DreamWorks Interactive, Electronic Arts Eyeing Deal.

RECOGNIZING that size is crucial for survival in the video-game industry, ream Works Interactive as of late last week was negotiating to expand its relationship with monolithic U.S. video-game publisher Electronic Arts.

The extent and details of the pending deal had not been publicly disclosed as of last week, but sources familiar with the talks said they center on Electronic Arts making a major equity investment in or outright acquisition of DreamWorks Interactive. EA currently publishes DreamWorks' game titles.

DreamWorks Interactive Chief Executive Glenn Entis acknowledged that talks were underway, but would only say, "We have been extremely happy with our (EA) relationship, and that can always be food for thought in the future. I have nothing to add beyond that at this time."

DreamWorks Interactive, with just under 100 employees at its Bel-Air offices, scored a recent winner with its new WWII game, "Medal of Honor." The game racked up high holiday sales, has become one of the most-rented PlayStation titles in the nation, and has appeared on numerous best-of lists. According to Entis, the business is now "solid and profitable."

Improving fortunes notwithstanding, some industry watchers believe that DreamWorks would be wise to sell part if not all of its interactive division.

"DreamWorks hasn't hit the out-of-the-ball-park success it had hoped to have by now, and is still very much a small boutique shop," said one analyst. "Turning to EA is a solid, logical move for it."

Meanwhile, Universal Interactive Studios, also keen on bulking up, signed a broad agreement with electronic game developer and publisher Konami Co. Ltd. in December. The Tokyo-based gaming-industry heavyweight will take over the marketing and distribution of almost all Universal Interactive games, present and future. Universal's titles are expected to realize an exponentially greater presence in the market, thanks to Konami's massive global reach. The two companies also want to leverage each others' intellectual properties across multiple media platforms, with Universal landing a first-look option at turning Konami's popular game franchises into TV shows or movies. (Everyone wants to be behind the next Pokemon.)

"Universal's attitude toward the games group has grown very positive over the last year or so, with our success really putting us on (the parent company's) radar screen," said Jim Wilson, senior vice president and general manager of Universal Interactive Studios.