The gaming market continues to consolidate and grow at an unprecedented rate. As highlighted by Transcend’s founding partner Shanti Bergel, Sony’s purchase of Bungie last month brought total mergers and acquisitions (M&A) expenditure in 2022 to $85 billion. This two-month total exceeds all of the M&A expenditure in 2021, which itself was three times larger than the M&A activity of 2020.
The overarching theme of industry consolidation is a familiar one for those of us working in the business of games. Gaming businesses of all shapes and sizes are snowballing together into ever-larger conglomerations of investment and operating prowess. Every month, fewer independent companies remain to shape the future of gaming or, dare we say, the multiverse (does anyone truly believe the future is a singular metaverse?). We call this dynamic of consolidation Katamari Royale.
In our former lives as operators, the General Partners at Transcend played a significant, active role in industry consolidation. Collectively, our efforts unlocked over $3 billion in value for shareholders through mergers, acquisitions, and associated organic growth. In doing so, we enabled and empowered some of the best teams in the world to build bigger, more innovative, and successful games for global audiences.
Reflecting on that experience and today’s market, we see this “battle royale” splitting into three levels: publisher, platform, and ecosystem.
Publisher Level: Leading publishers are using balance sheet strength, robust equity multiples, and cheap debt financing to acquire development studios and specialty publishing organizations. A notable example is Embracer Group, which used funds from its IPO and subsequent debt financings to acquire studios such as Gearbox Entertainment, THQNordic, and DECA Games. Today, as a result of these deals, Embracer is one of the biggest public game companies in the world.
Platform Level: Almost everyone immediately thinks of the ongoing rivalry between Microsoft and Sony. The console gaming giants are battling with renewed vigor. In September 2021, Microsoft acquired Zenimax for $7.5 billion, followed by Activision Blizzard in January 2022 for $69 billion. In response, Sony acquired Bungie for $3.6 billion, bolstering its capabilities in live-service gaming. Yet there are other platforms to consider—Apple, Google, Roblox. It feels like this tournament may have just begun.
Ecosystem Level: We see the industry moving towards something even grander—a heterogeneous “multiverse” of interconnected business models, services, and intellectual property, all operating in service of the gamer. We’re talking about cloud gaming, virtual reality, player-owned IP and games, centralized and decentralized tech, cryptocurrencies, and more. What will be different? The way current and future industry leaders partner with gamers to fund, build, launch, and operate services.
We believe gamers should be—and will be—the owners and arbiters of the most diverse, inclusive, creative, interconnected, and constructive version of gaming ever. For now, these consolidation trends appear to be accelerating this evolution to the positive. What an exciting and refreshing proposition. Game on!
If you share our view of this landscape and future, please let us know. We’re always looking to partner with people that share our view of a bright, positive future for games.
About Transcend
Transcend is a top performing early stage venture capital firm that partners with the boldest founders in the industry to collaboratively build the future of interactive entertainment.
Founded in San Francisco by gaming veterans, the Transcend portfolio features a preeminent group of high growth digital entertainment companies around the world.
More information about Transcend can be found on our website. Follow us on LinkedIn for the latest news from around the Transcend ecosystem.
About Andrew Sheppard
Andrew Sheppard is a seasoned strategist and gaming executive who currently serves as an investor, advisor, and board member for leading teams in media and entertainment.
With over 20 years of operational experience, Andrew has built, grown, and managed multi-billion-dollar consumer businesses. He is the Managing Director at Transcend and serves on the boards of GDEV, Ruckus Games, Fun Country, and Eggscape Entertainment. Previously, Andrew was the CEO of GREE International, President of Studios at Kabam, and Head of Strategy at Electronic Arts' Maxis Studio. He has led initiatives generating over $5 billion in revenue across various sectors, including online media, social media games, subscriptions, free-to-play, console games, online/PC games, mobile games, and apps.
Andrew is excited to put capital to work in service of companies that are passionate about reinventing the game.
Comments