I bet you didn’t see it coming…In the most surprising gaming news of the year, Activison and Vivendi has signed an agreement to create Activison Blizaard, a new gaming company that combines Vivendi Games, Vivendi's interactive entertainment business, and Activision.

Vivendi Games is the owner Blizzard Entertainment, the company that created World of Warcraft, the biggest MMORPG (multi-player online role-playing) gaming franchise to date.

With 9.3 million subscribers worldwide, Blizzard projected calendar 2007 revenues of $1.1 billion, operating margins of over 40% and approximately $520 million of operating profit. Also, Blizzard owns other famous gaming franchises such as Starcraft and Diablo.

On the other hand, Activision holds games franchises such as Guitar Hero, Call of Duty and the Tony Hawk series, as well as Spider-Man, X-Men, Shrek, James Bond and Transformers.

In the last fiscal quarter Activision has grossed revenue of $317.7 million, which is up 69 percent from a year ago and has topped even Wall Street’s expectations of $262 million.

The new company, Activision Blizzard, is expected to have approximately $3.8 billion in pro forma combined calendar 2007 revenues and the highest operating margins of any major third-party video game publisher. With these revenues, Activision Blizzard will easily surpass the biggest third-party publisher Electronic Arts, which has annual revenue of about $3 billion. The deal is expected to be completed in the first half of 2008.

Activision Blizzard's board of directors will be comprised of eleven members: six directors designated by Vivendi, two Activision management directors and three independent directors who currently serve on Activision's board of directors.

"By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard will be the only publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry and reach the broadest possible audiences," said Activision's Chairman Robert Kotick.

Lately, due to the introduction of the new gaming consoles, the gaming market is booming. For example only in US, according to the latest NPD Group report, total videogame software sales for October came to $513.9 million, up 39% from the same period last year.

But also the production costs have increased. According to IDC Games analyst Billy Pidgeon games can now cost up to $50 million dollars to create, which means that even larger publishers cannot afford to release failures.