The video game merger & acquisition trend and its impact on the Gaming Industry

Brace yourself. Here come rampant Mergers & Acquisitions in the gaming arena!

This calls for celebration as it is an exciting prospect for the industry and the gaming community.

There are a handful of examples in recent times. Be it EA acquiring Playdemic, a mobile developer for $1.4 billion, or Niantic games acquisition of an AR startup last year, the indications are clear. With these high-profile mergers becoming a regular affair, the gaming industry is scaling up. Parallelly, few niche technologies like Cloud Gaming, AR and VR are also on the verge of becoming mainstream.

What does this sudden increase in these mergers across the industry hold in store?

Increase in Global Presence & Revenues

Gaming has gained a substantial foothold in the past 5 years, throwing light on companies going the extra mile to stay competitive in the gaming environment. The best and quickest way would be the M&A route.

External key factors driving this growth are technological software advancements, infrastructural accessibility to the internet outside first-world countries, and the availability of hardware, consoles, or PC components that formed a substantial part of the pie. But the majority of the portion can be attributed to the explosion of the smartphone phenomenon.

Smartphones, to a large scale, addressed the challenge of hardware requirements and accessibility. Even the cost factor that came bundled with consoles and PC hardware was offset.

Within the company environment, mergers grant companies data that can be analyzed to understand the userbase and offer customized, region-specific features and strategies. Personalizing games specific to the region is imperative. Any game worth its salt will have a diverse userbase spread across the globe, and with it comes a distinct persona like no other.

Every player has a unique playstyle, so game developers and publishers have to cover all grounds and inculcate gameplay elements that resonate with their base.

An increase in userbase translates to an increase in the in-app purchase prospects, which can be tenfold with a global audience.

Businesses can influence player behavior to encourage the player towards in-game purchases using real-time recommendation engines to curate personalized content across a diverse userbase with personalized recommendation models.

A global presence with these mergers can turn out to be a revenue blockbuster for involved parties, accelerated YoY growth while also establishing themselves in new markets. The revenue in mobile gaming for the US alone stood at $77.2 billion in 2020!

In terms of Genre, the social mobile casino games are seeing tremendous growth and are expected to grow to $5.9 billion by next year!

The Global expansion also means an extension in the lifestyle of an IP. Typically, any expansion on a global scale may not be a feasible venture for many businesses. Adding a joint venture into the equation changes everything!

Potential, Perspective, and Profit

Microsoft’s acquisition of ZeniMax Media, the parent company of Bethesda Softworks, was one of the big profile acquisitions that created waves in the industry.

Bethesda cemented its position in the gaming domain as one of the most revered RPG developers. The Elder Scrolls series and the initial Fallout titles, especially Fallout: New Vegas, are testaments with a cult following unlike any other.

Bethesda always had a notorious reputation for using the archaic Creation Engine, releasing games that lacked polish. The modding community always came to the rescue of gamers and improved the quality, playability, and life cycle of a Bethesda game. However, Bethesda didn’t face much heat until the release of Fallout:76.

The spectacular debacle of Fallout:76 is a case study for many developers on how not to ruin a revered franchise. The aftermath was explosive.

But Microsoft’s $7.5 billion acquisition of Bethesda changes everything.

For Bethesda, this is a significant timeline event and a chance at redemption with future games. While it is unknown how involved Microsoft will be in terms of creative say in Bethesda’s games, the quality of the end product will surely improve now that Microsoft’s reputation is also at stake with the upcoming Bethesda titles.

Neither Microsoft nor Bethesda was in any danger to start with. This is simply an example of the possibilities of a joint venture in gaming. But this acquisition adds a value proposition to both the players. So is the case for most of the recent mergers and acquisitions in the industry.

This move has influenced the sales of the Xbox series X. Many users in public forums shared that other than the usual attributes, they chose Xbox Series X over the PlayStation 5 because of these possible future exclusives acquisition. With mergers and acquisitions like this being commonplace, there is no better console.

The exclusive game titles and content will be the factor that influences the buying decision of the gamers and provide sustainability for the developers in the long run.

Gamers can rejoice

An increase in mergers can mean one thing to gamers — more diverse and exciting new games and additional focus on existing IPs. It’s a win-win.

Companies are being clever. With these mergers, they see a gold mine with the potential to monetize and scale rapidly. The players can expect a new genre of games from their favorite developers and additional add-ons in the form of DLC and unique content, which will spike the User Engagement Metrics in terms of playtime and extended user sessions of the games played.

Furthermore, Microsoft has promised PC and Xbox exclusives in the future on Day 0, every quarter, post its acquisition of Bethesda. Subscribers of the Xbox game pass have reasons to rejoice.

The PlayStation and its exclusives have evaded the PC and Xbox gamers for a long time. With this development, the playing field is level. Microsoft is taking the battle to Sony, which would be interesting to see how this pans out.

Sony’s acquisition of Insomniac games has also got the PlayStation users riled up with excitement for future titles.

It may be too early for gamers to speculate at this point about the future possibilities. However, they may not be too far away from the doors to a world of unlimited possibilities.

Research experts at Strategy Analytics also think the recent mergers and acquisitions are just the beginning and a sign of exciting times ahead.

The Pandemic Effect

While joint ventures in gaming are not new, the recent spike is all thanks to the Covid pandemic of 2020.

A record number of people took up gaming due to social restrictions and lack of activities during the global lockdown, making gaming a $150 billion industry.

Several people turned to mobile gaming, and some forayed into new consoles like PlayStation 5 and Xbox Series X to play games to get more immersive gameplay during the lockdown.

With such an interest in gaming, the industry is booming and is projected to reach a whopping $250 billion by 2025!

Advancement in Gaming Tech

Many experts predicted VR to be the next best thing in gaming. While it may have made some strides, the prediction fell flat and lost some luster. But the future does look lucrative, and VR is making a comeback stronger than ever.

Netflix recently made news with its plan to enter gaming. While this may be old news, Netflix announced a deal with Shonda Rhimes, the creator of many popular TV shows like Grey’s Anatomy, Private Practice, and Bridgerton, a massive hit for Netflix. This throws light on a merger with immense potential.

With this deal, there is a strong indication that Netflix is looking to create exclusive VR content. With Netflix’s vast library, content is the last thing they’ll have to worry about, but for anyone with a keen eye for gaming tech, this shows that VR may finally get its break after many years.

Price is not the only factor that hindered VR’s growth. Though a significant factor, the lack of good game titles which support the VR tech was also an important reason. Investing in new expensive hardware while the playability is minimum did not sit well with gamers worldwide.

Publishers and developers read this sentiment too. There weren’t a lot of high-profile VR titles on offer. Valve may have released Half-Life: Alyx, but they had a lot on the line with their own VR hardware on offer. And this is in addition to the lukewarm response from uninterested gamers waiting for a sequel to Half-life:2.

It’s not just VR. Many of the recent mergers involve mobile developers, and as discussed before, the social casino scene is quite a scorcher that is turning heads. A significant contributing factor to the success of mobile games was 4G, providing internet accessibility on a global scale.

The move to 5G has been a hot topic of discussion, specifically the benefits for the gaming world. With the increase of interest in mobile games, the transition to 5G won’t be abrupt. More people will see a reason to upgrade. This holds for mobile devices as well.

Cloud is another tech that will see substantial growth. Microsoft and EA already made forays and have a subscription model in place that is already a big hit with gamers. But with such high-profile acquisitions in the future, the average gamer will confidently adapt to new technology when a lucrative library full of games rich with multiple genres is on offer.

The whole dynamic can change with joint ventures between a developer and hardware publisher and open doors to multiple possibilities.

Stronger-Together

With the increase in various acquisitions, the gaming landscape has become extra competitive with several casualties. We’ve seen many developers like Telltale Games, THQ, and Visceral games shut down in the past.

Gaming is a cut-throat industry. Developers and publishers often make mistakes. The dynamic of gaming is changing at a rapid pace, and teaming up may not guarantee success, but the odds are much better for them to survive.

At this point, it is only possible to speculate what these mergers and acquisitions will bring to the table. But there is a silver lining with every joint venture. With a shared vision, combined resources, expertise, and industry knowledge, the possibilities for these tag teams are aplenty.