What more acquisitions could mean for the gaming industry
After Microsoft's recent acquisition of Activision Blizzard, the gaming industry is abuzz with talk of more significant shifts. Video games are becoming more valuable, and major tech companies seem to be shifting their focus towards diversifying their products. According to investment banking firm Drake Star (via GI.biz), acquisition activity in games hit $85 billion in 2021. This is three times the value of last year, showing massive growth.
Many prominent voices in the gaming industry have already predicted that multiple big game deals are coming. The creator of The Game Awards tweeted: "Have heard from multiple people: As you might suspect, there are a few other big video game deals in final stages of negotiations. It's going to be an interesting year!" However, with more acquisitions pending, there is a lingering question of what this means for the gaming industry.
Source: Visual Capitalist
Sparks fly in the game industry
The conversation sparked when Microsoft purchased Zenimax in September of 2020 for $7.5 billion. Many wondered how it would affect the development of new titles, platform exclusivity, and several aspects of game production. In addition to this deal, several other acquisitions happened shortly after:
- EA bought Codemasters for $1.2 billion
- Zynga purchased Peak Games for $1.8 billion
- Nintendo announced its acquisition of Next Level Games
Several sites reported a 20% growth in 2020, and that pace primed the market for several acquisitions in the following years. In addition, the recent acquisition of Activision Blizzard for Microsoft, and the following purchase of Bungie by Sony, have ignited what some are referring to as a "video games arms race."
Why do these acquisitions happen?
One major factor is the sales ratio of Xbox to Playstation devices. This scaling places Microsoft in a strange position resulting in their decision to reinforce their developer inventory. In 2020, 1,500 mergers took place in the mobile gaming world, valuing around $43 billion. Online games and streaming has become mainstream, and many gamers are experiencing video games in a new way.
This pushes many big tech companies into diversifying their revenue streams. An easy answer? Gaming. By acquiring new development teams, they can cut costs and maximize control over game releases. In addition, new revenue streams jumpstart new endeavors and cause a reputation shift for many affected studios.
So what could happen?
The results are twofold. As studios are consolidated to Microsoft, the company has stated that they plan to allow the studios to run with minimal changes. There will likely not be much change in console exclusivity despite fan concerns. However, funding towards particular franchises may increase and consistency within the developers may be more heavily managed. With the acquisition of Activision Blizzard, Microsoft has positioned itself to make a strong push into the PC gaming market and leverage the strength of King studios for mobile momentum.
Sony recently purchased Bungie, an act that many believe is a response to the Blizzard Activision acquisition. With several other studios still up for grabs between the two major companies, it is unclear exactly which company will bid for which studio. Some suggest that Ubisoft may be next on the acquisition list, but this is not likely due to legal restrictions in France. It is difficult for French studios to be owned by non-domestic companies, and many other major studios have similar limitations.
Nintendo will most likely continue to stay out of the major acquisition battle. In the past, they tend only to acquire studios that have "Nintendo DNA" and continue to leverage their leading franchises for success. So while acquisitions may affect Nintendo Switch releases from outside studios, the company has long survived on only Nintendo products.
It is unclear exactly how everything will play out, but as many market researchers suggest: the acquisitions are only getting started. More industry shifts are sure to be on the horizon, and as each company reveals its hand, a clearer picture will be available for everyone within the video game industry.