The French media conglomerate Vivendi is merging its computer games business with its US-based rival Activision in an $18.9bn (£9.2bn) deal that will create the world's largest computer games company.

The move brings together franchises including the world's most popular online game, World of Warcraft, developed by Vivendi's Blizzard Entertainment, with Activision hits such as Guitar Hero (below right), and the Call of Duty and Tony Hawk franchises.

The two companies hope to create a "next-generation digital entertainment company" from a deal that will see Vivendi hold 52% to 68% of the new company Activision Blizzard, which will leapfrog the market leader Electronic Arts, home to The Sims and Medal of Honor games.

While traditional media such as film, TV and music struggle to adapt to the digital environment, computer games are increasingly using the ability to connect devices to the internetAdvertisers have also become interested in using computer games for their products as game franchises become more popular among young consumers

The global computer games market is estimated at more than $30bnDevelopment costs, however, are rising because of the proliferation of gaming consoles - the Xbox, Play station 3 and Nintendo WiiGlobal sales of software for these next-generation consoles are forecast to reach $13.9bn by 2009.

The merger comes as next-generation devices move video game consoles from their traditional home in teenagers' bedrooms to the living room, with DVD players and internet connections making them the hub of the digital home.

The surprise success of Nintendo's Wii, meanwhile, has greatly expanded the potential video game audience by boosting family gamingActivision's chairman and chief executive, Robert Kotick, said: "Consumer engagement [with games] has changed, whether it's the impact of social gaming, or the Wii, where the physical interface now invites an entirely new audience, or the type of community being built in World of War craft, that is much more of a social network experienceIt is not really just a video games company any more, this is the next-generation digital entertainment company we are building."