May 29, 2022

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Gaming consolidation in full swing

Microsoft’s plans to acquire Activision Blizzard for a whopping $69 billion is the latest sign that consolidation in the gaming industry isn’t going to slow down anytime soon.

Why it matters: Convergence is at the center of this consolidation — hardware and software, mobile and PC, social networks and content, industry experts say.

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The big picture: Just in the last couple of years, the gaming industry has seen unprecedented activity in M&A, private financing and public listings.

  • Two of the top three largest acquisitions ever (Activision Blizzard and Zynga) were announced just this month, and the other (Stars Group) was completed in May 2020, per Dealogic.

  • In 2021 alone, there were more than 250 gaming deals at a total value of over $38 billion, according to Drake Star Partners.

  • Valuations in private financings for gaming companies are also going up, and many are fetching a premium for being part of the excitement around crypto and Web3, says Drake Star Partners’ Michael Metzger.

What they’re saying: “I think you’ll see consolidation of entertainment companies under the umbrella of trillion dollar market caps,” chairman and former Glu Mobile CEO Niccolo de Masi tells Axios.

Between the lines: Activision Blizzard CEO Bobby Kotick told VentureBeat this week that the company sold because it was “starting to realize that we need thousands of people to be able to execute against our production plans … and that competition for that talent is expensive and really hard to come by.”

  • Moreover, the combination of rising costs to produce big franchise games and the maturing of the industry is making it harder for companies to absorb big losses if a new game flops, explains de Masi.

But, but, but: It’s hard to ignore the timing of the deal — which coincides with Activision Blizzard’s ongoing workplace issues dragging down its stock price. Less than a year ago, it was trading at over $100 a share, before shedding more than 30% since news that California regulators are suing it alleging discrimination and a sexist culture.

  • “The biggest problem, my guess is, is the internal issues,” Metzger tells Axios. With a lot of capital flowing into gaming startups, there are more and more attractive employment alternatives now, he says.

  • Mounting backlash from employees and partners reportedly created an opportunity for Microsoft to approach the company in November and provide an alternative path to immediately ousting Kotick, according to the Wall Street Journal.

What to watch: Apple, Amazon and Netflix’s next gaming moves, what happens to Unity and whether EA and TakeTwo remain independent.

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