Sony, Tencent and NetEase continue their search for agreements to develop new formats and markets

Mobile game revenue accounts for more than half of the mobile game market. Sony is looking to diversify beyond consoles with its new division dedicated to PlayStation mobile games.

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Sony’s PlayStation has long dominated the gaming console market.

But the business model for console gaming has changed. It’s not just about selling hardware and hoping people buy new games. It’s about continuing to earn revenue from these games through regular updates that people spend money on and selling subscription services as well.

Sony’s deal flow, especially with the acquisition of Bungie, highlights this push.

“Their goal is to have enough content to entice gamers to purchase their proprietary hardware, pay a monthly fee for the PlayStation-operated (PS Plus) subscription service, and occasionally purchase a digital game through the PlayStation Store, for which Sony receives about a 30% discount,” Tom Wijman, head of games market at data firm Newzoo, told CNBC.

“Acquiring studios is the surest way to ensure exclusive content for their ecosystem, especially in response to the wave of acquisitions by Microsoft, one of Sony’s main competitors in the gaming space.”

Sony is also looking to expand beyond consoles. Last week, the Japanese giant announced that it was setting up a dedicated unit to oversee mobile game development, a relatively new endeavor for the company, which has been so dominant in consoles for years.

The acquisition of Savage Game Studios, which is dedicated to mobile games, is another key element of the strategy.

“Sony is stepping out of its comfort zone to stay competitive,” Wijman said.

Mobile games revenue accounts for more than 50% of the total games market, while consoles account for around 27% of sales, according to Newzoo. So Sony is tackling an even bigger slice of the pie.

Sony’s acquisitions will help it bolster its intellectual property and games library as it seeks to expand into mobile games.

Tencent and NetEase

China’s two biggest gaming players, Tencent and NetEase, have faced a tougher domestic market, amplifying the importance of their overseas investment and acquisition strategies.

Last year, Chinese regulators restricted the time that under-18s could play online games and froze approval for new titles. In China, games need the green light from regulators to be marketed and monetized. These approvals only restarted in April.

Meanwhile, a resurgence of Covid-19 in China and subsequent lockdowns in major cities across the country have hurt economic growth. This led to the worst quarter of revenue growth for some of the Chinese tech giants, including Tencent.

With a tougher domestic market, Tencent and NetEase looked overseas to expand through acquisitions and investments.

“Tencent and NetEase have developed their gaming business primarily in their home turf, China. Now that their home market is becoming increasingly regulated and difficult to operate, these two companies will accelerate their global expansion strategy,” said Wijman.

Tencent owns or is invested in some of the biggest gaming companies in the world, including League of Legends developer Riot Games.

NetEase’s strategy has focused on acquiring top-tier intellectual property. With the acquisition of Quantic Dream, the Hangzhou-based company has access to publishing an upcoming Star Wars game. NetEase has previously released mobile games based on the Harry Potter and Lord of the Rings franchises.

For both giants, holding stakes or owning the studios behind international mega hits in the gaming world has become a key part of the strategy.

Although NetEase has traditionally been less aggressive than Tencent in its business activity, it has stepped up its efforts over the past year.

Another part of the investment strategy of the two companies also highlights their ambitions in the console sector. NetEase and Tencent mainly grew by focusing on PC and mobile games, not consoles which were banned in China for 14 years until 2014.

But the two juggernauts have started turning their efforts to console gaming.

NetEase hired a console industry veteran to lead its Japanese games studio earlier this year. And Tencent-owned developer TiMi Studio has opened offices in Montreal and Seattle to focus on PC and console games.

Acquiring and investing again in other game studios can also help both companies gain access to IP for console games.

Tighter regulations in China and the search for growth could push NetEase and Tencent to pursue their investment and acquisition strategy.

“Finally, if Chinese government regulation continues to put pressure on NetEase and Tencent in their home markets, I think they too will be eager to review mergers and acquisitions,” Wijman said. “Their global expansion strategies are just beginning.”

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