Microsoft, Sony acquisitions are the start of further consolidation

Three major videogame companies have made significant acquisitions in the space of a month that will change the landscape of the game industry. First, it was Grand Theft Auto publisher Take-Two Interactive buying mobile giant Zynga for $12.7 billion, which was, at the time, the biggest acquisition in the industry’s history. Just over a week later, Microsoft announced plans to buy Activision Blizzard in a deal worth $68.7 billion, more than five times the size of Take-Two’s record-breaking acquisition. The Microsoft competitor Sony also announced its purchase to complete January. Destiny 2Bungie developer, $3.6 billion

Industry consolidation isn’t new, but the speed at which major companies are buying out other major companies, in deals worth billions, appears to be ramping up. As companies vie for financial resources, size and exclusivity, acquisitions lead to more acquisitions. The trend won’t end here: Though government regulators will need to scrutinize these deals before they become official, fewer and fewer companies will soon own all of gaming’s biggest franchises.

“Usually, acquisitions lead to more acquisitions,” LightShed Ventures analyst and partner Brandon Ross told Polygon in January, following the Microsoft acquisition. “You’re going to see that competitive publishers and studios are now in play. The question is, who can buy them?”

It certainly seems like these companies aren’t done buying up the market. In an interview with GamesIndustry.biz following the Bungie acquisition, Sony Interactive Entertainment CEO Jim Ryan said there are “more moves to make” at Sony with regard to acquisitions. “We should absolutely expect more,” Ryan said. “We are by no means done. With PlayStation, we have a long way to go.”

(Ryan, for his part, said the acquisition has “nothing to do with industry consolidation.”)

Financials across these top companies point toward more acquisitions, too: Microsoft spent just over half of its cash-on-hand as of September 2021 to buy Activision Blizzard, meaning it’s still hoarding $60 billion.

Microsoft Image

Companies see consolidation as an opportunity to increase their profits in the videogame industry. Microsoft’s acquisition of Activision Blizzard is one clear demonstration: The purchase will give Microsoft accessYou can find more information here the company’s suite of video games, everything from the Call of Duty franchise and World of Warcraft to Candy CrushCrash Bandicoot. These bolster Microsoft’s Xbox Game Pass subscription service, the “Netflix of games,” and ensure that Microsoft continuously has new and appealing content. While Microsoft intends to keep Activision Blizzard games on Sony’s PlayStation platform for the near future, exclusivity could be an option when current contracts expire — giving people one more reason to potentially choose Xbox over PlayStation.

Decision-making behind the Take-Two Interactive and Zynga deal, as well as Sony’s Bungie acquisition, likely follows similar threads: More money means more content, and more content means more players. This week, Sony executive deputy president and CFO Hiroki Totoki said Sony is interested in Bungie’s expertise in games-as-a-service. “Through close collaboration between Bungie and PlayStation Studios, we aim to launch more than 10 live-service games by the fiscal year ending March 31, 2026,” he said.

There’s no doubt these mergers will have an impact on the industry, though the extent of that change isn’t yet clear. Questions remain about the impact of a shift toward larger consolidated corporations on developer culture. This is where smaller studios might lose their identity as a result of corporate governance. What does it all mean for independent studios that don’t have the marketing budget of the top companies? Does the acquisition trend signal that companies are looking forward to a “metaverse,” an unclear term whose future and actual value remain hazy? If the industry becomes monopolized by only a few publishers, what happens? What if those publishers also own gaming’s largest platforms?

These questions aside, industry consolidation has continued for several years. DDM, a market research company, conducted a yearly review of investment deals and found that there were 220 acquisitions or mergers in 2020. This is 33% more than the year before. These acquisitions are large, such as Microsoft’s purchase of ZeniMax Media, Bethesda Softworks, and a $7.5billion deal to acquire Bethesda Softworks. This is another huge play to get Xbox Game Pass exclusives. Microsoft’s acquisition of MinecraftMojang Studios was a publisher that sold for $2.5billion in 2014. Electronic Arts then purchased Codemasters from Codemasters, which they bought in 2020 for $1.2billion. Electronic Arts also spent $2.1 billion to acquire mobile gaming firm Glu Mobile by 2021. The area is growing even more for streaming giant Netflix. Oxenfree developer Night School Studio in 2021.

While Sony, Chinese games company Tencent, and Microsoft (should the Activision Blizzard buyout go through) are three of the biggest companies in the industry based on revenue, they clearly aren’t the only ones trying to solidify their size and growth. Tencent believes it owns everything from Riot Games and Epic Games, as Sony purchased Housemarque, the 13th studio of its internal division, in 2021. Back 4 Blood Turtle Rock is the developer Don’t Starve developer Klei Entertainment. Embracer Group, the Swedish videogame holding company, has acquired 76 studios under eight distinct groups. These include Saber Interactive, Gearbox Software, Perfect World Entertainment, and Perfect World Entertainment.

Government agencies such as the Federal Trade Commission or the Department of Justice will be reviewing deals in order to stop monopolization. It is likely that the largest of these deals won’t be done until months or even years later. On the entertainment side, large deals have been safer for companies, as evidenced by Discovery’s acquisition of Warner Media and Disney’s purchase of 21st Century Fox. But Big Tech is facing more scrutiny as regulators adjust antitrust enforcement against companies like Meta (Facebook’s parent company) and Google. Lina Khan, FTC Chair is leading this effort to regulate market consolidation and digital-market mergers. Video game companies blur the line between entertainment and Big Tech, but companies’ focus on securing a future in the “metaverse” may push these deals closer to tech territory.