Shares of the maker of the PlayStation console, a major rival to Microsoft’s Xbox, plummeted nearly 13% in Tokyo on Wednesday after
Microsoft (MSFT) announced the nearly $70 billion deal. That was the worst plunge in
Sony (SNE)‘s stock price since 2008, according to data provider Refinitiv.
Microsoft and Sony have competed for decades with iterations of their Xbox and PlayStation consoles, often wooing video gamers with exclusive titles and features.
Microsoft already owns successful franchises like “Halo,” but the Activision Blizzard deal would add popular series including “Call of Duty” and “World of Warcraft” to its library — as well as the nearly 400 million monthly active players that come with them.
The transaction would see Microsoft become the world’s third-largest gaming company by revenue, behind
Tencent (TCEHY) and Sony, the company said in a
statement.
The “console wars are heating up,” wrote Amir Anvarzadeh, a market strategist at Asymmetric Advisors, in a research note. “Sony will have a monumental challenge on its hand to stand its own in this war of attrition.”
Nearly
30% of Sony’s revenue comes from games and network services, according to the company’s most recent earnings report. Investors may be concerned that Sony will lose out to Microsoft on gaming content, especially if some of Activision’s titles become exclusive to Microsoft systems, according to
Morningstar Research analyst Kazunori Ito.
“Acquiring exclusive gaming content is key,” he told CNN Business on Wednesday, noting that the gaming industry is in a state of “transition” as businesses adopt subscription models.
Microsoft already had its eyes on building out its content library, especially during the coronavirus pandemic, when more people were staying at home and gaming became an even more attractive entertainment option. In September 2020, Microsoft bought ZeniMax, the parent company of
Bethesda Softworks, whose studios have produced critically acclaimed franchises including “Elder Scrolls,” “Fallout” and “Doom.”
While the latest PlayStation 5 is considered
more popular than the Xbox Series X, Sony has lagged behind in launching a true competitor to Microsoft’s
Game Pass cloud subscription service, which allows people to play a selection of games for a monthly fee. Microsoft on Tuesday said it has over 25 million Game Pass subscribers, and “will offer as many Activision Blizzard games as we can” on the Xbox and PC versions of the service.
Analyst at Macquarie said that “Sony itself recognizes the long-term limits of a console-centric games business,” but pivoting to a new strategy may require significant investments from the Japanese firm.
“We had considered their overall games/entertainment strategy to be conservative,” the analysts wrote in a note on Wednesday, adding that it may have been diluted by the company’s “parallel commitments to other businesses and acquisitions,” including image sensors and
electric cars.
“It will be interesting to see if Sony counters Microsoft’s aggressive push with a move of its own, but the price tags may be too high,” the Macquarie analysts added.
Investors are already betting on which company might be the next to get scooped up. Wall Street
seems to thinks that Electronic Arts, which makes the super popular Madden NFL franchise of football video games, could be the most likely target.
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