Sony, Tencent, NetEase continue to search for agreements to expand new formats and markets

Sony’s PlayStation has dominated the game console market for a long time.

But the business model for console games has changed. It’s not just about selling the hardware and then expecting people to buy new games. It’s about continuing to earn revenue from those games through regular updates that people spend money on and selling subscription services as well.

Sony’s deal flow, particularly with the Bungie acquisition, highlights this momentum.

“Their goal is to have enough content to incentivize gamers to buy their own hardware, pay a monthly fee for the PlayStation-operated subscription service (PS Plus), and purchase occasional digital games through the PlayStation Store, for which Sony receives about a 30% cut,” Tom Wijman, gaming market leader at data company Newzoo, told CNBC.

“Acquiring studios is the surest way to secure exclusive content for your ecosystem, especially in reaction to the wave of acquisitions from Microsoft, one of Sony’s main competitors in the gaming space.”

Sony is also looking to expand beyond consoles. Last week, the Japanese giant said it is creating a unit dedicated to overseeing mobile game development, a relatively new venture for the company that has been so dominant on consoles for years.

The acquisition of Savage Game Studios, which deals in mobile games, is another key part of the strategy.

“Sony is getting out of its comfort zone to stay competitive,” Wijman said.

Mobile gaming revenue accounts for more than 50% of the total gaming market, while consoles account for around 27% of sales, according to Newzoo. So Sony is looking for an even bigger piece of the pie.

Sony’s acquisitions will help it bolster its intellectual property and game library as it looks to expand into mobile gaming.

China’s two biggest gaming players, Tencent and NetEase, have faced a tougher domestic market, increasing the importance of their overseas investment and acquisition strategies.

Last year, Chinese regulators restricted the amount of time that those under 18 could play games online and froze the approval of new titles. In China, games need a green light from regulators to be released and monetized. Those approvals only restarted in April.

Meanwhile, a resurgence of Covid-19 in China and subsequent lockdowns in the country’s major cities have hit economic growth. That led to the worst quarter of revenue growth for some of China’s tech giants, including Tencent.

With a more challenging domestic market, Tencent and NetEase have sought growth abroad through acquisitions and investments.

“Tencent and NetEase have developed their gaming business mainly in their home country of China. Now that their local market is becoming more regulated and difficult to operate in, these two companies will accelerate their global expansion strategy,” Wijman said. .

Tencent owns or has investments in some of the world’s largest game companies, including League of Legends developer Riot Games.

NetEase’s strategy has been focused on acquiring high-profile intellectual property. With the acquisition of Quantic Dream, the Hangzhou-based firm has access to publish an upcoming Star Wars game. NetEase has already released mobile games based on the Harry Potter and Lord of the Rings franchises.

For the two giants, holding stakes or owning the studios behind the big international hits in the world of video games has become a key part of the strategy.

While NetEase has traditionally been less aggressive than Tencent in its deal activity, it has stepped up its efforts in the past year.

Another part of the investment strategy of both companies also highlights their ambitions in the console sector. NetEase and Tencent have grown primarily by focusing on PC and mobile games, not consoles that were banned in China for 14 years until 2014.

But the two giants have started to focus their efforts on console games.

NetEase hired a console industry veteran to run its Japanese game studio earlier this year. And Tencent-owned developer TiMi Studio has opened offices in Montreal and Seattle to focus on console and PC gaming.

Acquiring and investing in other game studios again can help both companies gain access to IP for games on consoles as well.

Tighter regulation in China and the quest for growth could prompt NetEase and Tencent to continue their investment and acquisition strategy.

“Lastly, if Chinese government regulation continues to put pressure on NetEase and Tencent in their home markets, I think they too will be eager to look at mergers and acquisitions,” Wijman said. “Their global expansion strategies have just begun.”