Sony faces new challenge as Microsoft bets on gaming boom

Sony faces new challenge as Microsoft bets on gaming boom

TOKYO, Jan 19, Sony Group 6758, Reuters. As the Japanese conglomerate eyes expansion on multiple fronts, including electric cars, is facing a new challenge from cash-rich rivals who are betting on a next-generation online video game boom.

Microsoft Corp. MSFT.O, a laggard in the generational console battle with Sony, took a major step to position itself for the metaverse - experience where people game, shop and socialise online -- with a $69 billion deal for Activision Blizzard ATVI.O Sony's shares slumped 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 may feel pressured to make more deals in response to the pressure.

Microsoft's deal for Activision is made possible by its vast array of other businesses, including software and cloud services, with its market value more than 14 times that of the Japanese conglomerate.

Many observers view Activision as a tarnished business after accusations of sexual harassment and misconduct by managers and with its major franchises losing momentum, analysts say.

Mio Kato, an analyst at LightStream Research, said the developer is basically a semi-distressed asset. We are sceptical 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. It can erode margins and eat into sales if you offer games for a flat fee.

Amir Anvarzadeh, a market strategist at Asymmetric Advisors, wrote in a note that most analysts have been napping during these developments and cheering Sony's stronger movies and music business to justify a higher rating.

Tech giants like Apple AAPL.O and Amazon have also progressed into gaming in recent years but have struggled to deliver hits.

Sony has a pipeline of hotly awaited titles including Gran Turismo 7 and Horizon Forbidden West Microsoft, which has leaned heavily on the Halo series, whose latest instalment was delayed before it was released in December.

Advances to cloud technology are loosening ties to consoles as consumers spend more time playing and shopping in virtual reality and attracting investment from firms like Facebook parent MetaFB.O The change has been compared to the epochal shift to electric and autonomous vehicles.

Sony plans to launch a next generation virtual reality headset in the future, but it is considering entering the electric car business to take advantage of its edge in areas such as entertainment and chips.

Shares in gaming firms including Square Enix were 9684 on Wednesday. T and Capcom 9697. The Activision deal could lead to more consolidation, according to speculation.

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 said that if there are no regulatory bottlenecks, Microsoft may go after another target in the not too distant future.