Gaming the System: What the Recent Acquisitions in Games Tells Us About the Space

Ian Whittaker 09 February, 2022 

We’re less than six weeks into 2022, and we’ve already seen three major deals in the gaming space. And while the rationale behind these deals is varied, analyst Ian Whittaker says it’s no coincidence that this flurry of M&A activity is happening right now.

In his monthly column for VideoWeek Whittaker dives into the motives behind each of the deals, and argues that we should expect more major deals as gaming companies continue to align themselves with big tech.

The gaming sector has never been short on M&A activity. But in recent weeks, that activity has exploded spectacularly.

Within the space of three weeks, Take Two bought mobile gaming outfit Zynga for a (then) $12.7 billion price tag, which – at that point – was one of the gaming’s sector’s largest transactions. However, that was then overshadowed by Microsoft’s purchase of Activision Blizzard, which owns franchises such as Call of Duty and Warcraft, in an all-cash deal for nearly $68 billion. Finally, we had the announcement last week that Sony was buying Destiny-owner Bungie for $3.6bn. What does all this mean?

Varied motives

The first thing to highlight is that the strategic rationale for all three deals does not appear the same.

Take Two’s move looks to be driven by fairly standard logic, namely that it wants to expand its presence in the mobile gaming space, where it is relatively weak, and took advantage of Zynga’s weakened share price, which had fallen more than 40 percent in the previous six months. The deal made strategic sense for both parties.

Zynga had been impacted by, amongst other things, the introduction of Apple’s IDFA changes on its advertising revenue model. There was a definite question of “what’s next” for the company. Take Two meanwhile wanted to broaden its revenue model away from a reliance on high cost repeatable franchises, and take advantage of the trend of the increase in mobile gaming, as Activision Blizzard had done by acquiring King (the makers of “Candy Crush”). 

Microsoft and Sony’s moves are far more interesting. Assuming the deal is passed by the regulatory authorities – my feeling is that will, as I’ll explain later – the Activision acquisition will catapult Microsoft into third position of the world’s largest games companies (after Tencent and Sony). And as mentioned above, it will give Microsoft control of some of the most valuable gaming franchises on the planet.

On the conference call to discuss the deal, Microsoft’s CEO Satya Nadella explicitly referenced the metaverse as a key reason for the transaction. However, there were clearly other drivers for the deal. One was the continuing diversification of Microsoft’s revenue model while another was to strengthen its position in gaming, where it already had exposure. There is also the question of how Activision’s properties will help to expand Microsoft’s Game Pass subscription service, as well as drive Microsoft’s ambitions in cloud computing, where it is second behind AWS. There are many facets to this deal for Microsoft. 

For Sony, the Bungie acquisition does seem like a defensive reaction. There is certainly an element of mutually assured destruction (MAD) here, with Sony implicitly threatening to take Bungie-owned first-person shooter Destiny off Xbox consoles if the Activision franchises were removed from the PlayStation. There are also likely to be other ways that Sony could monetise the Destiny content, e.g. television shows.

However, perhaps the most interesting aspect is the (so far) timidity of Sony’s reaction to Microsoft. Yes, this is certainly not a small deal ($3.6 billion is not a small amount), and Bungie is a very good asset. But there is a question of why Sony did not try and make a play for some of the bigger franchise owners such as Electronic Arts or Take Two.

Sony might not have the financial firepower of Microsoft, but it is not exactly small. And as the saying goes, where there is a will, there is a way. My feeling is that Sony’s purchase of Bungie is Sony buying some time, helping to dispel investor worries it will get left behind post-Microsoft’s move (Sony’s shares fell 12 percent on the announcement of the Activision deal) and gaining a valuable franchise, while also allowing it more breathing space to come up with a more co-ordinated response.

More consolidation to come?

Finally, what has also come from these deals is a growing realisation from the gaming companies that their days as independent stand alone entities may be coming to an end. For the major players, having the blanket of a cash-rich big tech (or other) partner may be the inevitable future.

Activision Blizzard CEO Bobby Kotick commented that being bought by Microsoft would mean that “we would have a far better chance to succeed in the increasingly competitive race for leadership as gaming through the metaverse evolves”. This suggests that Activision realised that the advent of the Metaverse was likely to mean existing gaming companies would be outgunned in gaming by the tech giants. Hence it was best to align oneself with a competitor.

It is hard to imagine that the other gaming companies are not thinking along the same lines, particularly some of the mid-tier players. The stock market may be seeing far fewer listed games companies in the future.


About the Author:

Ian Whittaker is founder and Managing Director of Liberty Sky Advisors. For further insights and articles, subscribe at
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