The gaming industry is consolidating and there are similarities with streaming
While heavy-weight streaming services, Netflix and Disney+, fought for your attention over the weekend, the real threat lies in another dimension… Gaming.
Gen Zs spend the most leisure time on gaming, and the majority are willing to spend money to play — stats that have caught the attention of tech and entertainment giants.
Turning the industry Upside Down
Rob Fahey of GamesIndustry.biz sees a massive Netflix-inspired change in the gaming industry:
- Shift to subscription: Gaming subscription services are heating up. Xbox (Microsoft) is heavily pushing Xbox Game Pass, and in March, Sony launched its subscription service, PlayStation Plus.
- Owning content: Gaming giants (i.e., Sony, Microsoft, Tencent, Valve) have been on a gaming studio buying spree over the past few years.
Why the change? Subscriptions only make up ~4% of North American and European gaming sales — with Xbox commanding 60% of that. But per Fahey, subscriptions “vastly increase the industry’s overall revenue” — and concentrates power among only a few big players.
In such an environment, smaller game publishers could struggle to compete — leading to a mentality of “acquire or be acquired .”
Gaming giants make a Netflix reboot
This year, Take-Two acquired Zynga for $12.7B, and Microsoft is in the process of acquiring Activision for $69B — which would become the largest gaming acquisition ever.
If the Activision deal closes, major game publisher Electronic Arts (NASDAQ:EA) — will become the largest “pure-play” standalone game publisher by sales, per WSJ . But that might not remain for long…
- Last week, Electronic Arts reportedly held acquisition talks with Apple, Amazon and Disney.
- EA also explored a merger with NBCUniversal but disagreed on price.
Zynga and Activision were purchased at a 65% and 45% premium, respectively — which could put their price tag above $60B. At that price, few companies can afford it.
Last year, industry sources said those under $15B are likely targets. Zynga has been crossed out, and another candidate, France-based Ubisoft (OTC:UBSFY) was also in buyout talks with private equity firms in April.
Investors: The rush to close the gate
Chinese internet giant Tencent — a major acquirer of gaming studios — helped spark a rush to buy up valuable gaming assets in recent years. But Fahey expects the high price tags paid for game creators to fall:
- Macro : Deal financing could be harder to come by with rising rates and tighter monetary policies.
- Regulations: Lawmakers are reviewing Microsoft’s Activision deal over concerns that it will reduce competition.
Blocking the Activision transaction, intensified regulations on the Chinese gaming sector and removal of easing financing could impact future deals. But other industry participants disagree and believe “ we’re not even in the final stage yet .”