Game makers brace for merger frenzy amid £50bn hit on Call of Duty

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The global video game market is expected to experience a record year for transactions.

Buyouts worth £63bn have already been announced in 2022 – the same amount as for the whole of 2021.

The biggest deal to date is Microsoft’s £50 billion hit on Call of Duty maker Activision Blizzard, which will make the tech titan the world’s third-biggest games company.

Game on: Microsoft’s £50bn on Call of Duty maker Activision Blizzard, which will make the tech titan the world’s third-biggest games company

Japanese giant Sony, which is currently the industry’s top dog, is also on the acquisition trail.

It scooped up Bungie, the creator of sci-fi shooter series Halo, for £2.7billion this month in what could be seen as a bid to defend its position.

The two deals followed another mega-deal from Take-Two Interactive, maker of the Grand Theft Auto series, which spent £9.4bn on mobile phone game maker Zynga, which is the Farmville developer.

Overall, the global video game market has racked up around £63 billion in deals so far this year, with Take-Two and Microsoft taking the lion’s share.

This is the same value of transactions carried out over the whole of 2021, which was itself a record and three times higher than in 2020, according to an analysis by broker City Liberum.

The video game sector has been one of the few industries to thrive during the pandemic, with consumers turning to gaming to stave off boredom during coronavirus shutdowns.

This change was confirmed in the numbers, with the global video games market generating £131 billion in revenue in 2020, up from £106 billion the previous year. This figure is expected to reach £161 billion by 2024.

Alex Nichiporchik, chief executive of AIM-listed game developer Tinybuild, said 2020 had been a “year of acceleration” for the industry, with young and older consumers choosing video games for the first time.

The video game sector has been one of the few industries to thrive during the pandemic as consumers have turned to gaming to stave off boredom during coronavirus shutdowns

The video game sector has been one of the few industries to thrive during the pandemic as consumers have turned to gaming to stave off boredom during coronavirus shutdowns

He added that this increased viewership would not go away as demand remains high despite numerous lockdown restrictions which ended last year.

The view was echoed by analysts at Liberum, who predicted the wider audience for games sparked by Covid-19 was “here to stay” and would “help drive demand for more games”.

They added that this change would benefit game developers and outsourcing agencies that provide services such as translation, art, and quality assurance.

One of the big names is London-listed Keywords Studios, which is one of the most valuable companies on AIM with a market capitalization of over £2 billion, more than well-known brands including the retailer of Boohoo fashion and supercar builder Aston Martin.

The company is among many to have benefited from the pandemic gaming boom, with its shares surging around 90% in value since the first UK lockdown in March 2020.

Meanwhile, Liberum said demand will be further fueled post-lockdown by the rise of video game streaming, especially as big companies introduce subscription services in the same mold as Xbox Game Pass. from Microsoft, which offers subscribers a huge library of multimedia games to play on the devices. – similar to TV shows and movies offered by Netflix.

Nichiporchik said this shift to subscriptions will also force game companies to adapt their business models to attract top talent and intellectual property, as companies were “competing for people’s time rather than their money.”

This “content war” is also behind the wave of takeovers in the sector, according to Neil Campling, telecoms, media and technology analyst at Mirabaud Equity Research.

He noted that big tech companies are finding it “faster to buy than to build” and that the recent wave of acquisitions was just the beginning.

A London-listed company seen as a potential target is Frontier Developments, which makes popular games based on the Jurassic Park film franchise as well as its sci-fi spaceship simulator Elite Dangerous.

The company’s shares have fallen nearly 56% in the past 12 months following a series of profit warnings, sparking speculation that it could be ripe for a takeover.

The keywords are also on the list, according to Campling, due to its expertise in “polishing” games before they go on sale, a key requirement at the high end of the market.

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