PlayStation maker Sony faces deep-pocketed rivals in war for future of gaming as Microsoft acquires Activision

Sony, perched atop the games sector, faces a fresh challenge from cash-rich rivals betting on a boom in next-gen online video games as the Japanese conglomerate eyes expansion on multiple fronts, including including electric cars.

Microsoft, a latecomer in the generational console battle with Sony, has taken a major step to position itself for the “metaverse” – a proposed immersive experience where people play, shop and socialize online – with $69 billion (roughly Rs 5,13,560 crore) deal for Call of Duty developer Activision Blizzard.

Sony shares fell 13% on Wednesday as Activision titles would be pulled from PlayStation systems.

“They’re basically trying to build a monster,” said Serkan Toto, founder of consulting firm Kantan Games in Tokyo. “I don’t think Microsoft is spending $70 billion (about Rs. 5.21,000 crore) to become a software provider for Sony platforms.”

The full-frontal approach contrasts with Sony, which struck incremental deals and won praise for building a network of in-house game studios that produced hits such as Spider-Man and God of War. Analysts say it – and other giants – could now feel pressure to strike more deals in response.

Microsoft’s deal for Activision is made possible by its wide range of other businesses, including software and cloud services, with a market cap more than 14 times that of the Japanese conglomerate.

Many observers see Activision as a tarnished company after allegations of sexual harassment and misconduct by managers and with its major franchises on the decline, analysts say.

The developer is “essentially a semi-distressed asset,” said LightStream Research analyst Mio Kato, writing on the Smartkarma platform. “This retrospective nature of Microsoft’s strategy is what makes us skeptical of their ability to compete with PlayStation.”

Pressure to conform

The deal will likely aid Microsoft’s aggressive expansion of its Game Pass subscription service, raising fears that Sony may be forced to follow suit. Offering games at a fixed price can hurt sales and erode margins.

“Most analysts took a siesta over these developments, encouraging Sony’s stronger film and music businesses to warrant a higher rating,” Amir Anvarzadeh, market strategist at Asymmetric Advisors, wrote in a note.

Tech giants including Apple and Amazon have also made progress in the game in recent years, but have struggled to deliver hits.

Sony, on the other hand, has a pipeline of highly anticipated titles, including Gran Turismo 7 and Horizon Forbidden West. Microsoft leaned heavily on the “Halo” series, the latest installment of which was delayed before its December release.

Advances in cloud technology are loosening ties with consoles as consumers expect consumers to spend more time gaming and shopping in virtual reality and attract investment from companies such as Meta, Facebook’s parent company.

The shift has been compared to the era shift to electric and autonomous vehicles.

Sony, which plans to launch a next-generation virtual reality headset, is also considering entering the electric car business to capitalize on its advantage in areas such as entertainment and chips.

Shares of gaming companies including Square Enix and Capcom surged on Wednesday on speculation that the deal with Activision could lead to greater consolidation.

Sony, a champion of Japanese industry at a time when many local companies are losing ground to foreign rivals in many industries, is seen as a potential buyer.

“Sony may be under pressure to do more M&A,” Jefferies analyst Atul Goyal wrote in a note, adding that “if there are no regulatory bottlenecks, then Microsoft may aim another target in the not too distant future”.

PS5 vs Xbox Series X: Which is the best ‘next-gen’ console in India? We discussed it on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, and wherever you get your podcasts.


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