For instance, Activision's popular Guitar Hero series, in which players use a guitar-style plug-in to play music, could be expanded by using content from Vivendi's Universal Music catalog, explained Vivendi Games' chairman, René Pénisson.

"Just thinking about how Guitar Hero can develop: it has to go to down loadable content and when you say down loadable content you say online and you think Blizzard and the fact that we are dominating the online areaWhen you say content you speak about Universal Music, it is such an obvious area for growth," he said.

The latest instalment - Guitar Hero 3, released in late October - managed sales of more than $115m, or more than a third of the company's second-quarter revenues, in its first weekThe deal also gives Activision access to Vivendi's distribution and gaming network, not only in Europe but in the Asia-Pacific region, where its World of War craft game has been highly popular.

"We become the world's largest, most profitable pure-play video game publisher; we touch every geography," added KotickThis year the new company, which will be listed on Nasdaq, will have combined revenues of $3.8bn.

Just last week Activision raised its quarterly earnings outlook as a result of strong sales of Guitar Hero and Call of Duty.

For Blizzard, the deal provides access to shares, which it can use as incentives in an increasingly competitive market for game developers, according to its chief executive, Mike Morhaime"From the Blizzard perspective, we are very excited about the partnership ..one thing the deal does for Blizzard that really was not available to us before is give us access to a public currency that will really help us out with attracting talent," he said.

The mechanics of the deal have been complicated by the desire of management at Activision, which is listed on Nasdaq, to give shareholders the chance to sell at least half their holdingsVivendi Games is being merged with Activision in return for 295.3m new Activision sharesVivendi will also buy a further 62.9m shares at $27.50 each, giving it up to a 52% stake.

After the deal, the new company will launch a $4bn share buyback at $27.50That deal will be part-funded by Vivendi and if fully taken up, the French company will have a 68% stakeThe deal is the latest consolidation in the industryLast month Warner Bros Home Entertainment Group bought TT Games, one of the world's largest independent game developers, and TT Games Publishing, the UK-based game publisher.