Sony needs to bulk up to ward off its multi-trillion dollar gaming rival Microsoft. Another Japan-based gaming company may be exactly what the PlayStation owner needs.
The videogame industry is the most attractive growth market in technology and media. According to research firm Newzoo, the global gaming market will rise to $223 billion by 2024 from $193 billion last year.
It’s no surprise there’s been a feeding frenzy for game makers lately. Microsoft (ticker:
MSFT) sparked off the latest wave by spending $7.5 billion for ZeniMax Media, which closed last year. The tech giant then followed it up with its blockbuster $69 billion deal for
ActivisionBlizzard (ATVI) earlier this year. That same month
Take-Two Interactive Software (TTWO) announced an $11 billion purchase of mobile-games maker
Zynga (ZNGA), and Sony (
Sony) also said it would buy private game developer Bungie for $3.6 billion.
Sony isn’t done shopping. In January, Sony Interactive Entertainment CEO Jim Ryan said it planned to buy more studios.
It’s important to note gaming intellectual properties are the common thread in all the industry acquisitions—from ZeniMax’s Fallout and Elder Scrolls franchises to Activision’s Call of Duty games. Brand-name franchises are critical in growing revenue and attracting consumers to a console platform.
That’s why Square Enix is a perfect fit for Sony. It owns two beloved franchises that have generations of fans after more than three decades of releases: Final Fantasy—which has sold over 160 million units over its life time—and Dragon Quest, with over 80 million units sold.
Sony is known for its award-winning single-player experiences—including Last of Us to Spider-Man. Certainly, the popular Final Fantasy games would fit right in. But Square Enix would also be a great complement for Sony’s new strategic goal to make more live-services titles or games that have a real-time community component using the internet.
Final Fantasy XIV is one of the few successful online role-playing games. Last year, the game was so popular Square Enix was forced to suspend new sales because its servers were overloaded with players. With its larger scale and better technical infrastructure, Sony could help with the capacity issues.
Sony and Square Enix did not immediately respond to requests for comment on the possibility of a buyout.
A merger wouldn’t break the bank, either, for Sony. Square Enix has a market value of roughly $5 billion. Any takeover would cost much less than what Microsoft agreed to pay for Activision.
In fact, there may be a sign Square Enix is prepping itself for an eventual sale. On Monday, the company announced it had agreed to sell several studios and intellectual properties—including Tomb Raider, Deus Ex, and Legacy of Kain—to Sweden-based
Embracer Group AB for $300 million.
Many experts were surprised by the modest price of the transaction. But one benefit from diving underperforming assets is that it could set the stage for a larger player, such as Sony, to make a cleaner acquisition of the remaining properties. For instance, Tomb Raider would be nearly useless for the PlayStation owner because it owns a similar Indiana Jones-type franchise called Uncharted.
Sony should act quickly. Technology companies around the world are actively looking to scoop up gaming companies. There aren’t that many high-quality independent gaming companies like Square Enix left.
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