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Supreme Court Ruling: Bullish on Videogames

Grand Theft Auto IV
Source: Take Two Interactive Software
Grand Theft Auto IV

Videogame makers won a victory at the U.S. Supreme Court today, lifting the threat of a potential crackdown that's been looming over the industry since 2005.

The high court voted 7-2 to strike down a California law blocking minors from buying violent videogames, saying it violates the First Amendment. Gov. Arnold Schwarzenegger signed the law based on findings that videogames drive "violent antisocial or aggressive behavior," among other negative effects.

The news that the $10.5 billion videogame industry won't face restrictions that could hamper sales comes at a particularly crucial time.

The business has struggled with declining sales over the past year as it faces competition from virtually free social and mobile games. And it's the violent fare that would attract the attention of regulators that has consistently performed the best.

There's definitely a correlation between the most violent games (rated "Mature") and the most successful ones. It's the hardcore gamers who are drawn to these games that can be counted to keep on buying, even as casual gamers defect to the free alternatives.

It's no surprise which stocks are seeing gains on today's news.

The biggest percentage gain is at Take Two Interactive , whose signature franchise is "Grand Theft Auto," and whose newer games including "L.A.

Noire" and "Red Dead Redemption" are quite realistic and violent.

Activision Blizzard, which has the cash cow "Call of Duty: Modern Warfare" franchise, is also trading higher on the news.

Electronic Arts is just narrowly in the green today. It's known for a more diverse (i.e. less violent) mix of games, including "The Sims," and the FIFA Soccer and Madden NFL series, so it would have less to lose on a government crackdown.

Justice Antonin Scalia compared violent videogames to reading books, specifically comparing reading Dante to playing "Mortal Combat." He dismissed the controversy about how video games impact upon the brain, saying entertainment is entertainment.

But as entertainment becomes more sophisticated and complex, will the Supreme Court change its tune? What about virtual worlds? Will they be protected under the same First Amendment rights even if their potential impact on consumers is far more dramatic than video games? We'll see.

In the meantime, the videogame makers can breathe easy their biggest brands won't be slammed by a new set of rules.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.