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The Risks of Big Gaming Acquisitions [Gameindustry.biz]

NoPiece

Member
Consolidation will never happen. Like ever. Companies will be bought, will be created, will be closed. There won't be consolidation ever.

Maybe your definition of consolidation is different than mine but isn't Microsoft acquiring Bethesda and Activision an example of consolidation?
 

Abriael_GN

Member
To evaluate this claim we need to see what the opportunity cost was.

Rare was purchased by Microsoft for 375 million in 2002. $375 million invested in the S&P 500 in 2002 compounded at nearly 10% annually, which would be worth $2.5 Billion today.

Is Rare a $2.5B studio? For reference, Capcom is a $4.5B studio and has multiple huge titles with regular annual releases.

Rare, in comparison, has Sea of Thieves and projects that take many years to release. Maybe you consider that property to be a success, but objectively speaking that acquisition was a terrible investment. They are not heavily utilizing Rare’s IP.

Insomniac cost less in 2018 than Rare did in 2002, and they churn out far more regular content and have sold a massive number of games. That’s what I would consider a highly successful acquisition

Ah yeah, the usual mental gymnastics to inflate the price "today" that finds absolutely no purchase in reality. The moment someone pulls that out, you know they know their argument has no ground to stand on.

Sea of Thieves is a successful game as a service that also comes with an initial purchase price, on top of a pillar of Game Pass. That's not as small as you make it up to be.

Also, the fact that Microsoft hasn't yet used extensively Rare's IP does not mean anything at all. They own those IP and can use them whenever they want. IP do have a value, whether they're used today or in the future.
 
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NoPiece

Member
Very arguably. Outside COD and Warcraft I don't remind so many successful by Activision and it's a decade where is just remembered as the COD company and nothing else.

Yes, that's true, and it is unsatisfying as a gamer. But they are still a giant publisher - excluding the platform holders (Sony, MS, and Nintendo), they are the second largest after Tencent. Judging by revenue, not gamer reputation they have been successful.

 
Ah yeah, the usual mental gymnastics to inflate the price "today" that finds absolutely no purchase in reality. The moment someone pulls that out, you know they know their argument has no ground to stand on.

Sea of Thieves is a successful game as a service that also comes with an initial purchase price, on top of a pillar of Game Pass. That's not as small as you make it up to be.

Also, the fact that Microsoft hasn't yet used extensively Rare's IP does not mean anything at all. They own those IP and can use them whenever they want. IP do have a value, whether they're used today or in the future.

There’s no mental gymnastics in forecasting a fairly boring and average rate of return

The fact is that Rare failed to live up to the price that was paid. They would not be worth anywhere close to 2.5B on the market
 

Neo_game

Member
If Activision continues to make same amount of money without releasing their games on PS4, PS5 ? It is still going to take Microsoft around 10yrs to break even without considering that they have 10K full time employees on payroll ? IMO both Activision and Sony will be affected but we do not know by how much. I guess it is going to take some years for this to have an affect and we will know once we get the numbers. If I am EA this is their chance to get Dice act together and good opportunity to have an impact and build a larger community. May be for other shooters as well.
 
The fact is is that you pulled the 2.5B number literally out of the wrong body part to disingenuously support a false argument. 😂

No, I literally pulled it out from portfoliovisualizer.com. If I really wanted to be realistic, I would use a higher rate of return that was more reflective of the growth the gaming industry has witnessed the past 20 years instead

 
Again, 375M in 2002 with performance equal to the S&P is 2.5B dollars today

You can’t use 2002 dollars relative to 2022
I'd suggest using inflation adjusted dollars instead. Comparing it to investing in the S&P during the best 20 years of stock market growth in history doesn't seem like a fair evaluation of the original purchase price.

Rare's $375m pricetag in 2022 dollars would be ~$574m which taking into considering the massive IP Sea of Thieves and the fact the developer still has valuable IPs and is working on a new game seems like a fine price. Not the best, not a billion dollar company sure but its not some great failure imo.
 
I'd suggest using inflation adjusted dollars instead. Comparing it to investing in the S&P during the best 20 years of stock market growth in history doesn't seem like a fair evaluation of the original purchase price.

Rare's $375m pricetag in 2022 dollars would be ~$574m which taking into considering the massive IP Sea of Thieves and the fact the developer still has valuable IPs and is working on a new game seems like a fine price. Not the best, not a billion dollar company sure but its not some great failure imo.

See the link I posted. It’s total return and includes inflation.

When you invest, you expect a rate of return well above inflation. Merely matching inflation is a bad investment
 
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SlimySnake

Member
If Activision continues to make same amount of money without releasing their games on PS4, PS5 ? It is still going to take Microsoft around 10yrs to break even without considering that they have 10K full time employees on payroll ? IMO both Activision and Sony will be affected but we do not know by how much. I guess it is going to take some years for this to have an affect and we will know once we get the numbers. If I am EA this is their chance to get Dice act together and good opportunity to have an impact and build a larger community. May be for other shooters as well.
Yeah this is a long term investment. No way in hell are they going to make it back. Which is why i am certain this was a move made to kill PlayStation. Or at least force them into allowing gamepass. GP just hit 25 million subscribers after what 5 years? The adoption rate is too slow despite it having access to 150 million PC gamers if we go by steam stats. They need the ps audience and the Nintendo audience to go up to 100 million when they can start earning $1 billion in revenue and even then it’s only $12 billion a year.

I think they want the full $25 billion revenue PlayStation generated last year.
 

Hawking Radiation

Gold Member
Sony wont be rushing to respond because Sony does not have the means to respond.
Sure they don't have the spending power to outright buy developers but they can however expand their existing studios. I mean that's realistically the only real thing they can do.
 

Hawking Radiation

Gold Member
Can't we get a megathread regarding the acquisition? The whole forum section is getting bloated.
I complained about this for a bit last week. The main page was getting bombed with all kinds of threads regarding the acquisition to the point where some were locked within minutes. It was just a complete mess though it has eased up a bit.
 

Dr Bass

Member
The fact is is that you pulled the 2.5B number literally out of the wrong body part to disingenuously support a false argument. 😂

Do you not understand index investing and looking at historical returns? The fact you call that "pulling numbers out of the wrong body part" is a bit scary, as it betrays a complete lack of basic financial knowledge and math skills. The fact "MrFunSocks" yet again posts a like for this ... like seriously what the heck? There is no false argument here. James Sawyer Ford James Sawyer Ford is saying MS didn't even get the equivalent to a basic return in the market with their acquisition. Pretty straight forward and simple stuff. Then you have to wonder what the studios P&L is over their 20 or so years with MS. They just do not have a series of hits on their hands at all since they were sold. Some people might argue Sea of Thieves but the MAU on that games seems really low to me, and actually declining in general.

https://steamcharts.com/app/1172620
 
Hmmmm.

Mojang with Minecraft, very successful.

Rare, Kinect games and Sea of thieves and still alive as a studio seem to be doing more than fine. Maybe they aren’t using their old IP but they don’t need to.

Obsidian with Grounded, The Outer Worlds 2, Avowed and more seem to be doing just fine.

Ninja Theory nearing completion of Hellblade 2.

Playground Games with 90+ meta on FH5.

Bethesda nearing completion of Starfield and other games currently in dev.

There are probably many more I’m missing but things seems to be running just fine right now with many of the other acquisitions they have made in the past 5 years or more and while people harp on about Rare, they still exist and are still making very popular games (See Sea of Thieves).

I think people laser focus in on Xbox and all the BaD things that could happen rather than focusing on the fact that they’ve been in the console game for 20 years now, have not only survived but thrived to this point now. They seem to have learned from past mistakes and I’ve heard no hate from any devs in recent years, only compliments as to how they are handling relationships and letting their devs have free creative reign over their work.

Yes, it’s a massive acquisition and things could go wrong, but I’m more on the optimistic side where they’ve realised where they went wrong before and actually put plans in place for it NOT to happen again if they can help it.

I mean this whole generation is exactly that. They done everything opposite from Xbox One. They built a console based on GAMES. They’ve bought developers to deliver the GAMES because people said they had none over and over again and if last year is any consolation, they’ve made a good start on delivering said games.

It’s not even been a week people, give them a chance and wait until 2023 before the Xbox doom and gloom starts eh.
 

NoPiece

Member
for Microsoft sure, for the industry? not even close

If any two companies merge, it is one fewer company in the industry, and it is definitionally consolidation. You’d need one or more companies worth $70 billion to come into existence this year for the industry not to have consolidated.
 

ReBurn

Gold Member
Again, 375M in 2002 with performance equal to the S&P is 2.5B dollars today

You can’t use 2002 dollars relative to 2022
You also can't assume that Rare would have survived for 20 years without a buyer much less would have performed in line with the S&P. Value relative to price would have been realized along the way, not only in today's dollars. Saying Rare is a $2.5B studio based on S&P growth since time of acquisition isn't quite an accurate take.
 
You also can't assume that Rare would have survived for 20 years without a buyer much less would have performed in line with the S&P. Value relative to price would have been realized along the way, not only in today's dollars. Saying Rare is a $2.5B studio based on S&P growth since time of acquisition isn't quite an accurate take.

It doesn’t matter if they wouldn’t have survived without a buyer. Microsoft wasn’t forced to buy them. This isn’t charity. I’d argue that had they stayed with Nintendo they’d be a much more valuable company and that Microsoft did a poor job managing them, but that’s pure speculation.

They purchased Rare with the intent of making a good investment. A “good return” should be in line with either industry specific growth or the general market return over the risk free rate.

And fyi, plenty of gaming specific companies returned much higher than the market, basically any major publisher. Activision compounded at nearly 17% a year.
 
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What a shit article. They lost me at -

In truth, mergers and acquisitions fail to deliver real value all the time; we need look no further than close-to-home examples, like EA's various studio acquisitions or Microsoft's own expensive buyout of Rare, for instances where acquisitions ultimately underdelivered on expectations.

True for a little while but ultimately delivered beyond expectations. 25 million players for Sea of Thieves last year and multiple success stories for PC/Xbox releases as well as Gamepass/game sales of a new IP. Content is consistently delivered by multiple internal teams and Everwild is looking quite interesting and unique. Lest we forget The Initiative studio was built to deliver Perfect Dark AAA/AAAA too. Rare Replay was a joy also.

There is no insight in such articles, lowest hanging fruit that is factually incorrect at best. FFS.
 

TGO

Hype Train conductor. Works harder than it steams.
Gameindustry.biz clearly not a reputable site.
 

GHG

Member
What a shit article. They lost me at -



True for a little while but ultimately delivered beyond expectations. 25 million players for Sea of Thieves last year and multiple success stories for PC/Xbox releases as well as Gamepass/game sales of a new IP.

So are you going to disregard the ~20 years that came before? 20 years of wages + running cost expenses, along with the initial acquisition cost, all to make just one successful game in that space of time? That's poor ROI if you ask me, and that's coming from someone who thoroughly enjoyed Kameo and Viva Piñata.

This is an article about the business side of acquisitions, not your personal feelings on games.
 
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It’s a good read.

I think Microsoft will fuck up AB’s revenue and profits. But it wont matter. Return of investment will be a long road. Maybe as long as RARE’s.
 
So are you going to disregard the ~20 years that came before? So that's 20 years of wages + running cost expenses, along with the initial acquisition cost, all to make just one successful game in that space of time? That's poor ROI if you ask me, and that's coming from someone who thoroughly enjoyed Kameo and Viva Piñata.

This is an article about the business side of acquisitions, not your personal feelings on games.
Did you miss the part I highlighted.

Microsoft's own expensive buyout of Rare, for instances where acquisitions ultimately underdelivered on expectations.

And my direct reply.

Ultimately delivered beyond expectations. 25 million players for Sea of Thieves last year and multiple success stories for PC/Xbox releases as well as Gamepass/game sales of a new IP.

I don't think I could be anymore direct with my response. Whatever financial shit you want to spout is on you, feelings aside. If you want to wax lyrical about it you leave out the failings of Kinect and tasking Rare for those bullshit games for years etc. You also don't consider opportunity loss/cost of Nintendo keeping Rare vs MS buying them. It's ok we can disagree but I'll take the side of a hugely successful new IP from Rare/Xbox/MS and Sea of Thieves. Great fucking game, trademark Rare fun brought into the modern day online multiplayer realm to boot.

Ultimately expectations are exceeded from past to current day. I'm also expecting a solid Rare game from Everwild, I'm guessing you're pessimistic on that too mate.
 
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ZehDon

Member
Yeah, the article isn't exactly wrong. It's a massive move with equally massive risks. Microsoft has made headline grabbing acquisitions that have cratered before. I remember their Nokia acquisition as a major announcement, and set them up to take a run at Apple. In ended in absolute disaster and remains a blight against Steve Balmer's tenure. If something this big ends in ruins, it will define Nadella's era, and I doubt he'll ever move out from its shadow.

With that said, the difference is Nadella has his finger on the societal pulse more than Balmer ever did, who famously scoffed at the iPhone and thought it would be DOA. His play for Nokia was a knee-jerk reaction. Nadella is making moves to secure Microsoft's position in the metaverse 10 to 15 years from now, and comes off of a successful turn around of Xbox from Mattrick's disastrous run. This builds on successes Microsoft already had in a big, big way. The Xbox brand is in a terrific place right now, and now is the right time to invest. The first party studios are starting to line up, and while some are yet to prove themselves worthy of their price tags, the future is pretty darn bright. But, it all comes down to Spencer: can he successful rope together 34 first party studios to deliver a brand-wide strategy that propels Xbox and Microsoft to even greater successes? He pulled Xbox out of the Mattrick fires, but he's yet to deliver a truly industry shaking run of the only thing that actually matters: games. I guess we'll find out soon.
 
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Swift_Star

Member
People are really salty because everyone is simply not on board with this acquisition and MS is facing scrutiny… well, that’s what you get when you make these kinds of deals. This is only getting worse from now on.
 

tmlDan

Member
It only risky to Nintendo & Sony wile MS does not give 2 shits
That's absolutely false, if this does not bear any fruit and sales suddenly plummet due to management and business decisions they will be the laughing stock of the gaming industry.

It won't hurt MS in the long run because they have other revenue streams but it could ruin Xbox's brand long term.

Obviously I hope otherwise, it would be terribly sad if these devs are run into the ground by bad management but it's not uncommon when you buy an org with already poor leadership and a brand that's damaged as it is with poor releases.
 
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GHG

Member
Did you miss the part I highlighted.



And my direct reply.



I don't think I could be anymore direct with my response. Whatever financial shit you want to spout is on you, feelings aside. If you want to wax lyrical about it you leave out the failings of Kinect and tasking Rare for those bullshit games for years etc. You also don't consider opportunity loss/cost of Nintendo keeping Rare vs MS buying them. It's ok we can disagree but I'll take the side of a hugely successful new IP from Rare/Xbox/MS and Sea of Thieves. Great fucking game, trademark Rare fun brought into the modern day online multiplayer realm to boot.

Ultimately expectations are exceeded from past to current day.

They did underdeveliver on expectations, from a business perspective, especially when time is taken into account.

They've had to restructure Rare and lay off staff since the acquisition (all of which is an additional cost along with an admission that things haven't worked as planned):



As per the gamespot article above in 2009 they had failed to recoup the cost of the acquisition - that's 7 years after the acquisition and they were nowhere near being in the green overall:

However, sales of Rare's subsequent releases have failed to recoup its then-record-setting purchase price. Despite solid reviews, Perfect Dark Zero, Kameo: Elements of Power, Viva Pinata, Viva Pinata: Party Animals, and Banjo-Kazooie: Nuts & Bolts generated just over $66 million combined domestically over three years, according to the NPD Group.

This is a business article, the stance will be financial, not Ozzy Onya A2Z's personal feelings. You should probably take emotion out of this and look at the situation objectively.
 
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Swift_Star

Member
Yeah this is a long term investment. No way in hell are they going to make it back. Which is why i am certain this was a move made to kill PlayStation. Or at least force them into allowing gamepass. GP just hit 25 million subscribers after what 5 years? The adoption rate is too slow despite it having access to 150 million PC gamers if we go by steam stats. They need the ps audience and the Nintendo audience to go up to 100 million when they can start earning $1 billion in revenue and even then it’s only $12 billion a year.

I think they want the full $25 billion revenue PlayStation generated last year.
If this was a move to kill playstation, I’m happy to say in advance this is going to fail hard.
 
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YuLY

Member
"Sony is a little less vulnerable to a rival buying up third-party publishers than it used to be. Microsoft buying Activision a couple of console generations ago would have been a devastating blow to PlayStation, but all Sony's work on building up its first-party exclusives now cushions that blow significantly."

..This guy has no idea what hes talking about. If anything they are worse now, because in the past at least they had shooter alternatives like Killzone and Resistance. Now they have no first party shooter, literally their last shooter game was in 2013 with Killzone Shadowfall. You cant expect to remain the leader in this market down the line if you dont have a single game in the most popular genre.
 

Swift_Star

Member
"Sony is a little less vulnerable to a rival buying up third-party publishers than it used to be. Microsoft buying Activision a couple of console generations ago would have been a devastating blow to PlayStation, but all Sony's work on building up its first-party exclusives now cushions that blow significantly."

..This guy has no idea what hes talking about. If anything they are worse now, because in the past at least they had shooter alternatives like Killzone and Resistance. Now they have no first party shooter, literally their last shooter game was in 2013 with Killzone Shadowfall. You cant expect to remain the leader in this market down the line if you dont have a single game in the most popular genre.
Wait, what? No, you got it all wrong. In the past, first party games didn’t sell nearly enough and now they sell in millions, with spider man and god of war being massive IPS selling more over than 20 million games. Sony is way more self sustainable rn than it was before. Know your facts. And I don’t think fps is the most popular genre since fortnite and genshin impact are doing numbers… this is all so relative lol
 
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That's absolutely false, if this does not bear any fruit and sales suddenly plummet due to management and business decisions they will be the laughing stock of the gaming industry.

It won't hurt MS in the long run because they have other revenue streams but it could ruin Xbox's brand long term.

Obviously I hope otherwise, it would be terribly sad if these devs are run into the ground by bad management but it's not uncommon when you buy an org with already poor leadership and a brand that's damaged as it is with poor releases.
You don't make a 8 billion and then a 70 billion buy if you are scare it could backfire. This is them now showing everyone that they are going all in on gaming before it was just a side job but now they are putting all the backing into gaming they are serious now & it scary for everyone
 

tmlDan

Member
"Sony is a little less vulnerable to a rival buying up third-party publishers than it used to be. Microsoft buying Activision a couple of console generations ago would have been a devastating blow to PlayStation, but all Sony's work on building up its first-party exclusives now cushions that blow significantly."

..This guy has no idea what hes talking about. If anything they are worse now, because in the past at least they had shooter alternatives like Killzone and Resistance. Now they have no first party shooter, literally their last shooter game was in 2013 with Killzone Shadowfall. You cant expect to remain the leader in this market down the line if you dont have a single game in the most popular genre.
They've already partnered with multiple devs to make a GaaS shooter, and they're also working on one at GG.

I'd say they're more than prepared to fill that gap if the deal ends in 2023.

Then again we don't know all the details of the deal, some say it was rumored to be 7 years and renewed last year - most say it runs out end of 2023.
 
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