(Bloomberg) — Sony Group Corp. shares fell as much as 9.8% in Tokyo, their biggest intraday drop since March 2020, after PlayStation rival Microsoft Corp. announced a $69 billion deal to acquire games publisher Activision Blizzard Inc.
Most Read from Bloomberg
The blockbuster acquisition escalates Microsoft’s spending spree to secure intellectual property assets for its Xbox Game Pass service, which has been adding paying subscribers by offering them a growing portfolio of games to play. This challenges Sony’s traditional console business model that combines high-profile exclusive titles with hardware sales to earn revenue. Games and network services account for about 30% of Sony revenue.
Microsoft Buys Scandal-Tainted Activision in Bet on Metaverse
Microsoft announced Tuesday that it has more than 25 million Game Pass subscribers and “will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass,” spanning both existing and new titles, according to Xbox chief Phil Spencer. Call of Duty, Diablo and World of Warcraft are among several highly successful franchises developed under the Activision Blizzard umbrella.
“Sony will have a monumental challenge on its hands to stand on its own in this war of attrition,” said Amir Anvarzadeh of Asymmetric Advisors. “With Call of Duty now most likely to be added exclusively to the Game Pass roster, the headwinds for Sony are only going to get tougher.”
Elsewhere across the games industry, publishers rallied in the wake of Microsoft’s announcement, with Capcom Co. and Square Enix Holdings Co. up by more than 6% in Tokyo on Wednesday. Analysts, including Jefferies’ Atul Goyal, saw the move as raising valuations for game companies with strong content and IP portfolios.
Sony has maintained a consistent lead in sales and exclusive games over Microsoft’s competing offerings across several PlayStation and Xbox generations. Now that its Redmond, Washington-based rival has signaled its determination to spend freely to close that gap, Sony will be under pressure to respond.
“Sony will struggle to match Microsoft in terms of money it can spend to buy popular game IP,” Morningstar Research analyst Kazunori Ito said. “Falling shares illustrate investors are worried that Sony may not be able to keep winning if indeed the industry shifts away from the hardware-based model.”
(Updates with analyst comments from the fourth paragraph)
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
