Big Tech’s gaming gamble will call for M&A

SQUARE ENIX HOLDINGS

22/12/2020 08:56

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Oliver Taslic
    LONDON, Dec 22 (Reuters Breakingviews) - Big Tech will go
shopping for computer games in 2021. Alphabet-owned  GOOGL.O 
Google and Amazon.com  AMZN.O  are trying to muscle into the
$175 billion industry by letting people play games on any screen
for a monthly fee, much like Netflix  NFLX.O  did for
television. But as the streaming giant showed, success depends
on exclusive content. Acquisitions will be the fastest way for
the tech giants to reach the next level.
    Amazon’s Luna gaming service and Google’s Stadia let the
companies’ vast data centres do the technological heavy lifting
involved in running a game. That allows internet-connected
players to stream high-end titles on low-end hardware,
dispensing with pricey consoles like Sony’s  6758.T  PlayStation
and Microsoft’s  MSFT.O  Xbox. Broadband speed is still a major
issue: at its highest resolution, Stadia’s recommended network
speed excludes about a quarter of British households. But
improving infrastructure and the arrival of super-fast 5G
connections should help.
    The bigger question is what subscribers will play. Microsoft
has not been afraid to splash out to improve its subscription
service, dropping $7.5 billion on “Fallout” publisher ZeniMax
Media in September. Sony, meanwhile, recently spent over $200
million on “Spider-Man” developer Insomniac Games. The more
content Sony and Microsoft add to their subscription services,
the more likely gamers are to stick around. Global gaming M&A
reached $11.1 billion in the first nine months of 2020,
according to PitchBook data, more than in the whole of the
previous year.
    Google and Amazon have yet to make any major purchases,
preferring to fill their services with third-party games that
are available elsewhere. With combined cash reserves of almost
$140 billion, they could in theory afford any target, including
industry heavyweights like Electronic Arts and Take-Two
Interactive, valued at $40 billion and $22 billion respectively
in mid-December. However, it would make little financial sense
to limit established games like EA’s “FIFA” soccer series to a
single platform. A more realistic target might be a publisher
with a history of developing compelling single-player games,
like $7 billion Square Enix  9684.T , maker of the “Final
Fantasy” series. Buying individual studios rather than sprawling
publishing houses would also make sense.
    Any major acquisition by a Big Tech company would likely
draw regulatory scrutiny. If Netflix is any guide, though,
buying engaging content will be vital to being crowned gaming
king.
    On Twitter https://twitter.com/olivertaslic

    CONTEXT NEWS
    - Amazon.com unveiled its new cloud gaming service, Luna, on
Sept. 24, with early access beginning on Oct. 20.
    - Alphabet-owned Google’s cloud gaming service, Stadia, was
launched in November 2019. In March Stadia opened its second
game development studio in Playa Vista, California. 
    - The video games industry is expected to generate $175
billion of revenue in 2020, according to Newzoo. That is up 20%
versus 2019, helped by worldwide lockdowns as a result of
Covid-19.
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Amazon statement    https://press.aboutamazon.com/news-releases/news-release-details/introducing-luna-amazons-new-cloud-gaming-service-where-its-easy
BREAKINGVIEWS-Microsoft launches $7.5 bln gaming war of addition
    urn:newsml:reuters.com:*:nL2N2GI1GX
BREAKINGVIEWS-Sony is primed for coming game-console battle   
 urn:newsml:reuters.com:*:nL4N2F6167
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 (Editing by Peter Thal Larsen and Sharon Lam)
 ((oliver.taslic@thomsonreuters.com))