Video game industry mergers and acquisitions are often worth billions of dollars and are immeasurable in terms of online buzz. 2022 began with several large-scale acquisitions and the competition between video game companies is being watched more closely than ever. In 2020, the COVID-19 pandemic increased M&A activity in the gaming industry, with deals surpassing 33.6 billion U.S. dollars in value across 665 transactions in total.
2022 video game industry acquisition battle
January 2022 started off with a bang – Take-Two Interactive generated headlines with its 12.7 billion U.S. dollar acquisition of Zynga, one of the leading mobile social gaming companies, in the then biggest video game industry purchases of all time. However, Take-Two’s reign at the top was not meant to last – merely 10 days later, Microsoft purchased gaming giant Activision Blizzard (ABK) for a record-breaking 68.7 billion U.S. dollars. Barring any obstacles from the FTC, this deal is meant to close in the summer of 2023 and is the largest all-cash acquisition ever.
At the end of January, Sony Interactive Entertainment announced it will acquire Destiny developer Bungie for 3.6 billion U.S. dollars, rounding off a turbulent month for the video gaming industry.
There are many reasons for tech and gaming companies to acquire a slice of the gaming pie. For example, buying a company with a known track record or specialty can enable the buyer to enter a market segment without prior expertise. The biggest examples for this approach can be found in the mobile and social game segment: Activision Blizzard’s 2016 purchase of Candy Crush developer King, and more recently, Take-Two’s buying of Zynga.
Control of popular gaming titles or entire franchises and the corresponding userbase are also an attractive prospect for buyers as a pre-existing audience is easier to market to than one that must be newly acquired. Swedish gaming giant Embracer Group is a prime example of a company that owns many studios and subsequently, many, many games. As of the fourth fiscal quarter of 2020/2021 (from January to March 2021), the Embracer Group owned a total of 126 small to mid-tier game development studios and had approximately 160 games in their development pipeline. This strategy is similarly pursued by Chinese digital giant Tencent and represents a stark contrast from Electronic Arts or Activision Blizzard, who focus most of their attention on their major blockbuster series such as FIFA, Madden NFL, or Call of Duty.
By increasing their potential audiences through strategic acquisitions, gaming companies are also able to increase their respective market share and revenue while removing competitors from the field or putting up obstacles in the form of exclusivity agreements.
The bigger picture: console (and platform) wars
PC vs console, PlayStation vs Xbox vs Switch, Microsoft vs Sony vs Nintendo – gamers’ attention and money is limited, and platform owners are locked in an eternal battle for it. Video game console manufacturers are constantly trying to win gamers over to their platform through more advanced technology and an ever-increasing selection of games and exclusive titles.
Console wars are nothing new – the competition between Sega and Nintendo during the late 1980s and early 1990s gave rise to this phenomenon. Since 2000, Microsoft and Sony have been in direct competition for video game consoles with both companies releasing a new generation model within a year of each other. These consoles are close in technical specifications, and subsequently both companies compete with online services (PlayStation Plus, PlayStation Now, and Xbox Game Pass) in addition to exclusive games from their first-party studios and from third-party studios via licensing agreements. Due to a smaller portfolio of first-party (1P) titles, Microsoft has already developed a system of buying external development studios publishers such as Minecraft maker Mojang (November 2014) and ZeniMax Media (September 2020).
If Microsoft’s January 2022 purchase of Activision Blizzard will go through, Microsoft will become the owner of some of gaming’s biggest franchises including one of the biggest money-makers on PlayStation, Call of Duty.
Metaverse: the long-term vision
Microsoft’s 68.7 billion U.S. dollar purchase of ABK was several times bigger than the company’s earnings – so again, why buy? Analysts claim that the inbuilt audience of ABK is a steppingstone in Microsoft’s metaverse ambitions. The metaverse is projected to play a major role in the future of internet usage. For gamers, many aspects of the metaverse are nothing new – online communities have come together in-game for non-gaming activities for years. Like major players entering the mobile gaming space by acquiring top mobile game companies a few years ago, the metaverse is the latest hot thing of gaming.
In claiming a significant chunk of the consumer side, Microsoft is aiming to bolster its upcoming foray in the business side of the metaverse by already having an audience ready and waiting.
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