Which Video Game Studio Will Be Acquired Next?

Video game studios being acquired by larger corporations isn't a new phenomenon within the industry, but lately, the rate at which studios and publishers--including big ones--are being purchased has escalated dramatically. Times have changed recently, as companies look to consolidate their presence in the gaming industry.

Microsoft's purchase of ZeniMax and Bethesda was just the appetizer for its plans to acquire Activision Blizzard for a staggering sum, Sony began laying the foundation for its push into live-service games when it bought Destiny 2 developer Bungie, and Swedish company Embracer Group has amassed a sizeable collection of studios across the globe. And don’t forget Take-Two’s $12.7 billion plan to purchase social and mobile game developer Zynga.

So what's driving this sudden round of mergers and acquisitions lately? According to Ampere Analysis' Piers Harding-Rolls competition from big tech, entertainment companies such as Netflix, global expansion from games publishers like Tencent and NetEase, and the concept of the metaverse are factors that are driving these massive deals across the industry.

"Interest in games from the biggest tech companies has resulted in competitors that have a broad array of technical skills, leading cloud-based capabilities, and very strong financial positions making them formidable opponents," Harding-Rolls explained. "Not only is there continued high games industry demand due to the proliferation of companies, storefronts, and services active in the market but there is also increasing demand from adjacent sectors, such as film and TV, that have a growing need for games developer skills."

With the gaming industry landscape changing and the sector becoming more competitive, Harding-Rolls believes that another major acquisition or merger to the value of $20 billion and over is at some point likely as companies look at how they can adapt to a changing landscape. Sony's purchase of Bungie has set the tone for the level of investment that can be expected for these deals, as it shouldn't be too surprising to see a headline detailing a new studio purchase for around $5 billion or under.

"I expect the funding and [mergers & acquisitions] activity in the sector to continue at a strong pace, although we probably won't be getting these huge deals repeatedly," Harding-Rolls said. "However, I do think the big deals that have been completed in recent weeks do increase the chance of another major acquisition or merger at some point as companies reassess their strategies in the light of the new competitive landscape. I think pure-play publishers will be feeling strategically exposed to an extent and will be considering how they can best compete versus the big tech players and the games platform companies. We could see another acquisition of a major publisher or perhaps a merger between players."

With other major groups such as Codemasters, Gearbox Software, and Asmodee all being snatched up, you have to wonder: Who's next?

On the surface, Ubisoft sounds like an ideal company to acquire. It owns a healthy number of IPs, it has studios all over the world, and it's a powerhouse in the lucrative market of games as a service. With a market valuation of around $6.8 billion currently, the home of Assassin's Creed, Far Cry, and Just Dance sounds like an obvious target for companies like Microsoft or Sony to make an offer on. It's not that simple, though, as Ubisoft's home ground of France makes a flat-out purchase challenging to say the least.

"French law makes it hard for a non-French company to acquire them," Wedbush analyst Michael Pachter told us. "They make the most sense for a console maker, since they own their IP and have a deep catalog of content, but I think that an acquisition is unlikely."

New legislation in France makes foreign ownership of companies particularly tough, as corporations looking to acquire a stake of more than 10% in a variety of sectors--new technologies included--must first receive French government permission to do so. Previously, this threshold had been set at 25%, but was lowered when the French finance ministry drafted stricter rules on foreign ownership of companies it deems strategically important to the country and its identity.

Ubisoft has weathered a more hostile takeover process in the past before, as the company's founders fought back against French media conglomerate Vivendi's attempts to increase its control of the company. That fight eventually ended with a complete sell-off of Vivendi's Ubisoft stock, which was split between multiple sources such as Ubisoft's founding Guillemot family, the Ontario Teachers' Pension Plan, and Tencent.

On the topic of Tencent, the Chinese-based company has also been gathering a number of smaller studios under its umbrella, such as Don't Starve developer Klei Entertainment, UK-based studio Sumo Digital, and Back 4 Blood's Turtle Rock Studio. Tencent also owns Riot Games, a giant in the industry and the esports scene with titles such as League of Legends and Valorant. While Tencent has plenty of financial muscle to flex, it does have more hurdles to overcome in this sector.

"Tencent is financially very strong but being a Chinese company will face scrutiny over any major deals it seeks to complete in the West, which puts it at a disadvantage versus non-Chinese competitors," Harding-Rolls explained. "As a result, I think it will remain quite targeted and smaller scale in its deals."

Speculation on the next deal--of which Sony has confirmed that it has more in the pipeline--has placed a new focus on a number of companies and studios that own a rich selection of IPs that could be made the exclusive property of a brand's unique metaverse. Japan has long been a major market that the Xbox brand has traditionally struggled to gain a foothold in, and a few major purchases could help Xbox grow its brand in that market, a goal that the company has been actively pursuing with renewed energy as of late. Alternatively, Sony could look to secure a few deals, further increasing its homeland advantage.

As for Nintendo, the third brand in the big three of gaming? The company seldom makes acquisitions of studios that don’t carry the “Nintendo DNA” that it prizes above all else, and for now it's patient to further invest in the developers it already has working under it.

Capcom would be a huge boost for any company's gaming portfolio, as the Japanese software giant is home to some of the most popular IPs of all time. Beyond staking out some territory in the fighting game community with the Street Fighter franchise, Capcom's Monster Hunter, Resident Evil, and Devil May Cry properties have received both commercial and critical success over the years. (There's also the element of non-gaming opportunities with Capcom franchises, something that may have motivated Sony's purchase of Bungie.)

Then there's Square Enix, an RPG giant with Final Fantasy and Dragon Quest in its IP library. Square Enix has done timed exclusivity deals with Sony before--such as Final Fantasy VII Remake--but its true value may lie in the mobile space, where it has multiple games generating impressive revenue figures year-on-year. While Square Enix released a statement last year where it detailed that it had not received any acquisition offers or had any interest to put itself up for sale, recent changes could allow for a change of heart.

Sega would be another prime target thanks to properties such as Sonic the Hedgehog and a number of other legacy IPs, Konami is a feature-rich company even though it's more focused on the gambling sector these days, and EA would be a juicy target. While Microsoft already offers multiple games from the company's EA Play service as an Xbox Game Pass bonus, having unfettered access to EA's sports, driving, and fantasy franchises would be an appealing proposition.

Anything's possible right now, and with other tech giants such as Amazon and Google possibly reassessing their own strategies, the season of consolidation--which could reach a total of more than $150 billion in 2022 alone--in the video game industry could just be just getting started.