In this Metacast episode, Abhimanyu Kumar and Aaron Bush, join your host Maria Gillies to discuss: the first half of 2022. The team dives into who could still make billion-dollar acquisitions during a market downturn, the implications of the current economy on crypto gaming, and whether or not console games could prove to be resilient in the face of lower consumer spend.

🤝M&A and Growth by Acquisition

  • Context
    • The industry changed a lot in the past 6 months due to changes in how M&A is conducted.
    • Major M&A deals were made at the start of this year, e.g. Microsoft acquiring Activision Blizzard, Take-Two acquiring Zynga, Sony acquiring Bungie. Many of such deals were made with company stock (e.g. Take-Two with Zynga).
    • Current market conditions are making M&A less viable and common.
      • Capital markets have become less compelling. Stock prices are down, making it harder to sell stock to other companies. With interest rates rising, companies will have to take out more debt to make deals.
      • Companies hoping to enter the mobile gaming market will have to exercise more caution due to the UA destabilization caused by the recent implementation of major privacy policies e.g. IDFA.
  • What M&A focused companies need to do now:
    • Need to change their strategies and aim for more organic growth.
      • Can refocus on buying companies that will enable organic growth in future.
    • A company must be flexible if most of their growth comes from acquisition as this strategy relies on the market being in a healthy state.
      • E.g. Embracer and Stillfront focused on using stock to acquire companies (see this episode where we talk about Embracer’s acquisition of Square Enix’s Western Studios). When the market changed, they were not equipped to deal with it and their growth and stock value took a notable hit, making it more difficult for them to be flexible moving forward.
  • What we think will happen in the next 6 months:
    • We are unlikely to see any major M&A. If we do, it will come from big entertainment/ tech companies who are looking to get into gaming (e.g. Amazon or Disney). Unlikely to come from big gaming platforms as most have already made major acquisitions recently.
    • Seeing how inefficient UA is now, we may see acquisitions of smaller companies that have very targeted and loyal fanbases.

🔄 Market Cycle in Full Swing

  • Context
    • The market has become more recessionary, with a significant impact on growth-oriented companies.
    • Now with a higher emphasis on generating profits than growth forecasts, layoffs have become common (seen in e.g. Unity, who recently laid off about 200 employees). This trend will likely continue.
    • Companies are focusing more on their specialties, e.g. Meta (as discussed in this episode.)

🪙 Crypto Gaming’s Second Wave

👫 Studios Founded by Diverse Teams

  • Context
    • More new studios are being founded by demographically diverse teams and more established studios are looking to put diverse individuals in leadership positions.
  • Reasons for this trend:
  • Why this is important:
    • Representation will create a more inclusive space and a sense of belonging for consumers.
    • Will encourage more talented individuals who are demographically different to step into the industry.
    • We need to put our faith in less established founders instead of only those with decades of experience in major firms.
  • We’re likely at the start of a snowball where diversity will eventually become the norm in gaming.

🎮 Console’s Recession Resilience

  • Context
    • Despite the hard hit to many parts of the industry, console gaming will likely stay profitable for the rest of the year.
  • Reasons for this prediction:
    • Console currently has a pent-up demand due to supply chain issues and is now the only sector of gaming where demand far exceeds supply.
    • Xbox is introducing new content to game pass that is expected to be very well received.