It’s only January, and yet a new week brought another major deal that shifts the landscape for the video game industry.
With Sony Corp. unveiling a $3.6 billion deal on Monday to acquire Bungie, the game developer behind hits like the Halo and Destiny franchises, Wall Street observers have started putting the transaction into the context of the wider M&A wave currently sweeping the sector. It kicked off this year with the Jan. 10 news that Take-Two Interactive would purchase mobile game giant Zynga for $12.7 billion.
Eric Handler, analyst at MKM Partners, tells The Hollywood Reporter that the latest deal follows a similar logic to Microsoft’s $68.7 billion planned acquisition of Activision Blizzard. That agreement would bring together Microsoft, the owner of the Xbox game platform and Xbox Game Studios — owner of Bethesda Softworks and 343 Industries, among other game publishers — and the maker of the Call of Duty, Warcraft and Tony Hawk franchises. “Platforms are looking to own more content,” Handler explains. “This deal is part of this snowball trend.”
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But he also highlights the difference in size, and ambition, of the deals. “Sony though continues to take baby steps, while Microsoft is doing transformative deals,” Handler argues.
Wedbush analyst Michael Pachter, meanwhile, tells THR about the deal: “It gives Sony a team that can manage live services, which means Sony can start monetizing after the initial sale, but it’s inconsequential for the industry.”
Cowen analyst Doug Creutz tried to dig deeper into the deal rationale for Sony, summarizing it this way: “top-tier IP, live service expertise, cross-platform opportunities; not, however, exclusivity.” Creutz particularly lauded Bungie’s successes over the years beyond Destiny. “Having also created Halo, Marathon and Myth in the past, Bungie’s 30-year track record for successfully launching new IP is second to no one, and so there is real reason for optimism about Bungie’s pipeline.”
The Cowen analyst also emphasized that “Sony appears to be making a much clearer statement around keeping Bungie IP on Xbox than Microsoft did regarding continued PlayStation access to Activision Blizzard’s IP.” That led him to wonder: “If not for exclusivity (and Microsoft-Activision happened too recently for Sony-Bungie to be a response), then why would Sony buy Bungie?”
Creutz came up with five possible reasons. “Sony wants to be a gaming company beyond PlayStation,” the analyst started off his list. “They have begun launching some of their key AAA games (meaning high-budget, high-profile releases) on PC, and have also identified mobile as an important target for expansion. Bungie gives them a major avenue for this: essentially, Sony’s game and network services (unit) value can shift to being less about PlayStation as a platform and more about the company’s world-class gaming IP.”
Creutz also noted that the deal will bring new expertise to the company. “Sony has no real experience in running live service titles, while Bungie operates arguably the world’s best live service title from the standpoint of curating a narratively evolving game world (as opposed to just selling card packs or loot boxes),” he wrote. “Sony seeks to benefit from Bungie’s expertise in this area, likely in order to evolve some of its own IP into a live service mode (which, we note, Microsoft appears to be doing with Halo Infinite).”
A third potential opportunity for the Japanese entertainment and consumer electronics giant is the potential synergy between its gaming and film units. “Sony wants to use gaming IP to help fuel content from its studio segment,” Creutz argued. “Destiny features deep world-building with a broad cast of characters and interesting ideas about the nature of good and evil.”
Rounding out his list of likely reasons behind Sony’s Bungie play, the Cown analyst suggested that “there may also be a bit of a defensive element,” because buying the firm “prevents anyone else from taking Bungie’s IP away from PlayStation” and that it “doesn’t put any real stress on Sony’s balance sheet or cash flow.”
Concluded Creutz: “Buying Take-Two (with or without Zynga), for instance, would have been a much bigger stretch financially and much riskier if the integration went poorly. With Bungie, Sony is getting a top-tier studio at a fairly reasonable price.”
