Sony Group Corp shares fell 13 percent in Tokyo yesterday, their biggest drop since October 2008, after PlayStation rival Microsoft Corp announced a US$69 billion deal to acquire games publisher Activision Blizzard Inc.
The blockbuster acquisition escalates Microsoft’s spending spree to secure intellectual property assets for its Xbox Game Pass service, wiping US$20 billion off Sony’s valuation.
The push to attract paying subscribers with an overwhelming portfolio of games challenges Sony’s traditional console business model that relies on high-profile exclusive titles and hardware sales. Games and network services account for about 30 percent of Sony’s revenue.
Photo: Bloomberg
Microsoft on Tuesday announced that it has more than 25 million Game Pass subscribers and “will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass,” spanning existing and new titles, Microsoft Gaming CEO Phil Spencer said.
Call of Duty, Diablo and World of Warcraft are among several highly successful franchises developed under the Activision Blizzard umbrella.
“Sony will have a monumental challenge on its hands to stand on its own in this war of attrition,” Asymmetric Advisors market strategist Amir Anvarzadeh said. “With Call of Duty now most likely to be added exclusively to the Game Pass roster, the headwinds for Sony are only going to get tougher.”
Elsewhere across the games industry, publishers rallied in the wake of Microsoft’s announcement, with Capcom Co and Square Enix Holdings Co up by more than 3.7 percent in Tokyo.
Analysts, including Jefferies LLC’s Atul Goyal, saw the move as raising valuations for game companies with strong content and IP portfolios.
Sony has maintained a consistent lead in sales and exclusive games over Microsoft’s competing offerings across several PlayStation and Xbox generations. Now that its Redmond, Washington-based rival has signaled its determination to spend freely to close that gap, Sony would be under pressure to respond.
“Sony will struggle to match Microsoft in terms of money it can spend to buy popular game IP,” Morningstar Research analyst Kazunori Ito said. “Falling shares illustrate investors are worried that Sony may not be able to keep winning if indeed the industry shifts away from the hardware-based model.”
Meanwhile, Microsoft’s Activision deal is expected to win out with regulators, despite vows in Europe and the US to rein in tech titans, analysts said.
The deal would certainly be scrutinized, but likely less intensely than would an acquisition by Amazon.com Inc, Google or Facebook parent Meta Platforms Inc, they said.
“From a regulatory perspective, Microsoft is not under the same level of scrutiny as other tech stalwarts,” Wedbush Securities Inc analyst Dan Ives said.
Microsoft chief executive officer Satya Nadella “saw a window to make a major bet on consumer while others are caught in the regulatory spotlight and could not go after an asset like this,” Ives added.
The analyst said that there are bound to be some “speed bumps navigating both the Beltway and Brussels” given the epic size of the deal.
Regulators might even see value in Microsoft challenging China’s industry heavyweight Tencent Holdings Ltd (騰訊), analysts said.
“While the acquisition is big, Microsoft does not become the largest gaming company so it is hard to talk about monopolistic behavior,” Creative Strategies Inc principal analyst Carolina Milanesi said of how regulators could view the merger. “There might be also a US versus China play here in favor of Microsoft considering how big Tencent is.”
Microsoft merging game, cloud computing and software as part of a push in the metaverse would also make it a rival to Meta, which renamed the company from Facebook in tribute to such immersive, virtual worlds being the future.
“Microsoft is formidable competition for Meta, Epic Games, Tencent and Roblox, all of which are scrambling for dominance in this emerging theme,” GlobalData PLC principal analyst Rupantar Guha said. “While the metaverse is still largely conceptual, Microsoft’s strength in underlying themes such as artificial intelligence, augmented reality, virtual reality and cloud computing give it a leadership position in this theme.”
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