Microsoft’s $75bn bid for Activision Blizzard propelled Sony to its biggest one-day drop since the global financial crisis, with shares in the Japanese entertainment conglomerate closing 12.8 per cent lower on Wednesday.
Overnight news of the deal also triggered a wave of buying across Japan’s gaming sector, with shares in Square Enix and Capcom rising by more than 3.5 per cent on speculation that they could become acquisition targets of Sony or as part of a broader land-grab.
Shares in Nintendo and Konami rose by as much as 2.51 and 3.25 per cent, respectively, on Wednesday in Tokyo, as investors bet that some Japanese companies would consider domestic mergers as a defensive measure against takeover.
The hit to Sony, which wiped $20bn from its valuation, ended a run that had taken the stock to a 21-year high at the start of 2022.
Long-term Sony stockholders said the shares were being punished on “knee-jerk” fears that the Japanese company had been thrust under pressure to come up with a big acquisition of its own, either by counter-bidding for Activision or seeking out a different target that would now be at a high premium.
“In two weeks at its results meeting, is Sony really going to have to tell the investors that they plan to grow organically after their rival has just made a $70bn deal? If they are going to look at buying something, they have a big advantage on home turf in terms of M&A,” said industry analyst Serkan Toto, noting that the Sony share price drop was a typical overreaction by games industry investors.
Traders in Tokyo said that the shares were also being crushed by speculation that Microsoft’s deal would dramatically enhance the attractiveness of the company’s Xbox Game Pass, a subscription service that allows members to play games across multiple platforms and directly challenges Sony’s console-centred model.
Analysts said concerns that Microsoft could make Activision’s hit franchise Call of Duty exclusive also contributed to the Sony share price fall. The series, which is available on all consoles including Sony’s PlayStation, has become the centrepiece of huge global online communities and is a prime example of games generating revenues long after their initial release.
“The market is guessing what might happen to Call of Duty. It looks like economic suicide if Microsoft makes the franchise exclusive to its own platform, but they may not care if it makes their platform stronger,” said David Gibson, an analyst at MST Financial.
“What it could do is make Sony go to other publishers who make first-person shooters, like EA [Electronic Arts], and pay for exclusivity for a period to support the PlayStation platform,” he said.
Gibson added that the Microsoft deal was unlikely to trigger an immediate response from Sony, whose answer to the Activision acquisition would more likely be sticking to its long-term policy of building high-quality franchises through smaller acquisitions.
“The [Microsoft] deal may not be as negative as people perceive,” he said.
Sony Interactive Entertainment, Sony’s gaming division, declined to comment. Square Enix, Capcom and Nintendo declined to comment.
Damian Thong, a technology industry analyst at Macquarie in Tokyo, said Microsoft’s grab for Activision reflected how the maturing console games business would inflame competition with Sony, as the US tech group worked to counter its Japanese rival’s market share lead in consoles with heavy content investment.
“If Sony wants to match what Microsoft is doing, they would need to move into PC and mobile and then acquire [the] kind of multiplayer games that work on those platforms,” said Thong. “That is expensive.”
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