In 2020, as the pandemic took hold, 50 million Americans took up gaming, an increase of 31% year over year, according to research by investment firm Morgan Stanley.1 The next year, U.S. games set a sales record of $60.4 billion, an increase of 8% as compared to the previous year.2
The industry's frenetic growth has triggered a wave of acquisitions. Microsoft Corporation's (MSFT) $68.7 billion purchase of Activision Blizzard, Inc in January was the biggest one. Its rival Sony Group Corporation hit back by buying up California-based Games maker of Halo, which found success on Microsoft's Xbox platform, and Destiny.
Their moves are important because the two companies are the world's second-and third-largest gaming outfits. What does Sony's latest acquisition mean for Microsoft's gaming ambitions?
KEY TAKEAWAYS
Recent acquisitions by Microsoft and Sony are part of a growing trend of consolidation in the gaming industry.
Sony is ahead of Microsoft in gaming.
Microsoft will likely to make more acquisitions in the future to catch up with Sony and bolster its gaming unit offerings.
A Battle of Two Giants.
Sony's acquisition of Bungee is part of a growing trend of consolidation among gaming companies. As the industry explodes in popularity, its players are busy snapping up rivals and games studios. Already, this year has witnessed three multibillion-dollar acquisitions.4 The motivations for these acquisitions
Further up ahead is a looming metaverse. But the more immediate concerns are the gaming industry's phenomenal growth in the past two years.
While Microsoft's acquisition of Activision Blizzard is bigger than Sony's acquisition of Bungee, the Japanese company is ahead of Microsoft in the industry. Sony's Games & Network Services division reported revenues of $25.03 billion, a record, in the 2020 fiscal year.5 Microsoft's gaming revenue for the 2021 fiscal year was $15.4 billion.
More importantly, a significant portion of Sony's revenues from gaming came from content and services on its PlayStation consoles. "This significant increase [in profits] was primarily due to the impact of the above-mentioned increase in game software sales, and an increase in Network Services sales, primarily from PlayStation Plus," the company stated in its earnings report.7
That is an important distinction. With overall sales of roughly $6 billion, hardware sales comprised a fraction of overall revenues in the gaming industry. The majority, around 85%, consisted mainly of software sales. Microsoft's Xbox may be Best sellers, but the company has some catching-up to do in gaming software and services.
For example, December 2021's best-selling games were both from Activision Blizzard's Call of Duty franchise. Marvel's Spider-Man and the MLB series from Sony ranked sixth and ninth, respectively, while Microsoft's Minecraft, a $4 billion acquisition made in 2017, was a distant 13th.8 The difference in rankings suggests that Sony's games development unit has a much more robust presence as compared to Microsoft.
Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need.
You must be logged in to post a comment.