions of dollars and becoming a major equity holder makes it easy to influence Turbine to leave its former publisher Midway and switch to WBIE.

Given that Warner Bros.-owned New Line made the "Lord of the Rings" films and is co-producing the upcoming "Hobbit" movies, there's some obvious synergy here for the studio. If "LOTRO" stays alive by the time the first "Hobbit" film comes out in 2011, I think we can expect Warner Bros. to take that opportunity try and use that opportunity to boost the game.

(On the right is concept art from the "Moria" expansion)

The blogosphere is abuzz over the possibility that there will be a "Dark Knight" video game coming out soon, possibly with the DVD release. The evidence is this G4 clip, since pulled by the network from its website but captured in very low quality on GameTrailers, in which the host says the game is "rumored to be released later this year along with the DVD." They then have a brief interview clip with Gary Oldman (Commissioner Gordon in the movie) talking about how they game developers are trying to build a gliding mechanism. (video is embedded below or you can watch it here)

I haven't been able to confirm anything in my reporting, but I'll go out on a limb here and say it's (virtually) impossible that a "Dark Knight" game is coming out with the DVD. Variety's home entertainment reporter tells me that the DVD will come out by December at the latest (to take advantage of holiday shopping, natch) and what do you think are the odds that a major publisher like Warner Bros. (the rights holder, with its own vidgame operation) or EA (which published the "Batman Begins" game in 2005) would have a AAA console game coming out in under five months that it hasn't yet announced?

Given that Warner Bros. just started talking about "Watchmen," which is a downloadable game that comes out next March, and EA was showing off what they claimed to be their full lineup for the year at E3, I'd say it's extremely doubtful.

Yes, Gary Oldman clearly had seen some kind of videogame tie-in being developed. It could be a game concept that never took off. It could be a "Batman" tie-in coming further down the road (since there will inevitably be a "Dark Knight" sequel given the mega-box office numbers). But a "Dark Knight" videogame coming with the DVD this year? I'd bet a lot against it at this point.

Most videogame executives at studios are well aware of the deservedly bad reputation that movie-based videogames have. The smart ones (and many of them are smart) are trying to find ways to improve the quality of the genre, as recent news from Marvel, Universal and Paramount all demonstrate (click through for details).

Today brings the news that Warner Bros. is taking an innovative, and I think quite promising, new approach with "Watchmen." Turning this fan favorite comic turned movie into a videogame is, of course, a no brainer. But making a AAA console title in time for the film's release this March would, as is always the case with the tight schedule of theatrical releases, be difficult.

Warner's solution is to turn "Watchmen" into a series of downloadable episodic videogames. Two are already in the works from Danish developer Deadline Games, and if they're successful there could be more. Warner Bros. Interactive's senior VP of production and development Samantha Ryan says this model lets the studio make a game that's just as high quality as a AAA disc-based game ("complete with shaders and physics"), but have it done in time for the theatrical release by simply making it shorter (the second installment should come out with the DVD).

If "Watchmen" goes well, I think we can expect Warner and other studios to follow this example, since it's a good way to put out a game that takes advantage of the huge studio marketing spend on a movie release without putting out something that's embarrassing to the producers and ultimately harmful to the IP.

For full details on the "Watchmen" game, check out my story in today's Daily Variety. But for even more in-depth info, here are some excerpts of my interview with Ryan about the strategy and the game:

Me: Why make "Watchmen" into downloadable games? Is it simply a matter of time?

Samantha Ryan: What we're trying to do with "Watchmen" is create the best quality game that delivers the experience fans expect from what we believe to be a great movie and a great property. Rather than the more traditional "time is limited squeeze the puppy onto the market" route, we wanted to craft something that's the best possible game it can be.

There's a great crossover between "Watchmen" fans and gamers. It's a hard core property and a hard core movie and a hard core game. A downloadable game allows us to deliver the experience that fans expect.

Me: So this is the same quality as an AAA game, but just shorter?

SR: It's not a 10 or 20 hour retail game. But it's a solid game experience for what it is and will be priced appropriately.

Me: You obviously didn't feel you had the time to make a high quality disc-based game. So how long do you have to work on the downloadable "Watchmen" games?

SR: Just over a year. We really feel like we're setting a new bar for what it means to be a downloadable game. It's not an Xbox Live Arcade title where we're recreating "Tetris" or a simple fighter. The graphics look as good as any traditional PS3 or 360 game sitting on the shelf at retail.

Me: Are you confident a short game will satisfy "Watchmen" fans?

SR: We still feel this game is satisfying and delivers what people want. It's more "Watchmen." We just don't want to get lost at retail. We don't want to have a low quality game. There's already tons of that out there. We'd rather give this the focus and care and attention it deserves.

Me: When will the episodes come out in relation to the movie?

SR: There will be a chunk with the film release. Several hours of gameplay with the film. After that there's another. They're both about equal in length. [The second is expected with the DVD]

Me: "Episodic" game implies that it can keep on going. So if "Watchmen" does well, would there be more than two episodes?

SR: We'll play that by ear. We're treading into a space where no one has tread before. No one has synced a downloadable game with a film of this magnitude. Very few have put out a downloadable game of this quality. It's a fairly significant investment of time and money. If it works, it could be a new delivery mechanism that we explore further.

Me: For movie-based games especially, this seems to make a lot of sense?

SR: You're thinking how I think when we have to get games done on incredibly tight schedules. Especially when they're adult games. When you're talking about content of this rich nature with a huge fan base, it deserves some tender loving care. With over a year to go, some people would have said "Sign me up for a retail sku." Maybe for a kids game, that would be fine. Not for "Watchmen."

(Wondering about the details of the game? All I know so far is that it's a brawler where you can play as Night Owl or Rorsach. Sounds like there's a good chance of co-op, though that's not confirmed. Ryan promises that the art style is fantastic and "captures the grim and gritty look of 'Watchmen.'" Hopefully I'll be able to see for myself and report back soon.)

Last year, soon after Jason Hall "ankled" (Variety's term for that nether region between getting fired and resigning that happens so often in Hollywood) his position as head of Warner Bros. Interactive Entertainment, I heard an interesting story from someone I know in the industry: While pitching his new production banner HD Films, Hall also let it be known he was interesting in acting. The 6'4" and seriously jacked Hall has always stood out (literally) in the industry for being a physically imposing guy and apparently he was eager to put that look to use in front of the camera.

It's a year later and Hall hasn't made it big thus far (at least in terms of stuff I know about) as a pure producer, but the acting thing is starting to work out. Newsweek's N'Gai Croal has an interview with Jall about "The Jace Hall Show," (which also has its own fledgling website here) a new show debuting on Crackle.com soon that will feature him doing interviews and comedy bits. It's apparently about "lifestyle, entertainment, celebrity and culture as it surrounds videogames" and features him in what he describes as a "hybrid ‘Curb Your Enthusiasm'-‘Jimmy Kimmel'-type of situation." I'm not really sure what that means either.

I'm definitely of the opinion that videogames need more coverage of the culture and personalities that surround them, just like other media get, so it'll be interesting see whether Hall can pull this off. Croal has a brief trailer on his Level Up blog that basically demonstrates that the show is going to be fast paced and feature interviews with some of the same kind of people you would expect to see at the Spike Video Game Awards -- Cliffy B, Zach Levi, etc. -- and some less obvious folks, like Gregg Grunberg from "Heroes" and the development team of "Duke Nukem: Forever."

Just as interesting is the way "The Jace Hall Show" is being distributed. It's on Crackle.com, which is noteworthy only in the sense that it's owned by Sony Pictures. Apparently Warner Bros., which had a first look deal with HD Films when Hall left last year, either wasn't interested or didn't have a home for it.

But it's also going to be available on Xbox Live for $1. As far as I know, it's the first original Internet content that's being sold on Xbox Live. Are people willing to pay $1 for something they can get on the Internet for free? Will five minutes for $1 sell better or worse than 22 or 44 minutes of network television for $2?

(I also feel the need to note, just for the record, that despite Croal's claim at the top of the interview that his blog Level Up had "an exclusive first interview" with Hall when he left Warner last year, we actually posted our story, complete with quotes from Hall, earlier that same day.)

As if all of Warner Bros.' activitiy in the videogame space wasn't enough, Time Warner is getting into the biz though a different direction.

The conglom's Time Warner Investments (a group I hadn't heard of) has taken a lead role in a $40 million equity financing round for Turbine, developer and co-publisher of "Lord of the Rings Online," amongst other MMO's.

This is entirely separate and apparently had little or no involvement from Warner Bros.' Interactive Entertainment, the studio's videogame division that owns Monolith and Traveller's Tales and has built up a 20% stake in Sci/Eidos.

There's also an interesting connection to Time Warner's New Line, which made the "Lord of the Rings" movies and is co-making the upcoming "Hobbit" films with MGM. However, Turbine's license for "LOTR Online" is with the Saul Zaentz company, which controls the book rights, and not with New Line. Nonetheless, getting deeper into the "LOTR" biz only makes perfect sense for Time Warner.

Time Warner Investments describes itself as making "non-control strategic investments," which basically means it's not interested in taking control of Turbine, but it does think Turbine's business has connections to other stuff that Time Warner does and might be looking for ways they could work together. So even though the movie/videogame studio may not have been involved directly in this deal, don't be surprised if its sibling Time Warner unit connects it with Turbine at some point.

Getting a foothold in Turbine might be a new approach for Time Warner to the potentially lucrative but risky MMO biz after its disastrous experience with "The Matrix Online," which it eventually sold to Sony.

Sorry for the relative quiet, but I'm working on a really big story that will be going online. Trust me, this is the kind of thing Variety does best. You guys will be grateful I put the time into it. Plus there will be a related interview with one of the big names involved available exclusively here on The Cut Scene.

Meanwhile, here are some things to enjoy...

-Brian Crecente review Warner Bros.' "Speed Racer" videogame for Variety. He says it's a viscerally fun racing title for the Wii, but doesn't have much of the movie/TV show's personality.

-Tom Chick reviews "Echochrome" for Variety. He loves how the game flips the perspective that players are used to, but finds that playing it for too long is frustrating and, quite literally, headache inducing.

-On MTV's Multilayer blog, Stephen Totilo asks whether critics have to "finish" a game in order to write a fair review and includes some questions about me and my "GTA IV" review.

I've already reported on this blog that a lot of Vivendi Games' projects (primarily those in the Sierra label) may have a hard time finding a home at Activision Blizzard once the merger is complete.

But it's just as true that most of the Vivendi execs who aren't part of Blizzard will have a hard time finding a home at Activision. From what I've heard, an exodus has already started and those who are still around are looking, because big layoffs are expected after the merger is done in a month or two and the Activision management team takes over.

One of the most senior execs, president of worldwide studios Martin Tremblay, just found what has got to be one of the more plum gigs in the videogame biz: president of Warner Bros. Interactive.

While most videogame companies are worried about getting acquired, Warner Bros. is investing heavily, both internally and via acquisition/investment (like Traveller's Tales and Eidos), to grow its position in the space. Tremblay will have the luxury of lots of money to invest and, as part of a big conglomerate, not nearly as much public scrutiny of his performance as he would get at an independent publisher that has to report its own earnings.

For Warner Bros., Tremblay is by far the most experienced (and certainly expensive) exec they've hired for their videogame division. The last person in charge of Warner Bros. Interactive was Jason Hall, whose experience was running developer Monolith, not a publisher, and who had a senior VP title, not president. For the past year, WB home entertainment head Kevin Tsujihara has been looking for a really experienced executive to head up all of the studio's videogame operations, which include internal production via Monolith and Traveller's Tales (and probably more developers soon), licensing, and North American distribution for partners like Brash, Eidos, and Codemasters.

While other studios, like Paramount, are just dipping their toes into videogame production, Warner Bros. is clearly moving aggressively and Tremblay's hire is just another big sign.

Read the whole story about Tremblay's hire on Variety.com.

By now you probably all know that Warner has invested $30 million and bought another 10% of Sci/Eidos as part of a bigger $119 million deal by the struggling "Tomb Raider" publisher to raise enough cash to stay alive.

But, as I wrote in Daily Variety today, the bigger story is how much power WB now has over the company's future. In addition to owning 20%, it controls the company's distribution and marketing in the North American market. That's the biggest videogame company for which WB has taken over distribution through its homevideo operation. It's a major coup.

More importantly, WB is now in a position to prevent any other big media company -- like NBC Universal  -- from acquiring Sci/Eidos. It's also in a very good spot to go ahead and buy the whole thing if/when it's ready. For now, though, WB seems just barely confident enough to let Sci's new CEO go through with his downsizing and re-focusing and try to turn this troubled company into one with a future. This quote I got from Warner Bros. home entertainment head Kevin Tsujihara, who oversees videogames along with DVDs, is pretty revealing on that front:

Sci recently announced a restructuring plan which includes a new management team as well as a number of strategic and operational changes. We think the plan is a good one, and we're impressed by the new management team, so the best option for Warner Bros is to support management's decision and work with them to build Sci's business.

So if Sci/Eidos does manage to get its sh*t together, look for its ties to WB to get closer and closer and quite possible turn into an acquisition. Warner, after all, is investing heavily in videogames, as evidenced by its purchase of Traveller's Tales last year.

Also worth noting, just to see how much things have changed in 16 months: In December of 2006, Warner Bros. spent $86.8 million for 10% of Sci/Eidos. Last week it paid $30 million for virtually the same size stake. Ouch.

Read the whole story in Daily Variety.