Good content is hard to find. Look at Microsoft. It is paying US$69 billion to acquire Activision Blizzard — and by extension, the rights to that company’s marquee video game franchises, including Call of Duty.
That is still less risky than the alternative: building games from scratch. Budgets can balloon and all the outlay does not guarantee success. A new game can bomb and hobble the entire business, as the botched release of Cyberpunk 2077 showed. Shares of CD Projekt still trade at just about 70 percent of the high recorded before that disastrous launch.
There is another way. As Microsoft, Sony Group, Tencent Holdings and other giants engage in acquisitive wars for content, they should consider the Star Wars strategy.
When the Walt Disney Co bought Lucasfilm and Marvel Entertainment for about US$4 billion apiece, it picked up fan-friendly properties that had seen better days and were in need of fresh management. The likes of Black Panther and Thor were second-tier heroes who had never been box-office tentpoles, and Star Wars was languishing after the Jar Jar Binks years.
Under Disney’s tutelage, once-obscure characters like Boba Fett and Moon Knight have become the pillars holding up its Disney+ streaming service as the company deploys a multimedia strategy that spans film, television, cartoons and more.
Are there Star Wars-like franchises still out there?
A number of Japanese gaming firms might fit the bill: Capcom, Square Enix Holdings, Konami Holdings and a few others. They do not have a blockbuster game like Call of Duty among them, but they have deep catalogs — and would be much less expensive than US$69 billion.
Square Enix not only has the Final Fantasy and Dragon Quest series, but thanks to its acquisition of Eidos in the late 2000s, also owns the likes of Tomb Raider. It trades at just 15 times earnings.
Osaka-based Capcom owns the Resident Evil and Street Fighter franchises, along with cash cow Monster Hunter and a host of stagnating or dormant second-tier properties from Dino Crisis to Mega Man.
Even Konami, for which gaming has largely been relegated to an afterthought, still holds the rights to the likes of Metal Gear Solid and Silent Hill. While the company has mismanaged these titles for years, gamers’ memories of their heyday run deep.
In the right hands, they would make a valuable addition to a deep-pocketed investor’s catalog.
Even with a 50 percent premium, Konami could be had for less than US$14 billion — and it would come with a money-spinning line of fitness gyms for no extra cost.
As Microsoft and now Sony build out their on-demand gaming catalogs, the value of familiar names is only going to rise.
The movie industry is an object lesson. Big-budget movies almost exclusively come from safe, recognized properties. Even franchises such as The Fast and the Furious or also-ran superheroes like Aquaman are capable of taking in billions, as enthusiastic fans generate a virtuous cycle of hype.
In gaming, there are not that many recognizable assets left. That is one reason private-equity firms are reportedly looking at France’s Ubisoft Entertainment, the video game publisher that makes the Assassin’s Creed franchise.
Other opportunities abound: Kadokawa has more than tripled in value since the beginning of 2020, aided by its ownership of From Software, maker of the critical darling and sales hit Elden Ring.
Saudi Arabia’s sovereign wealth fund is paying attention: Having scored big on its investment in Activision, it has taken stakes not just in Capcom, but also Japan’s Koei Tecmo Holdings, which owns relatively minor properties such as Ninja Gaiden and Dynasty Warriors, and the Tokyo-based online game maker Nexon.
Admittedly, doing mergers and acquisition deals in Japan is not easy.
The double-barreled names of Bandai Namco Holdings, Koei Tecmo and Sega Sammy Holdings are testament to the series of mergers that Japan’s video game makers have gone through. Those unions were mostly out of desperation — sinking firms clinging to one another for survival.
Still, Japan is not the same place that laughed Microsoft executives out of the room when they attempted to acquire Nintendo more than 20 years ago.
Companies in other industries have begun to show that even hostile takeovers are no longer taboo.
For US corporations looking at Japanese targets, there is an additional incentive: The yen is at its weakest against the US dollar in two decades.
One estimate puts the value of Marvel, bought for US$4 billion, at US$53 billion last year. Of course, that is thanks to Disney’s smart stewardship. In the right hands, some of Japanese gaming’s faded gems might reclaim their old sheen — and pay huge dividends for their new owners.
Gearoid Reidy is a Bloomberg News senior editor covering Japan. He previously led the breaking news team in North Asia and was the Tokyo deputy bureau chief.
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