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Microsoft, Sony acquisitions are just the start of massive video game industry consolidation

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Within the span of one month, three major video game companies made seismic acquisitions that are changing the shape of the 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. To round out January, Microsoft competitor Sony announced its new purchase: Destiny 2 developer Bungie, for $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. Acquisitions beget acquisitions, as companies compete with each other in size, exclusivity, and financial potential. 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 announcement. “You’re going to see that competitive publishers and studios are now in play. The question is, who can buy them?”

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It certainly seems like these companies aren’t done buying up the market. In an interview with GamesIndustry.biz following the Bungie deal, 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 Bungie acquisition has “nothing to do with industry consolidation.”)

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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.

A graphic of game properties and studios from the Activision Blizzard sale to Microsoft

Image: Microsoft

The video game industry is making a lot of money, and companies see consolidation as a way to make more. Microsoft’s acquisition of Activision Blizzard is one clear demonstration: The purchase will give Microsoft access to the publisher’s suite of video games, everything from the Call of Duty franchise and World of Warcraft to Candy Crush and Crash 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 in 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/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 chief financial officer 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. There are questions around what a move toward larger consolidated companies might do to developer culture, where small studios could lose their identity under 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? What happens if the industry is monopolized by just a few major publishers? What if those publishers also own gaming’s largest platforms?

Regardless of the answers to those questions, the industry has been moving toward further consolidation for a few years. A yearly investment review from market research firm DDM detailed 220 mergers and acquisition deals throughout 2020, a 33% increase from the previous year. These are major acquisitions, like Microsoft buying ZeniMax Media and Bethesda Softworks in an $8.1 billion deal, another massive play for exclusivity on Xbox Game Pass. Microsoft’s purchase of Minecraft publisher Mojang Studios (for $2.5 billion) happened in 2014, and Electronic Arts bought Codemasters in 2020 for $1.2 billion. EA spent even more ($2.1 billion) to buy mobile gaming company Glu Mobile in 2021. Even streaming giant Netflix is expanding in this area, purchasing 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. Sony bought Housemarque in 2021, its 13th internal studio, and Tencent feels like it has a stake in everything, from Riot Games and Epic Games to Back 4 Blood developer Turtle Rock Studios and Don’t Starve developer Klei Entertainment. Swedish video game holding company Embracer Group is gobbling up studios and publishers, and now owns 76 of them under eight different groups, including Saber Interactive, Gearbox Software, and Perfect World Entertainment.

As these sorts of mergers and acquisitions increase, government agencies like the Federal Trade Commission and the Department of Justice will review deals to prevent monopolization. There are still months ahead, or even a year, until the biggest of these deals will be finalized. On the entertainment side, large deals have been safer for companies, as evidenced by Discovery’s acquisition of WarnerMedia 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. FTC chair Lina Khan is heading up this push to regulate digital-market mergers and market consolidation. Video game companies blur the line between entertainment and tech, but their focus on securing a future in the “metaverse” may push these deals closer to tech territory.

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