Marking the end of a roller-coaster year for the troubled online entertainment business, has announced its stock swap acquisition of short films specialist AtomFilms, in a deal which is expected to lead to 100 redundancies.

Under the terms of the deal, will acquire AtomFilms in a stock for stock deal which will see Shockwave shareholders owning 70% of the consolidated company and AtomFilms holding the remaining 30%.

Rob Burgess, chairman and CEO of Shockwave parent Macromedia, will become chairman of the new company. Mika Salmi, founder and CEO of AtomFilms, will be CEO. Matt Hulett, chief marketing and online officer at AtomFilms will become president, while Michael Comish, managing director of Europe will become president, international.

The last year has seen heavy consolidation in the online entertainment sector and the closure of high-profile sites such as Dreamworks-backed and Digital Entertainment Network. In September, Shockwave moved away from its initial entertainment programming focus, towards interactive gaming, losing 20 staff in the process.

Comish told ScreenDaily: "You've seen consolidation in almost every sector of the internet and with good reason. The new economy has got much tougher over the past few months." He said the combined new company would employ some 200 staff, compared to the 300 people currently working for both companies. "It's inevitable that when companies merge that there are savings to be had."

However, Comish said the combined entity would be a more powerful player, describing it as the largest online destination site for entertainment with 10 million unique users per month.

He said short films would continue to play a major part in the combined entity, and that previously announced deals for short films with directors such as Bernardo Bertolucci and Jim Jarmusch would be unaffected: "Short form entertainment will continue to be a big part of the offering. The only difference for filmmakers will be the larger traffic - your exposure will have gone up by a factor of X."

Comish added that Shockwave's presence in Asia would also help AtomFilms to launch in that region. Until now its business has concentrated on North America and Europe.

In a statement, Mika Salmi said: "By combining our unique distribution channels, technological expertise, proven business models and award winning catalogues of content, we are building a new media company without equal."