In 1990, Bobby Kotick bought 25 percent of failing videogame maker Activision for $440,000, with financing from his mentor, casino king Steve Wynn. Since then, the company has been in nonstop-growth mode, through both internal expansion and acquisitions, and late last year, Kotick engineered his biggest deal yet—a nearly $19 billion merger with Vivendi’s game division. The prize for Activision: Blizzard Entertainment, maker of the online game World of Warcraft, which has about 10 million paying subscribers. Vivendi will own a majority stake in the merged company, to be renamed Activision Blizzard, and Kotick will run it.

With megahits like Guitar Hero, Call of Duty, and Tony Hawk’s skateboarding games, Kotick, 45, has become one of the most powerful figures in the $10 billion videogame industry (a number that counts sales of games only, not consoles). Longtime game-industry leader Electronic Arts currently has about $3.7 billion in annual sales. Once Activision closes the merger with Vivendi, the combined entity will have yearly revenue of nearly $4 billion as well. But E.A. recently made a hostile offer for Take-Two Interactive, creator of the Grand Theft Auto series, a move seen by industry observers as an attempt to stay ahead of Kotick. Moreover, some analysts question whether Activision can continue growing at such a rapid rate.

Condé Nast Portfolio’s Kevin Maney met with Kotick at his Beverly Hills home, an airy, angular, modern structure with contemporary art—including a de Kooning—on every wall. (Kotick is a trustee of the Los Angeles County Museum of Art.) Wearing a sweatshirt from an Allen & Co. media conference, blue workout pants, and white socks with no shoes, he talked about his management style, Wynn, and the future of the videogame business.

Portfolio: I take it that in the Vivendi merger, you were most interested in Blizzard’s World of Warcraft.

Bobby Kotick: We started hearing the rumors of how profitable that was. My guys kept telling me about the business, and I didn’t believe it. But we realized that this is not just a game. It’s a social network with a lot of elements, and people rely on the game for a lot more than just entertainment. It wasn’t the kind of thing that something else would come along and displace.

Portfolio: How did the deal happen?

Kotick: We made an offer. It was more than we'd ever offered for anything—billions, almost equal to our own market value. And Vivendi said, "We’d really like not just to sell you the business but actually to become your partner."

Portfolio: Were there any tensions during the negotiations? The price? The amount of influence Vivendi will have in management?

Kotick: There wasn’t any real tension. I had an extremely long history with Blizzard. The fact that we’re so philosophically well aligned made the deal easier to accomplish.

Portfolio: Guitar Hero is huge—with more than $1 billion in sales since it was introduced in 2005. Essentially, it lets people play along on a fake guitar to real songs. Given that the Universal Music Group is part of Vivendi, will any special emphasis be given to its songs and artists?

Kotick: One of the big benefits will be access to the Universal library. Guitar Hero takes an artist to a whole different place in the popular culture right now. Downloads on iTunes take off. The artist’s relevance and importance to 17-year olds change in a way that you could never get in any other medium. Forty percent of its users are women. The age appeal is something we've never seen before—7-year olds who have no idea who Aerosmith is are playing the band's music on Guitar Hero. So are 45-year olds who spent a good portion of their lives following the band around.

Portfolio: Where do you take the idea next?

Kotick: It’s not just about guitars. We’ll include a lot of other instruments, vocals. It will help us expand internationally. It’s the first game we’ve had in which we can use local content and local bands.

Portfolio: What else is in the works with other games?

Kotick: Let’s take Wii. There are opportunities to add to the physical experience, whether it's guitars or the Star Wars game—in which you have a lightsaber—or fishing. Having that physical connection with what you see on the screen is bringing in audiences that never would have tried games. But we’re in the very, very earliest stage of physical interface.

Portfolio: OK, what’s coming that we haven’t seen yet?

Kotick: Games have not been a good storytelling medium. It’s because the characters on the screen don’t have good facial animation. Mouth movement is unrealistic, so it’s hard to deliver dialogue. Facial animation and mouth movement will become part of games.

Portfolio: Let’s talk about you. Even as a kid, you were fascinated by business.

Kotick: I was pretty entrepreneurial. I ran a hot-dog-and-soda stand at Little League, and I started a business planning parties in high school.

Portfolio: In the early days of computing, you tried to create a graphic user interface for the Apple II?

Kotick: My dad had introduced me and a business partner to some venture capitalists in New York. They were going to put up the money for us to go into this business. It was a good amount—$2 million.

Portfolio: But you didn’t end up taking it. Why not?

Kotick: At the time, I had been invited to a cancer fundraiser in Texas. I met this guy at the party who was 40-years old, a real dynamic person. I ran into him the next day at the hotel, and he said, "Are you going back to Michigan?" And I said, "No, I’m actually going to New York. I’m working on this company." He said he was going to New York, and would I want to go with him? I said sure. He had a DC-9, and I figured, it can’t be that unappealing. It was Steve Wynn. On the plane, he told me that when he was getting started, a mentor type had helped him out. So he wanted to do that for someone else.

Portfolio: This was the start of a significant relationship.

Kotick: I ended up blowing the original deal I had and later flew down to Atlantic City to meet Steve. He said, "OK, how much do you need for a prototype?" We said, "About $300,000." He wrote out the check.

Portfolio: And he’s been part of your life ever since then?

Kotick: Of all the things that could have happened to me in my life, meeting the Wynns was probably about the most fortunate. Not just in the way you get a second set of parents—my parents were divorced, so the Wynns came with none of the guilt—but watching what he accomplished. It set the bar so high. That drove me to be even more successful.

Portfolio: What ended up happening with that software company?

Kotick: I met with Steve Jobs and spent time with then-C.E.O. John Sculley and a lot of the marketing folks. Steve, even then, had very definitive ideas about the interface. There were conventions that we used differently than Apple did. Steve, being the dogmatic guy that he is, said that we had to change. He took the mouse we had made and threw it on the floor. He said, "This is garbage." It was great advice—demoralizing, but great advice. The company was an abysmal failure.

Portfolio: Then what?

Kotick: I tried to buy Commodore, the computer maker, with the idea of actually turning it into a videogame company. That didn’t work out either, but I learned a lot. After that came Activision.

Portfolio: What got your mind on videogames at all?

Kotick: In 1984, Steve Wynn took me out to dinner with then-Warner Bros. chief Steve Ross, who was having all sorts of problems with Atari, which Warner owned at the time. Ross took me up and invited me to Atari. When it collapsed, I realized there was nobody filling that void. PCs did to some extent, but as multipurpose devices, not as something specialized.

Portfolio: Is there a key to Activision's growth?

Kotick: It's about really being considerate of the culture in the game studios that Activision buys. That's the biggest difference between us and any of our competitors. We built a model that celebrates entrepreneurial, opportunistic, independent values. It's almost the opposite of Electronic Arts, which has commoditized development. It did a very good job of taking the soul out of a lot of the studios it acquired.

Portfolio: Do you get involved in game concepts?

Kotick: I play the role of cheerleader and adviser. I don’t personally pick the game ideas or get too involved in that.

Portfolio: What do you worry about?

Kotick: I'm a worrier, so that's another hour-long discussion. But we have big and really well funded competitors—Nintendo, Sony, Microsoft. Our competitors have a natural advantage on their own platforms.

Portfolio: How about E.A.'s $2 billion offer to buy Take-Two, which makes the hugely successful Grand Theft Auto games?

Kotick: I can't comment on competitors' deals.

Portfolio: Activision’s growth has been phenomenal—over 80 percent in the past quarter. Is that sustainable? Analysts are expecting it to slow down.

Kotick: Historically, during the past 15 years, Activision has grown at rates greater than the market. I’m hopeful that our growth will continue to outpace market growth and that of our competitors.

Portfolio: Anything else in Activision's way?

Kotick: Figuring out how to make the game experience more fun than any one of a hundred Facebook applications is going to be a challenge.