Last month, a series of corporate maneuvers shook up the world of gaming. First, the mobile gaming pioneer Zynga announced that they were getting acquired by Take-Two Interactive, a major gaming publisher, for $17 billion. Then Microsoft dropped their announcement, an acquisition of Activision-Blizzard for around $69 billion1. Within a couple of days of that, Sony revealed that they will be buying Bungie studios for $4 billion. The theme to the beginning of 2022, at least for some of gaming’s biggest companies, is consolidation2.
I grew up with gaming in the 90s, and saw the industry expand well beyond the singular video game consoles of yore: there was and still is a strong parallel legacy of gaming on PCs, the business has found success with expansive free-to-play offerings, and mobile became a new set of platforms with its own userbase. Still, since the late 2000s, the stable trifecta of Microsoft, Sony, and Nintendo collectively drive a lot of attention. The combination of console manufacturing, seasoned game studios reliably producing blockbuster games year after year, and cultivated relationships with third parties have kept these 3 players a tier ahead of everyone else; even major tech companies like Google (Stadia) and Amazon (Amazon Games) have struggled to find momentum in their gaming initiatives.
Conveniently enough, these types of major corporate transactions have a good chance of avoiding—or at least surviving—antitrust scrutiny as gaming has no single dominant company3. In fact, with these acquisitions, the acquirers have preemptively announced that they intend to keep the existing games multi-platform instead of exclusive to each company’s console, to head off accusations of anticompetitive behavior. It’s a fairly unique strategy, to not fully leverage platform exclusivity to entice gamers to invest in the console hardware and buy into the ecosystem, that I’m not sure has had much precedent.
This speaks to a shift in the gaming business model. For a long time, the playbook for console games was to sell hardware at slim margins or at a loss, and make it up in high-margin games only available on that platform. Then, with the availability of digital downloads, games’ lives could be extended via paid DLC add-ons, cosmetic content or level expansions reusing the core game mechanics. The Xbox Live and Playstation Plus subscription programs introduced 2 console generations ago shifted the calculus towards reoccurring revenue streams; Microsoft has since evolved their offering into the Netflix-like Xbox Game Pass, while Nintendo has steered more towards emulating classic games via their own Switch Online + Expansion Pack memberships.
The gaming industry’s new emphasis is on reach, potentially over exclusivity. A couple years ago, it was surprising to see Nintendo finally license out its beloved characters to other game developers to make games on non-Nintendo platforms; I remember how surreal it was to play an officially licensed Mario game—Super Mario Run—on the iPhone. Sony has also recently gotten porting first-party games on other platforms, porting over a handful of highly-rated current-generation PlayStation games on the PC. Microsoft owns both the Xbox and Windows platforms, but a few years back committed to making all of its major Xbox games available for the PC as well, usually through its Game Pass service. The console hardware is no longer the centerpiece of a gaming company’s strategy.
A non-obvious comparison I think of is Disney. They have also made a number of acquisitions in recent years, but the overarching goal of the Disney entertainment empire isn’t focused on any single facet, but in building a layer of ubiquity to its customers, where its movies and TV shows and theme parks and merchandising and even video games reinforce the brand. Certainly, the gaming industry has been big enough to also trigger some crossovers in movies4 and TV shows as well. But with expansions like the Super Nintendo World theme park and investments into forward-looking technologies like VR/Metaverse, gaming’s remaining room for growth may just be all-encompassing.
Which some analysts noted was a discount from recent highs, due to ongoing scandals at Activision.↩
Admittedly, it’s the same argument that Apple made in its defense to Epic’s lawsuit.↩
The corpus of movies based on games is disproportionately bad, for some reason.↩