Sony’s billion-dollar deal is heating up the fight for the screen

On January 10, the US game developer Take Two announced that it would take over the browser game provider Zynga for twelve billion dollars. On January 18, Microsoft then announced the purchase of the game manufacturer Activision Blizzard for almost 69 billion dollars. Sony’s step is much smaller, but was rewarded on the stock exchange: US investors grabbed it and drove the price up by 4.5 percent before the market closed.

Experts believe the battle for industry dominance continues. The industry, which according to US market research IDC 2020 had a turnover of around 227 billion dollars – a multiple of the global film industry with its twelve billion dollars, is too lucrative. More importantly, with three billion active players around the world, publishers have a gigantic reservoir of potential customers.

Others have long since noticed that. Streaming services, cloud providers and social networks – they all want to enter the gaming market.

Limited attention

The growth of the gaming industry is an acute problem for streaming providers. After all, most people can only concentrate on one thing in their scarce free time to relax: watch a series – or play a game. And the streaming services are reaching the limits of their growth.

For example, Netflix reported the slowest user growth since 2015 for the past year – despite the corona pandemic. “Netflix and Co missed out on the interactive component,” says Holger Müller, an analyst at Constellation Research in Silicon Valley. In addition, the production of complex series is extremely expensive compared to games.

Players, on the other hand, come back to their favorite game far more often, and new content is comparatively cheap. Long-term motivation is an essential factor in development. It was not for nothing that Netflix announced at the end of 2021 that it would be expanding its range to include games.

Jonathan Curtis, portfolio manager at the US Franklin Technology Fund, believes that the fight for users’ attention is at the core of the recent takeovers. And about their free time. Games are in pole position. “There’s a huge opportunity to make the Netflix of games,” he says.

The winners will be those companies that have the content, the technology – “and the proven ability to sell subscription services.” Microsoft sees Curtis best positioned here: “Microsoft has all of this.”

Netflix boss Reed Hastings recognized in 2019 that the gaming world is now the biggest competition for streaming providers. “We fight and lose to Fortnite more than we do to HBO,” he let his shareholders know. Means: The online game Fortnite has long been a bigger opponent than the payment channel HBO. According to Fortnite owner Epic Games, the game has around 200 million registered users. Netflix had around 222 million customers at the end of 2021.

Desirable subscribers

Netflix’ great merit: having made the subscription model popular. “Netflix actually initiated it,” says Constellation analyst Müller. Netflix has gotten used to users paying monthly for virtual content – ​​and has triggered a huge wave of investment in fast networks, servers and cloud storage. Now that infrastructure is there.

Game companies were the first to see the opportunity. While games used to be installed in isolation on home PCs and consoles, huge fan bases have now emerged on the Internet. Platforms like “Twitch”, which bring streaming and gaming together, benefit from this. On Twitch, users film themselves playing video games, fans comment and give money. Amazon bought Twitch in 2014 for almost a billion dollars.

Conversely, Netflix also benefits from the gaming trend. Game adaptations such as “Witcher” or “Arcane” are among the most successful series content. The example of Arcanes, which comes close to the Netflix record holder “Squid Game” in terms of viewing figures and social media response, also showed that it is also possible without the streaming market leader. In China, where the series was also very successful, it was streamed on the network of media giant Tencent – the company that owns Riot Games. Riot developed “Arcane” and especially the underlying game “League of Legends”.

More on the billion dollar gaming market

The subscription – it is now considered the holy grail of the tech world. It offers providers great advantages: Subscriptions generate constantly flowing income and make you less dependent on the success of individual titles.

So far, Sony has focused most on the classic sale of blockbusters. But with the Bungie acquisition, the Japanese are showing that they have read the signs of the times, says Franklin Templeton’s Curtis: “This consolidation that we are witnessing right now is about building massive content libraries so that players feel comfortable when they pay subscription fees.”

Microsoft boss Satya Nadella is happy that his predecessor Steve Ballmer introduced the “Xbox” games console in 2001 – against a lot of resistance. “Our investments are starting to pay off,” Nadella said in the most recent quarterly call. Console mega-seller Halo, a sci-fi military game for Xbox, is one of the console’s most successful titles. The latest sequel, Halo Infinite, is played by 20 million people a day.

growth in the cloud

The user base is growing. Microsoft now has 25 million paying subscribers with its “Gamepass” games offering. But there are a billion people with broadband connections for fast online gaming, says Franklin Templeton analyst Curtis. “And three billion people play on phones, consoles and PCs.” In short: the pool of customers is gigantic, especially against the background of the expansion of the 5G networks. Also because gamers are not limited to specific demographic groups. The theme connects generations, even if different games are played.

Not only publishers and streaming services, but also the other tech companies want a slice of this cake. Especially those who hardly have their own games on offer.

• example Apple: The software and hardware group is making money from the gaming boom through its “Services” division. CEO Tim Cook has declared this to be a growth segment. Game providers pay whopping commissions for the app store to list their titles. There is resistance to this: Fortnite provider Epic considers the commissions to be too high and is suing Apple. A few days ago, attorneys general from 34 US states and the District of Columbia joined Epic’s demands in a letter of support.
• example Amazon: The online retailer’s own gaming range fell short of expectations despite the initial success and hype surrounding the game “New World”. But Amazon can hope for revenue from its cloud services. Because thanks to the games, cloud servers get a second life: the expensive machines can continue to be operated as gaming servers when they age and become too slow for some high-performance applications, says analyst Müller. “That practically doubles the service life and thus the income.”

And Google? The search engine provider wanted to shake up the market with the Stadia cloud platform. But the tech group has also failed to capture significant market shares. Despite the offer to back up current games regardless of expensive hardware. Meanwhile, Google was able to secure the order for the Activision Blizzard Cloud. And Microsoft shouldn’t shake the contracts until the takeover is approved. But the future is open.

Boss fight for the Metaverse

It is quite possible that Google will bring itself back into play with its own billion dollar purchase. A possible takeover target is already being discussed on Wall Street: Electronic Arts, the largest independent game manufacturer that supplies both Microsoft and Sony.

Finally, there is another group that wants to participate in the gaming boom: the social network Facebook. This is fully based on the “metaverse”, the Internet of the future including virtual reality. In this, the online and offline worlds are to merge – here, too, the drivers are games.

In the video announcing the renaming of his company to Meta, Facebook boss Mark Zuckerberg met a troll from a role-playing game. Zuckerberg sees the future in the digital world and wants to invest 50 billion dollars as a first step. Meta already has the necessary hardware, digital glasses, with the Oculus brand.

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