Inside the World of Blizzard

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Some designers even plan vacations to coincide with major release dates in order to play alongside regular consumers.

And the company has boldly canned numerous products, even nearly finished games it deemed "not fun enough." An adventure spinoff based on the Warcraft franchise was ditched in 1998 despite widespread press coverage and high consumer anticipation. Blizzard executives make a habit of listing the many games that never made it out the door, including a long-delayed StarCraft-themed game for consoles that was first announced in 2002 but put on hold indefinitely in 2006 as the company grappled with the difficulties of the different platform. New games, meanwhile, are announced with ship dates of "when it's done."

These days, Blizzard presides over an ever-expanding universe composed of not only blockbuster games but also action figures, novels, manga, board games, pen-and-paper role-playing games, apparel, and conferences. In South Korea, where competitive video gaming is a televised sport, Blizzard's decade-old game StarCraft inspires such fervent loyalty that tournaments still draw some 700,000 spectators a year, nurturing a niche industry worth $40 million annually. Legendary Pictures, the studio behind blockbuster comic book adaptations like Batman Begins and 300, is currently working on a big-budget, live-action film based on WoW slated for 2009.

Bringing Together Two Well-Oiled Machines

Unlike other mergers, aimed at bolstering sagging businesses or nabbing market share, analysts widely deem Activision Blizzard to be the rare union of two well-oiled machines. Steve Bailey, an analyst with London market research firm Screen Digest, notes that Activision's console expertise could help Blizzard make the jump to the dedicated game systems produced by Microsoft (MSFT), Nintendo (7974.T), and Sony (SNE). According to Michael Pachter, an analyst with Wedbush Morgan Securities in Los Angeles, the deal should insulate Activision from the more seasonal console market, which peaks in a parental buying frenzy at Christmas. Instead, some of WoW's profits—as much as $600 million annually—can be put toward new products.

But for all the ink spilled over the Activision-Blizzard mega-merger and the attention paid to World of Warcraft—the game has been used in Toyota (TM) truck ads and parodied by South Park—the company's biggest releases could lie ahead. Executives have committed to releasing one new WoW expansion pack every year to keep the title competitive and to keep players paying the $15 a month subscription fee. Last year, it announced StarCraft II, a sequel to the firm's science-fiction strategy game. And, in June, the company showed the first footage of Diablo III, another highly anticipated sequel in development since 2005.

Some fans howled at Diablo III's public unveiling, complaining that the art direction too closely resembled that of World of Warcraft. The flap, to which designers quickly responded with an open letter explaining their choices, is evidence that Blizzard could yet stumble. Now, the game maker must deliver on its widening roster of games while making inroads into new genres and markets—all without abandoning the methods that, to date, have made it a darling with players and executives alike.

Vella is a writer for BusinessWeek.com in New York.