A dark day for the weakest video game publishers

It was a dark day on Thursday for the weakest video game publishers.

A trio of publishers may not be long for the world: Midway Games, Eidos and D3 Publisher.

First, Midway Games filed for bankruptcy protection. The famed Chicago publisher of the Mortal Kombat series filed to reorganize to escape a burden of $150 million in debt. In December, Sumner Redstone gave up on his investment in the game company. He sold his stake to investor Mark Thomas for $100,000 plus $70 million in debt, largely to get a big tax break.

Redstone, chairman of Viacom, had acquired his 87 percent stake in the company by investing a little at a time, until he had invested $400 million, to no avail. In the past few years, Midway has lost more than $300 million. The company’s European operations are not included in the filing. But the company has only $10 million in assets and a crushing debt load. It’s hard to see what will come of this.

Meanwhile, Japan’s Square Enix made a bid to buy Eidos, the U.K.-based game publisher of Lara Croft Tomb Raider fame. Tokyo-based Square Enix offered $120 million to buy Eidos, which is also trying to renegotiate its debt load. The once high-flying Eidos had the benefit of three Angelina Jolie Tomb Raider movies to market its games. The Eidos board accepted the offer, but it was unclear what Time Warner, which owns 20 percent of Eidos, would do.

Clearly, Square Enix, publisher of games such as the Final Fantasy series, needs to expand in Western markets, since Japan’s game market is shrinking. In this sense, it is following rivals such as Sega Sammy Holdings, which has spent the last few years acquiring Western game developers.

Lastly, Namco Bandai said it was going to acquire D3 Publisher, the maker of the Ben 10 series of games. D3, based in Tokyo, has accepted a deal in which Namco Bandai will take a 70 percent stake in D3 with an option to buy the rest.

This is all part of the creation and destruction of video game companies. But in this recession, you can expect a lot more destruction. While new companies are sure to sprout, it’s not easy to see a brand like Midway, which has been around since it made pinball machines in the 1950s, flushing down the toilet. It makes me think again about DFC Intelligence’s recent report about how we’re seeing the profits of the video game industry shift from the West to the East. Certainly, we’re seeing the winners and losers go through an accelerated natural selection because of the recession, which is like a comet hitting the earth.