This column was first published in SvD Näringsliv, in Swedish, on March 20th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
When the gaming industry’s most important conference, GDC, opens its doors this week, there’s only one question on everyone’s lips: who is going to buy whom?
Going to GDC? That’s the most commonly asked question in the games industry at the start of every year. This week sees the single most important trade event in the sector — the Game Developers Conference. It takes over the convention halls at Moscone Center in downtown San Francisco, and is a mandatory stop for all the major games companies.
Those who’ve been before know you don’t actually need a ticket. The most important meetings don’t take place on the conference floor, but in hotel bars and rented meeting rooms in the blocks around it. That’s where the foundations of all the big deals are laid.
And there have been many deals. In 2022, games companies were acquired for a combined 1,340 billion kronor. Yet there’s much to suggest the consolidation wave will continue this year — in particular when it comes to mobile games.
There are three main reasons for this.
First, mobile games companies are operating in a market that shrank 5 percent in 2022 and is forecast to have a tough 2023 as well. The pandemic years were a boom for the entire industry, and lifting the restrictions became a challenge. Driving organic growth — meaning increasing revenue and profit under your own steam — is difficult when the market headwinds are strong. One solution is not to bet on organic growth at all, and instead buy up competitors. Many games companies are sitting on well-filled war chests after several good years.
The second reason is Apple. They dropped a bombshell on the mobile games market around 2021–2022 with a software update that was said to increase the protection of individual users’ personal privacy. The result was that virtually all mobile advertising performed worse and became harder to measure. Getting around the problem requires larger investments — and if you have more game studios to spread them across, you get better returns on that money. It’s now more advantageous than it’s been in years to be big. And if you can’t get big on your own, you have to join forces with others.
The third and final reason is price. It’s simply become cheaper to buy games companies now than it was when the market was at its hottest around 2020. You can also add in certain currency effects that have put those with US dollars in a better position than they’ve been in for many years — and the reverse for those holding Swedish kronor. American companies can effectively buy at a discount just by relying on their currency.
But not everyone is happy with this development. The sudden political interest in competition law is now hitting the games industry directly.
Microsoft’s blockbuster deal to acquire Activision Blizzard for $68.7 billion is currently stuck with regulators in the UK, the EU, and the US. Negotiations are ongoing about what kinds of concessions Microsoft may need to make to get the deal approved — and whether they’ll still want to go through with it if they do.
Most conceivable deals are substantially smaller than that, but the games world is still watching the outcome of this process closely.
What we haven’t seen much of yet is the geopolitical dimension of games ownership.
In recent days, the White House has reportedly been threatening to ban the app TikTok. The risks of valuable data being shared with the Chinese state are considered too great.
But TikTok’s parent company — the Chinese firm ByteDance — is also a major games owner. Reports this summer indicated their annual revenue from games was around 10 billion kronor.
Then there’s Chinese tech giant Tencent. The company is one of the world’s largest owners of gaming properties, and is, for example, a major shareholder in Ubisoft.
For now, games companies don’t appear to be considered a threat to national security. But the industry has long been misunderstood and underestimated by policymakers. If it took until 2023 to regulate social media, it’s a reasonable assumption that the games industry could be next in line.
Until then, the deals — with and without Chinese involvement — will keep flowing. In the hotel bars around GDC this week, the acquisitions we’ll be reading about in the coming months are getting started.
