The consolidation of the gaming sector reached a new peak earlier this year after Zynga, Bungie and Activision Blizzard were acquired in a row for huge sums. There is a reason for this: The gaming sector is moving from PC, gaming console and smartphone to the Netflix model. Where everything revolves around unique content.
Grand Theft Auto publisher Take Two Interactive opened the transfer season in early January with the acquisition of Farmville producer Zynga. Definitely not a minor player. The company started on Facebook with simple games, but became especially big on the smartphone with titles like CSR Racing, Empires & Puzzles and Harry Potter: Puzzles & Enchantments.
The purchase price was no less than 64 percent above the closing price of the listed studio and with twelve billion euros, it for a moment seemed to be the most expensive acquisition of a game studio ever. For Take Two, which mainly focuses on PC games, a logical move. The acquisition will merge two big names in the gaming world into a company with an annual turnover of $ 6 billion.
But less than a week later, the offer was trumped by Microsoft, which wanted to pay a staggering sixty billion dollars for Activision Blizzard, which is actually already a merger of three separate gaming companies.
And on January 31, Sony announced the acquisition of Bungie, once the supplier of the Xbox game Halo. Microsoft would have once bid on it, but found the purchase price too high. Sony paid $ 3.6 billion for it and has already indicated that they want to customize the games from Bungie. In March, the acquisition of Canadian developer Haven Studio’s for an undisclosed amount followed. It’s the eighteenth developer to join Sony’s PlayStation Studios.
The gaming market is growing explosively. According to a study by Zion Market Research, the gaming industry as a whole achieved a turnover of almost $ 201 billion in 2021, and it will increase to 435 billion in 2028. Partly thanks to new developments. The global market for VR games (games played through VR headsets) is already estimated at $ 9.39 billion and will exceed 33 billion by 2026. 5G in particular is driving growth, as players who are far apart can then share a virtual environment without delay.
Once upon a time, games required so much computing power that they could only be purchased for more expensive PCs and game consoles. Microsoft’s Xbox and Sony’s PlayStation could easily compete with Japan’s Nintendo and are still the main platforms. But the question is whether that will be the case.
With the advent of the smartphone, the gaming sector has already completely shifted the focus to mobile, which also immediately reached a much wider audience. The games are mostly free to play, but money is made on extras, such as the sale of skins, figurines or virtual weapons. Free-to-play games brought in $ 98.4 billion in sales worldwide last year, according to some estimates. The vast majority of that, $ 73.8 billion, comes from mobile gaming.
The hit game Fortnite has raised about $ 14 billion in three years alone. Maker Epic Games is forty percent owned by the Chinese Tencent, the absolute market leader in mobile gaming. The company also owns the developer Riot Games and thus the games League of Legends and Valorant. TiMi Studios, maker of smartphone games Call of Duty: Mobile, Honor of Kings and Arena of Valor, is said to have a turnover of ten billion dollars.
Because not all gaming companies immediately have expertise in in-house mobile gaming, this knowledge is increasingly being purchased externally. The consolidation is therefore certainly not new. In the past year, studios like Nacon, Embracer, Tencent, Sony, Microsoft and EA have bought game studios for millions – and now even for billions of euros.
Last year alone, Sony bought the Finnish game maker Housemarque, known for newer games like Returnal, Resogun and Super Stardust HD. Bluepoint Games also went to Sony, a studio that has already remastered and recycled several older games. Last year, the Japanese company also acquired Firesprite, which is working on a VR game around Horizon together with the Dutch Sony studio Guerrilla.
Microsoft bought its first studio back in 2002, when the creator of the Nintendo classics GoldenEye and Banjo-Kazooie was transferred to the company. The purchase price of 375 million euros was already a lot of money at the time. Twelve years later (2014), Microsoft bought Minecraft for $ 2.5 billion, the largest acquisition of a gaming company to date.
Thereafter, the pace increased considerably. In 2018, six studios were acquired by Microsoft within a year, including Outer Worlds creator Obsidian and Hellblade creator Ninja Theory. In 2019, there were still Psychonautsmaker Double Fine at If the takeover of Activision Blizzard is approved by the authorities, nine more studies will be added, bringing the total number to 32. Including King, the (British) company behind the classic Candy Crush†
Microsoft’s coffin, Wired recently reported, acts as a dynamo. With revenues that can compete with the gross domestic product of a small country, it has enough money to buy what it wants.
The other gaming giants are certainly not behind. Last year, EA paid $ 1.2 billion for racing game maker Codemasters, $ 2.1 billion for mobile game maker Glu and $ 1.4 billion for Golf Clash maker Playdemic.
French rival Ubisoft has acquired several smaller studios in recent years and has also founded many of them itself. There are now no less than forty different studios under the brand. Ubisoft CEO Yves Guillemot is even open to a takeover. A few years ago, when French Vivendi wanted to acquire the studio, Guillemot was still strongly opposed to it.
However, the seductive shaped plastic boxes from Nintendo, Microsoft and Sony, known as walled gardens, are increasingly seen as a relic of the 1990s.
Hardware has become so powerful and broadband so widespread that it is no longer necessary to download and install games. Everything is streamed these days, just like with Netflix, Disney Plus or Videoland. The major pioneers, in addition to Microsoft Xbox Game Pass, include PlayStation Now, OnLive and Nvidia Geforce Now. Where Microsoft and Sony are mainly trying to retain the users of their classic gaming consoles. Not without success: Xbox Game Pass already has 25 million subscribers.
In 2019, Google also launched its own gaming platform Stadia, which “runs” on Google Cloud. Within five seconds, the game is ready without download and installation. The future of gaming no longer fits in a box, Google says.
The gaming industry has now fully embraced the Netflix model. Subscription models are more reliable than one-time software purchases and minimize the risk of piracy. Instead of buying individual games that you will ever get tired of, it is much better to enjoy an all-you-can-eat game buffet for a modest monthly fee.
As with Netflix, distinctive content is essential. Recently, the popular Flight Simulator from Microsoft has been available through Xbox Cloud Gaming. Xbox Game Pass Ultimate subscription users can stream the game on Xbox consoles, PCs, or via apps for smartphones and tablets.
In addition, cloud gaming provides opportunities for players who traditionally do not come from the gaming corner. Maybe that’s why both Amazon and Netflix have recently entered the gaming market. Prime Gaming is part of the Amazon Prime subscription, but currently only works on Windows PCs.
Netflix Games was introduced in November last year and is now available for Android and iOS devices. The games at Prime and Netflix still need to be downloaded first, but that can easily change. Netflix has also already acquired three game studios, including Boss Fight Entertainment and the Finnish Next Games.
Players, meanwhile, are wondering if all mergers and acquisitions will slow creativity. So far, the acquired studios are still working independently, but merging studios may lead to an emigration of designers and developers who prefer to thrive in less creative environments.
But it can also have a positive effect: If game start-ups have the potential to be acquired for a lot of money, more investment money will flow to game start-ups, and it can actually benefit creativity.
Apple the largest
It is not yet clear what role Apple will play. According to The Wall Street Journal, Apple is actually the biggest player in the gaming world. The company earns more on games than Nintendo, Sony, Microsoft and Activision Blizzard combined.
However, the earnings come mainly from the commissions Apple receives from its App Store. Apple earns more than $ 15 billion a year on app sales. 69 percent of that would come from the games section of the App Store. Whether that will remain the case is still open: The court ruled last year that Apple may no longer ban third-party payment systems, such as Epic Games.
Apple’s own answer to game subscriptions is called Apple Arcade, an integral part of iOS and macOS. The platform was launched in September 2019 with seventy titles. Apple keeps the number of subscribers secret until further notice.
The company hardly tolerates competition. It is therefore not very keen on game bundling apps in the App Store. The reason: Apple did not want sufficient control over the games, which could compromise security. These apps are therefore only allowed in the App Store if all games are first independently approved.
But Microsoft has found a way around anyway and now offers Xbox Cloud Gaming via the Safari browser as a web app. The selection consists of well-known games from Microsoft, Bethesda and other publishers, including the complete Halo, Gears of War and Forza†series from Microsoft.
Facebook, in turn, launched a web app last year that allows iOS users to use their game streaming service. Facebook’s gaming service mainly offers casual games, such as Solitaire and PGA TOUR Golf Shootout.
It is therefore clear that gaming is being pushed extra by greats and we can expect even more shifts in this new phase.
Do you want to quit Google Stadium?
The fierce competition among cloud gaming platforms has already yielded losers. According to rumors, Google has put its gaming platform Google Stadia on the back burner and will only continue the project as a white-label variant for third parties.
By the end of 2020, Stadia should have had one million monthly active users. It did not work: the number would have stayed at 750,000. Probably because the picture quality lags behind PlayStation 4 Pro or Xbox One X, but also because the game offering is disappointing. The team developing Stadia is said to have been significantly thinned out by now. Its own game studio would also have been closed.
Steam remains the download platform
A notable development is the one around Valve, the company behind the game download platform Steam. The company was founded in 2003 and recently released its first handheld Steam Deck for PC games. You should be able to play all games on Steam on Steam Deck. So far, Valve has no ambitions to set up its own cloud gaming service, but CEO Gabe Newell would like to consider integration with the Xbox Game Pass.
The future belongs to NFTs
In the future, non-exchangeable tokens (NFT) will play an important role in gaming. Currently, players cannot liquidate their purchased assets when leaving a game. In the long run, however, players should be able to sell virtual buildings and products to other players using digital property rights. Probably first within a particular game, but eventually NFTs should be able to be used in other games as well.
The phenomenon is called play-to-earn, or earning prizes in a game. Some NFT players could even make a living from it. However, there is still a lot of opposition to that kind of game from an addiction point of view.
* This article originally appeared in the May issue of Emerce Magazine # 189.