Buying strong gaming intellectual property

Buying gaming IP and capabilities

The previous articles in this series covered how companies can borrow IP through strategic partnerships, licensing agreements, and joint ventures to expand their portfolio, create more engaging experiences, and foster growth. But that isn’t the only way this strategic objective could be achieved.

In this new article, we’ll explore how companies can buy IP and capabilities utilizing mergers and acquisitions. While this strategy is generally more complex and can take longer to achieve, the acquirer gains full control of the assets. This approach can offer more creative control over the development of the asset, more flexibility in the use and expansion of the asset, and full benefit to the proceeds from the asset to help enable better long-term strategic outcomes.

Consider two scenarios to further examine this approach:

• Gaming x gaming: A gaming company buys another gaming company to broaden capabilities or expand the IP portfolio, often achieving both objectives simultaneously. Gaming-focused acquisitions can help with entrance into new gaming markets, such as mobile or live services, enabling further expansion of strong franchises.
• Entertainment x gaming: An entertainment company acquires a game studio to develop video games based on its in-house franchises. This approach can allow entertainment companies to better leverage IP in a brand-safe manner, expanding their entertainment offerings, growing audience and fandom, and creating more immersive content experiences.

Buying to expand within gaming

In the first scenario, a gaming company expands its market presence through the acquisition of another gaming company. This approach is often used to acquire a specific and complementary set of IP or capabilities, such as a AAA game studio acquiring another gaming studio that specializes in mobile game development or live services games. The buyer can leverage these new assets to help strengthen the appeal of its existing gaming franchises, develop new ones, and expand into new markets.

One example is Sony’s acquisition of Bungie for $3.7 billion in 2022.¹ Along with gaining the Destiny IP, this acquisition helped Sony strengthen its live service game development. Another example is Take-Two’s acquisition of Zynga for $12.7 billion in 2022, which complemented its traditional console and PC games with Zynga’s mobile and social media franchises.²

For the buyer, this approach can provide:

• Quicker access to new strategic capabilities to help achieve longer-term goals.
• Full creative control over the purchased IP.
• Full exposure to the financial upside and future development opportunities (however, this also comes with full exposure to the downside).

Buying to expand into gaming

A second scenario of a buy approach is for a company to purchase a gaming company with the goal of expanding into the gaming sector. This could take the form of a traditional entertainment company acquiring a gaming studio giving it the capability to develop games in-house based on existing popular TV or movie franchises.

Warner Brothers Discovery did just that in 2017 when it acquired and reopened Avalanche Software, the video game studio that would later develop the gaming title Hogwarts Legacy.³ Furthermore, Netflix’s purchase of Spry Fox in 2022 capped off its series of gaming studio acquisitions, bolstering in-house game development capabilities and expanding customer offerings.⁴

Benefits for the buyer can include:

• Access to new gaming capabilities to help achieve longer-term goals.
• Full control over purchased entity and games developed.
• Full exposure to the financial upside and future development opportunities (however, this also comes with full exposure to the downside).

Integration considerations

So how can organizations make sure an acquisition has the best chance of delivering on its strategic value? It’s important to understand the complexities and risks of the deal and formulate a purposeful integration strategy. This should start at the very beginning with conducting thorough and conclusive due diligence of the target company. Understanding the organization’s culture, processes and controls, product portfolio, and enabling technology can be essential in managing risk and defining an integration approach to maximize value. This can include fully integrating, partially integrating, or retaining the acquisition as a stand-alone entity.

Full integration: All elements of the acquired entity, such as the organization structure, culture, processes, products, and technology, are fully integrated into and aligned with the buyer. This typically allows for process consistency, greater cohesion and collaboration, and an aligned product offering. There is also a better chance of capturing greater cost synergies through the standardized processes and technologies. However, clear messaging and change management can be essential in managing risk of culture clashes, lost knowledge, and dampening the value behind the acquisition in the first place.

Partial integration: This offers a more flexible approach and purposeful selection of integration priorities, which could take on different forms depending on the nature of the transaction. One approach may be integrating shared services and non-core products while retaining autonomy for core functions, creative, and product development. This approach could allow the buyer to achieve process efficiencies and expand capabilities for the integrated organization, while retaining autonomy in areas that are core to the acquisition’s success.

Stand-alone: The acquisition is left as is to continue operating as a stand-alone entity. Some loose connections may be established, such as knowledge-sharing or select cross-selling. Ultimately, there is no integration of the acquisition into the buying company. This approach can have the least risk of disrupting the culture, processes, and products. However, the transaction value for a stand-alone company raises questions about the strategic objectives of the acquisition, which can cast doubt on the deal’s value thesis.

Endnotes

¹Adam Bankhurst, “Sony has completed its $3.7 billion deal to acquire Bungie and welcome it into PlayStation family,” IGN, July 15, 2022.
²Zynga, “Take-Two and Zynga to combine, bringing together best-in-class intellectual properties and a market-leading, diversified mobile publishing platform, to enhance positioning as a global leader in interactive entertainment,” press release, January 10, 2022.
³Christopher Dring, “Warner Bros re-opens Avalanche Software to develop new Cars game,” GamesIndustry.biz, January 25, 2017.
⁴Amir Rahimi, “Cozy games developer Spry Fox joins Netflix,” Netflix, October 31, 2022.