What Will the End of Video Game Industry Consolidation Look Like?
With virtually every industry in the “free” capitalist market, there will inevitably be a few large corporations that each own large swaths of the market. While none of them teeter on the edge of monopoly, consolidation ultimately supports large commercial enterprises to only expand in size and to swallow up competition. This has happened before in many industries and it will happen again in the video game industry as it begins its major consolidation phase. After five or so years, the video game industry will have a completely different power structure where only a few massive corporations control the vast majority of the industry. Question is: Who will be those corporations?
Compared to the entertainment industry, video games are a much more globalized and diversified business, so there are emerging candidates from various regions that could be very influential for the industry at large. One of the most infamous candidates is Tencent, a Chinese holding company notorious for acquiring and investing in large quantities of game developers and publishers worldwide. Tencent owns Funcom (Conan Exiles), Supercell (Clash of Clans), Riot Games (League of Legends), Leyou (Warframe), among many others. They also have a minority stake in Epic Games, Ubisoft, Discord, Roblox, and at least a dozen more notable developers and publishers. Tencent is the closest there is to a video game monopoly, but they still have plenty of room to grow before it reaches that point. Even as they continue to absorb tons of smaller fish, Tencent are not the only hungry whales in this vast ocean of an industry.
As one of the wealthiest corporations in the world, Microsoft is easily positioned to be one of the Big Players when the consolidation wars settles down. After acquiring Activision-Blizzard and Bethesda, Microsoft clearly has the capital and commitment to rapidly expand their presence in gaming. While the Activision-Blizzard deal is being scrutinized by the government, Microsoft should have little issue completing the acquisition as it still does not violate any antitrust laws. Microsoft has also actively made concessions to assuage governmental concerns, such as vowing to keep Activision-Blizzard games multiplatform. After the Activision deal is finished, it is safe to assume that Microsoft will continue to consolidate. After all, Satya Nadella, the company’s CEO, claimed they want to become as ubiquitous in gaming as Google is to search. Those are some bold ambitions to say the least.
Now, claiming Microsoft and Tencent will become the Big Players is nothing controversial. But what of the other big companies in gaming? This is where things start to become less obvious because many large publishers could be acquired or merge together. However, one thing that is for certain is that Sony will probably acquire a publisher of their own. This is the same company that has a large presence in other entertainment industries, so they have a documented history of gradually expanding into an empire. I feel the same kind of expansion strategy will occur with PlayStation. I have written about their sudden push for acquisitions of smaller studios, but I would not write out the possibility, or rather inevitability, that Sony will soon acquire a major publisher and continue to expand afterwards. As the market leader in the console sector, there will likely be more regulatory headwind against Sony when they do make large acquisitions.
Regardless of the possible implications of a market leader rapidly expanding in size, Sony wants Sony Interactive Entertainment to be comparable in size to their Pictures and Music divisions. To accomplish that, they have to spend billions of dollars on mergers and acquisitions, which they have started to do so with its acquisition of Bungie. While they already have a big piece of market share, in the era of rampant consolidation, Sony needs to secure a piece of the pie to maintain their position in the market. Aside from Nintendo, who will remain a culturally relevant company for decades to come no matter how much consolidation occurs, the rest of the Big Players will be more difficult to predict. Electronic Arts and Take-Two making multi-billion dollar acquisitions suggests both of them are very much engaged in the consolidation race. I would wager that Electronic Arts will eventually merge with another publisher, similar to what they attempted with Activision-Blizzard prior to their buyout.
Electronic Arts merging with Take-Two could elicit some antitrust concerns as both companies produce sports simulator games and have major mobile publishers of their own. That being said, it isn’t completely out of the picture that Electronic Arts could merge with an adjacent company. I could see them merge with either Ubisoft or Take-Two, considering they are both the only major Western publishers remaining. Ubisoft does align with Electronic Arts’ commitment to live service games, so it wouldn’t be unordinary to see such a merger occur. I do think Take-Two and Ubisoft are both much more likely to be bought or merged with another company than Electronic Arts. In Europe, there’s Embracer Group, another holding company which is basically the European Tencent. Embracer will most likely pick up another middle-sized European publisher like Focus Entertainment or Nacon.
What about the Japanese publishers? Many fans speculate that Sony could acquire Square-Enix or Capcom, which I don’t doubt could happen. Tencent could acquire a Japanese publisher, too. After all, they made a minority investment in Marvelous. At this stage, I don’t quite see any Japanese publisher becoming one of the Big Players, excluding Nintendo. Square-Enix and Capcom will most likely be acquired by another larger firm, be it Sony or Microsoft. Sega might remain independent, but they are too small to even become a Big Player in the first place. Konami and Bandai Namco are both too diversified to be absorbed by another tech-focused company. Koei Tecmo is a family-owned business, so it would be difficult for them to sell their company.
As for the South Korean game companies, this is where I could see Nexon try to become a Big Player. They are actively investing in a lot of different companies and expanding into global markets by publishing more titles that appeal to Western audiences like ARC Raiders and Project Magnum. Netmarble will remain a Big Player in the mobile gaming sector and I don’t see their status changing anytime soon. I also haven’t given enough credit to NetEase, another giant Chinese technology holding company that has globalization aspirations. They are not nearly as prominent as Tencent, but they could be surprisingly ambitious in their expansion into gaming.
Looking at all of the current “Big Players”, we could presume that there are could be six major players remaining at the end of the consolidation race. Microsoft, Tencent, Sony, Nintendo, Electronic Arts, and potentially Embracer. It should be noted that in this scenario Electronic Arts would have already merged with either Take-Two or Ubisoft, if neither were acquired by another bigger fish already. The likes of Square-Enix and Capcom would probably succumb to consolidation at some point as well. Embracer would represent a smaller share of the industry by virtue of owning mostly smaller developers, but they would control the lion’s share in the European gaming market.
The “Big Six” may not be as significant in the mobile gaming sector as the PC and console gaming space, which does make this analysis somewhat limiting as mobile gaming is larger than PC and console gaming. That being said, the major corporate power structure in the industry does not completely expunge the existence of smaller indie developers either. Although, that is a discussion for another and this article is long enough. The titans will grow larger and the weak will be acquired. This is the nature of how giant industries of this scale operate. Whether the gaming industry could sustain itself throughout this period is something we will have to wait and see.