Blizzard's "Hydra" is Diablo III
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According to this WOWInsider report, the Blizzard game "Hydra" isn't a separate game at all: it's Diablo III.
Artist Peter Lee added a Hydra section to his website before the Blizzard Worldwide Invitational this weekend, prompting speculation of a new game.
Apparently, though, the word "Hydra" relates to one of the Diablo III screenshots. And that's the end of that.