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How Big Game Acquisitions Can Affect Players 2021

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Key Takeaways

Mergers and acquisitions in the games industry kicked into high gear in 2020, with more to come.Studio consolidation can result in better games, as independent developers get serious backing.However, it can lead, and has led, to abandoned franchises, rushed development, and studio shutdowns. Sam Pak / Unsplash

Video game companies are on a buying spree, and analysts warn that it could mean worse games at higher prices at this level of company consolidation.

While only a relative handful of recent gaming acquisitions have made national news, such as Microsoft's $7.5 billion deal to buy Bethesda Softworks, video game mergers and acquisitions (M&A) reached a fever pitch last year.

The venture capital firm Pitchbook tracked over 1,500 transactions in the field over the course of 2020, with major companies like Nintendo, Electronic Arts, and Tencent making significant buys. That trend is likely to continue into the rest of 2021.

"I think gamers are going to have to really start making some hard choices," said Anthony Palomba, media researcher and assistant professor at the University of Virginia's Darden School of Business, in a phone interview with Ach5.

"Google Stadia has really forced, I think, Microsoft and Sony to start thinking about being platform-agnostic, not having a console. If I can't get excited about the hardware, then I think it becomes a conversation about intellectual property."

Why Now, and Why So Much

High-profile M&A isn't unusual by itself in the video game industry. Some of today's biggest developers, such as Square Enix and Bandai Namco, resulted from mergers. Electronic Arts, in particular, is famous for buying any studio that doesn't run away fast enough.

Current conditions, however, have combined to create a perfect storm for M&A.

We're at the start of a new generation of console hardware, with the debut of the PlayStation 5 and Xbox Series X|S, so both Microsoft and Sony have been acquiring developers to strengthen their respective positions.

"If I can't get excited about the hardware, then I think it becomes a conversation about intellectual property."

There's also a quieter competition shaping up in the cloud, with Amazon, Google, and Microsoft all working on cloud-based streaming platforms for games. Google, in particular, has bought studios to support its efforts with Stadia, and Amazon is rumored to be in the market.

A dark horse contender is Epic Games, making several big investments in gaming infrastructure recently as it prepares to release a new version of its Unreal Engine development toolkit.

Epic also picked up Mediatonic, the British developer of last summer's viral hit Fall Guys, in a surprise acquisition last week.

Beyond that, there is a simpler explanation, and that's how video games' audience grew dramatically in 2020. That success attracted many interested investors, which one indie game publisher parlayed into a successful IPO this week.

With this much capital flowing into the industry, companies are finding ways to spend it by investing in new developers, better infrastructure, and valuable new licenses.

Upside/Downside

Gamers have learned to be cynical about situations like this. While being acquired can lead a company to new heights—for example, Naughty Dog has done much of its best work after being acquired by Sony in 2001—there have been many horror stories over the years. (Most of them specifically involve EA.)

Epic

Gamers' hope for a situation like this, when a well-liked independent developer like Double Fine gets acquired, is that it'll now have the funding to take its future games to new heights. The fear is that a company's new owner may turn it into a content mill, or worse, strip it for its useful licenses and/or key personnel.

"It's an arms race, not for technology, but for intellectual property and developers," Palomba said. "People who have experience developing games at a high level are at a premium. Now you're seeing a bidding war, similar to Ryan Murphy and Shonda Rhimes being snatched up by Netflix."

In effect, that means the video game industry, as Bloomberg's Jason Schreier said, is "shrinking." With AAA studios being consolidated under a smaller number of firms, there are potential rewards for customers, but long-time gamers are more accustomed to seeing the pitfalls. Keep your fingers crossed.