TOKYO Reuters-Sony Group, perched atop the gaming sector, is facing a fresh challenge from cash-rich rivals betting on a next-generation online video game boom as the Japanese conglomerate expands on multiple fronts, including electric cars.
Microsoft Corp, a laggard in the generational console battle with Sony, has taken a major step to position itself for the metaverse - experience where people can shop and socialise online - with a $69 billion deal for Call of Duty developer Activision Blizzard.
Sony's shares fell by 13% on Wednesday due to concerns that Activision titles would be pulled from PlayStation systems.
"They're basically trying to build a monster," said Serkan Toto, founder of Kantan Games consultancy in Tokyo. I don't think Microsoft is spending $70 billion to become a software provider for Sony platforms. The full frontal approach contrasts with Sony, which has made incremental deals and gained praise for building a network of in-house gaming studios that have produced hits such as Spider-Man and God of War. Analysts say it and other giants may feel pressure to make more deals in response.
Microsoft's deal for Activision is made possible by its vast range of other businesses, including software and cloud services, with a market value of more than 14 times that of the Japanese conglomerate.
Many analysts think Activision is a tarnished business after allegations of sexual harassment and misconduct by managers and with its major franchises losing momentum.
Mio Kato, an analyst at LightStream Research, said the developer is a semi-distressed asset. We are skeptical about the ability to compete with PlayStation because of the backward-looking nature of Microsoft's strategy. The deal will likely help Microsoft's aggressive expansion of its Game Pass subscription service, which raises concerns that Sony will have to follow suit. Offers of games for flat fee can erode margins and eat into sales.
Amir Anvarzadeh, a market strategist at Asymmetric Advisors, wrote in a note that most analysts have been napping in the wake of these developments, cheering Sony's stronger movies and music business to justify a higher rating.
In recent years, Apple and Amazon have also advanced into gaming but have struggled to deliver hits.
Sony has a pipeline of hotly awaited titles, including Gran Turismo 7 and Horizon Forbidden West Microsoft, whose latest instalment was delayed before their latest instalment was released in December.
Advances to cloud technology are loosening ties to consoles because consumers are hoping to spend more time playing and shopping in virtual reality and attracting investment from firms like Facebook parent Meta.
The shift to electric and autonomous vehicles has been compared to the epochal shift to electric and autonomous vehicles.
Sony is considering entering the electric car business to take advantage of its edge in areas such as entertainment and chips, because it plans to launch a next generation virtual reality headset.
On Wednesday, shares in gaming firms including Square Enix and Capcom popped on speculation that the Activision deal could lead to more consolidation.
Sony, a Japanese industry champion at a time when many local firms are losing ground to overseas rivals across a swathe of sectors, is seen as a potential buyer.
Jefferies analyst Atul Goyal wrote in a note that if there are no regulatory bottlenecks, Microsoft may go after another target in the not too distant future.