Video game companies are arming up for battle

PlayStation parent Sony joined the consolidation fray Monday with its announcement of a $3.6 billion acquisition of game developer Bungie, creator of the hit Halo and Destiny franchises. The move comes mere weeks after Microsoft’s eye-popping $68.7 billion purchase of Activision Blizzard and Take-Two Interactive’s $12.7 billion deal for mobile gaming pioneer Zynga.

Each deal carries its own hallmark. 

Sony gains access to a developer with deep experience creating sprawling, live games available across multiple platforms. Microsoft grabs oodles of high-value gaming intellectual property for its profitable subscription service. Take-Two gains a foothold in the fast-growing mobile gaming market after primarily focusing on console-based offerings.

But all three acquisitions share a common theme: Everybody wants dance partners as the video game industry enters a period of upheaval.

While there’s little doubt that gaming will be ultra-lucrative well into the future—the industry already generates more revenue than video streaming, traditional television, movies, and music—numerous questions remain about how the sector will evolve.

For example: Which platforms will consumers prefer? 

John Davison, publisher of the gaming publication IGN, wrote earlier this month that traditional video game consoles “will become irrelevant” in the coming years as new technology develops. Gaming likely will shift more to phones, tablets, gaming-enabled televisions, and virtual reality headsets. 

In turn, video game companies will tailor content and software to the most popular platforms—and that expertise can be bought for the right price.

Another question: What revenue streams will prove most profitable?

After decades of a straightforward money-making model—the consumer buys a console and physical copies of games—the industry has shifted in recent years to a multi-revenue strategy. 

Microsoft draws monthly payments from 25 million Game Pass subscribers. Countless developers dot their traditional and mobile games with microtransactions. Apple takes a 15% to 30% cut from sales made by other developers through its App Store.

A third question: How ambitious will the biggest tech companies get for a piece of the pie?

Just as Microsoft tapped its huge cash revenues to acquire Activision Blizzard, several Silicon Valley stalwarts could buy their way deeper into the industry. 

Apple, with nearly $200 billion in cash on hand, could take greater ownership of the sector as U.S. lawmakers and rivals look to kneecap its App Store fees tactic. Facebook parent Meta also could tap its $50 billion-plus in cash on hand if Mark Zuckerberg sees gaming as a vital part of the metaverse, which shares common DNA with current virtual reality offerings.

Antitrust regulators ultimately will have their say on video game consolidation, with Bloomberg reporting Monday that the Federal Trade Commission will review the Microsoft-Activision Blizzard merger. Technological evolution and consumer tastes also figure to drive the gaming market for years to come.

In the meantime, video game leaders are readying for a long, bloody fight. To the victor go the many spoils.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

A short-lived marriage. AT&T announced plans Tuesday to spin off WarnerMedia just four years after acquiring the brand, and merge it with Discovery in a $43 billion transaction that will cut the telecom giant’s dividend by nearly half, CNBC reported. As part of the deal, AT&T shareholders will get 71% of WarnerMedia Discovery, taking 0.24 shares of the new company for each AT&T share they own. AT&T agreed in May to slice off its media business, allowing the legacy company to focus on building out its broadband and 5G wireless Internet infrastructure. Shares in AT&T fell 4% in mid-day trading Tuesday.

You’ll get a ticket for that. Tesla is recalling about 54,000 vehicles to fix self-driving software that allows the cars and SUVs to roll through stop signs in violation of state laws, The Associated Press reported Tuesday. The rolling stop feature, which allows drivers to go through stop signs at speeds of up to 5.6 mph, was introduced through an October 2021 software update as part of Tesla’s “Full Self-Driving” beta testing. Tesla executives said they are not aware of any injuries resulting from the feature, but company executives agreed to remove it following meetings with federal safety officials.

That’s some fast MONEY. As reported by its own newspaper Tuesday, The New York Times will acquire the hit browser game Wordle in a deal valued “in the low seven figures.” The agreement comes just three months after the ad-free game, developed by a Brooklyn-based software engineer, launched online with virtually no fanfare. The Times continues to invest in word and puzzle games as part of its strategy for building digital subscribers.

East beats West. New York City bested Silicon Valley in 2021 when it came to investment in blockchain and cryptocurrency-related startups, Bloomberg reported Tuesday, citing data from research firm CB Insights. The Big Apple took in about $6.5 billion in startup funding for the nascent industry, which Mayor Eric Adams has promoted despite calls for steep regulation from some state lawmakers. Silicon Valley trailed with an investment total of $3.9 billion, followed by Los Angeles and Miami at about $760 million each.

FOOD FOR THOUGHT

No laughing matter. As more big-city dwellers hunkered down at home amid the pandemic, several startups backed by big-money investors rushed to stand up grocery delivery services. Turns out, it’s not a very profitable business. The Information reported Monday that one of those companies, Jokr, is looking to sell its New York operations as losses continue to pile up. Analysts expect some of its competitors will join suit later this year, with venture capital money drying up and profitability nowhere in sight.

From the article:

Like the other instant-delivery firms that entered New York last year, Jokr promises fast delivery by operating a network of warehouses, known as dark stores, that stock inventory such as oat milk, toothpaste and other household items for delivery to nearby homes. The model carries steep upfront costs, both from renting the warehouses and hiring workers, who are paid as full-time employees rather than as the independent contractors paid for each delivery.

In data sent to investors last fall, Jokr forecast its U.S. business would burn through $74 million in cash in 2022 and $84 million in 2023, The Information previously reported.

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BEFORE YOU GO

Bow your VR-strapped head. The metaverse will have all manner of hijinks and harassment, but here’s one wholesome application: religious worship. An Associated Press dispatch Monday highlights the small but growing fellowship of churchgoers gathering in the metaverse, where so-called VR evangelists can preach, counsel and baptize (by submerging avatars in a virtual pool, of course). Attendees say the setting offers comfort and convenience, particularly for those who travel often or crave a bit of anonymity. It’s unclear, however, whether anyone brings post-service doughnut holes.