SEPT. 27, 2010 • Privately held ZeniMax Media is quietly looking to become a diversified power player in the video game business. For years, ZeniMax has been most noted as the parent company behind Bethesda Softworks. Bethesda remains the driving force behind ZeniMax, but the company focuses mainly on high-end retail titles. ZeniMax is now trying to leverage the success of Bethesda into online business models and is acquiring other AAA developers and IP.

Bethesda was founded in 1986 by Christopher Weaver, a man of technical genius but limited experience in the arena of business. Émigré consultant Vlatko Andonov joined the company full-time in the mid1990’s, presiding over the business side of operations. By the end of the millennium a new parent company named ZeniMax was formed by Weaver and Washington D.C. lawyer Robert A. Altman. The company was a rare example of a developer that self-publishes, with the goal of building themselves into a major publisher without a listing on the stock market.

Unlike most developers with only a handful of products, Bethesda did not use an outside publisher to market and distribute its products. Furthermore, for many years, they did this without resorting to publishing products from outside developers. Bethesda was one of the few pure examples of a developer/publisher. However, as ZeniMax expands and acquires more developers, it can be expected that Bethesda Softworks will start to become a publishing label with a more diversified portfolio.

ZeniMax (and by extension Bethesda) remains a fiercely private company. Nevertheless it is clear ZeniMax is wellfunded and the company has a board of directors more impressive than many public companies: currently including film producer Jerry Bruckheimer, the president of CBS, baseball star Cal Ripken, Jr., the chairman of Metro-Goldwyn-Mayer, and Robert S. Trump.

In October 2007, ZeniMax announced they had raised $300 million from Providence Equity Partners to “fund future growth, increase game development and publishing, facilitate acquisitions, and finance massively multiplayer online games.”

As a developer, Bethesda Game Studios is the most visible part of the company. Internally developed titles like Elder Scrolls and Fallout 3 garner positive press, gamer adoration, and seem to prove the wisdom of publishers that place big bets on long-cycle productions.

With all of the attention on Bethesda it’s easy to overlook the fact that ZeniMax has been quietly building up the foundation of what could become a more diversified, international player. Most observers are not aware that ZeniMax already has had a substantial stake in casual and mobile games for years. This is through the Vir2L Studios division, which does interactive advertising, handheld, mobile, and work-for-hire projects across the globe and in some emerging markets. Vir2L has also developed mobile versions of the core Bethesda franchise Elder Scrolls.

However, based on recent activity it is clear that ZeniMax is looking to use its success with Bethesda to expand more into major big budget products. Unlike other companies that seem to be shying away from big budgets, ZeniMax seems to be mainly about the AAA products.

In August 2007, the formation of ZeniMax Online Studios was made public. Matt Firor, formerly a founder at Mythic and responsible for producing Dark Age of Camelot, built a team from the ground up to create an MMO of epic proportions – often rumored to be Elder Scrolls Online. As Firor states: “We are committed to the idea that if you want to make a great MMOG, you have to ‘go big or go home.’” Which is a sobering statement in an era when Electronic Arts is willing to spend a rumored $180 million on BioWare’s Star Wars: The Old Republic, according to several industry insiders.

But it was the purchase of id Software in the summer of 2009 that brought the most attention to Bethesda. id created Doom and Quake, and were one of the most successful independent developers of the 1990’s. Like Bethesda, id has focused on a handful of AAA titles. However, unlike Bethesda, id has never had much luck at self-publishing its products. Now it appears Bethesda will be the publisher of record for id titles such as the upcoming Rage and Doom 4.

In August 2010, ZeniMax followed-up its acquisition of id by purchasing French-based Arkane Studios. For several years the developer had been working on a first-person shooter called The Crossing. When Arkane hit financial trouble in 2009, they were forced to put The Crossing on hold. It has been announced that Arkane will be focused on creating a new property.

With the recent acquisitions it is clear that ZeniMax is focused primarily on a strategy of executive producing promising AAA franchises, and publishing those games under the Bethesda Softworks brand. One of the first examples of this was in September 2009 when Bethesda published WET, a shooter from Montreal-based developer A2M. This was only a year after WET had been dropped by Activision Blizzard. Overall sales figures for WET suggest that any publisher who had covered monthly milestone payments and full marketing costs for the game would have lost their shirt since the title had a tortured history. WET was a Vivendi title, dropped by Activision after the merger in 2008. A2M bought back the IP at the point where the game was close to being finished. Publishing was subsequently taken on by Bethesda at a very late date in the product development cycle. In this case, risk was mitigated as enough original stake-holders had walked away.

Other examples of outside developed properties that may come under the Bethesda umbrella include Prey, Brink and Hunted: The Demon’s Forge. Prey was a multi-platform FPS released by Take-2 Interactive in 2006. The sequel was in development by start-up company the Radar Group since 2007. However, in late 2009 it was announced that ZeniMax had acquired the rights to Prey.

Brink is an original title by U.K. developer Splash Damage. Brink is another multi-platform FPS that has been in development for some time and is now scheduled for a first half of 2011 release. , Hunted: The Demon’s Forge is an original title from inXile Entertainment. Once again, Bethesda came along at a fairly late date in development. The story goes that inXile founder Brian Fargo was walking down the hall at the DICE Summit when a mutual friend introduced him to Bethesda Softworks president Vlatko Andonov. That was all it took to get Bethesda involved.

Such instantaneous decision making would be impossible at an organization with more bureaucracy – but also means that the company is completely dependent on the pure instincts of three or four top executives. Bethesda appears to have no real portfolio strategy beyond “developers we want to work with” and “the kind of games we like” and to simply add polish to whatever developers they think share a common ethos.

Brink, Hunted, and Fallout: New Vegas are prime examples of that strategy. As a private publisher, Bethesda is able to amplify the developer’s unique resources. With Hunted: The Demon’s Forge, Bethesda ensured it was polished to the nth degree.

Quality isn’t the only factor in the marketplace, however. Splash Damage developed Enn addition to Brink. Both use a heavily modified id Tech 4 engine. Brink might be a stunningly polished experience, but there is little reason to think this kindred spirit of Enemy Territory: Quake Wars will produce significantly higher sales figures. Conversely, Fallout: New Vegas is Obsidian Entertainment’s most polished work, and an intellectual property that has been proven in the marketplace. Bethesda would do well to continue to find other properties that were languishing like Fallout was five years ago to resuscitate.

Despite the acquisition of id Software, Bethesda has no plans to mandate shared technology internally – preferring to let each studio to use the technology they know will be best for the job. In addition, the decision has been made not to employ engine technology as a product category. For years id has licensed various iterations of the Quake engine to other studios, and had planned to do the same with idTech5 after the release of Rage. Now, however, chief technologist John Carmack has been freed from having to package the engine commercially.

With id’s best-selling franchises now in-house, Quakecon is becoming a more and more important part of the company, and Bethesda signed a deal with IDG Expo to run the show for them.

For years, Bethesda Softworks – and by extension its parent, ZeniMax Media – was a solid, steady operation with very reliable, high-quality output and very little in the way of surprises. Recent months have proved, however, that the publisher is charting an unexpected course.

Bethesda and ZeniMax have grown into a video game version of the old Miramax independent film studio before it was acquired by Disney. With the ability to reliably produce and distribute high quality titles that can also sell well, ZeniMax could a bigger share of the side of the game industry that makes big-budget blockbuster titles across multiple platforms. Of course, as always this assumes that their instincts remain sound and that they avoid being sunk by the risk of high profile flops that goes with the high risk/high reward AAA end of the industry.