Will they, won't they; the seemingly endless saga of Vivendi's hostile acquisition of Ubisoft rolls on with all the breathtaking pace of a French arthouse movie (though none of the nudity, or at least I sincerely hope not). After the giant media conglomerate completed its takeover of Gameloft last summer, everyone has simply been waiting for the other shoe to drop. Back when EA seemed to be eyeing up Ubisoft, Gameloft was often cited as being kept in reserve by the Guillemot family, which managed both firms, as a "poison pill" - a company which Ubisoft could swallow in a merger aimed at keeping its independence in the event of a hostile bid. Vivendi's acquisition of a majority stake in Gameloft only ever really made sense as a prelude to picking up the Guillemot's games empire in its entirety; now Reuters reports that this is on the cards for 2017, with only a few percentage points left on the table before Vivendi reaches the 30% stake that triggers an ownership bid under French law.
This is the kind of corporate drama which, though undoubtedly of critical interest to the players directly involved, fails to really get the blood rushing for almost anyone else. While hand-wringing over whether Ubisoft's ability to create original IP will be constrained under Vivendi ownership is inevitable, the reality is that Vivendi has a fair bit of experience with managing creative companies and giving them enough freedom to continue laying golden eggs. Ubisoft under the Vivendi umbrella would probably, most likely, be fine. Why, then, should anyone other than the shareholders involved and the lawyers who stand to make buckets of cash be concerned with what's happening here?
"My hypothesis is that we're currently in a 'breathing in' phase of a decades-long cycle for the industry. After over ten years of frenetic activity and innovation at all levels of the industry...things are in an unusually settled place right now"
The reason the Vivendi / Ubisoft drama is of interest, I'd argue, is because it's not happening in isolation. It's part of a broader trend of consolidation that's engulfed the industry over the past few years and shows no sign of slowing down. By far the biggest player in this consolidation is Tencent, the Chinese giant which has been quietly grabbing significant stakes in, if not outright ownership of, many of the biggest and most promising companies in the industry. By some measures, Tencent is already the biggest company in games; quite an eyebrow-raiser when you consider that the vast majority of the consumers of their products have probably never even heard the name "Tencent".
That, however, may be the shape of things to come. Vivendi's interest in Ubisoft marks a return to video games for a company which used to be the parent of Activision Blizzard up until 2013. Now a giant media conglomerate, it started out as a water company (back in the 1800s!) and remained rooted in heavy infrastructure until the 1970s; it's not the kind of company that consumers identify in the way they identify with, well, something like Blizzard, or indeed Ubisoft. Vivendi, like Tencent, is for the most part a company that exists to own other companies.
Other major acquisitions within the industry have followed a similar pattern to some degree. Softbank is recognisable to Japanese consumers as a mobile network, but its holdings in games are kept at arm's length from that brand (albeit now being somewhat diminished after the sale of its stake in Supercell to, yup, Tencent). Activision Blizzard is one of the most recognisable names in games in its own right, but its high-value acquisition of mobile giant King has been entirely transparent to that company's customers. Facebook is perhaps the closest thing to a household name to have made a purchase in the gaming space of late, but it has also been careful to keep its brand at something of a remove from Oculus'.
The interesting question in all of this is - why now? Why is Vivendi so keen to get back into games right now? Why is Tencent building up such an extraordinary portfolio of companies in this space? Why are other companies engaging in high-value consolidation of this kind? It's not the usual background noise of companies being acquired for their technology, or their personnel, or their IP, but a set of much bigger acquisitions and mergers aimed at building up portfolios not of games but of companies, at changing the underlying competitive landscape of the games industry as a whole.
My hypothesis is that we're currently in a "breathing in" phase of a decades-long cycle for the industry. After over ten years of frenetic activity and innovation at all levels of the industry which has left not a single aspect - technology, business, audience, content, you name it - untouched, things are in an unusually settled place right now. The companies that were going to fail to adapt to technology and business model transitions have collapsed. The froth of new companies that emerged with mobile and F2P has largely cleared and the landscape of major and minor players has come into focus. Some big technology transitions we've expected since the 1990s have finally been completed; digital distribution, mobile, indie, they're all in place and while they're not perfect, they're firing on all cylinders. VR remains an unknown, but nobody expects VR to be disruptive to existing tech or business; if it works, it'll be additive, and if it fails, well, it won't take the rest of the business with it.
This creates a climate that's unusually settled by the standard of the past couple of decades - the kind of climate where small, rapid acquisitions of innovators doesn't really happen (that's only really occurring on the fringes of VR at the moment, Oculus / Facebook being the really big example) but where the risk factors have cooled down to the point where bigger, more naturally cautious companies start looking at very high-value acquisition and strategic portfolio moves. Ten years ago, I was down on the idea of big external acquisitions of game publishers because, well, who knew what the game landscape was going to look like in five years? Now, the landscape is more settled; the risks of acquisition have cooled down to simply being the standard set of risks associated with buying a company in any settled industry, and giant corporations are very, very good at handling those risks.
"Square, ever the frustrated wannabe movie studio, and no stranger to valuable IPs... would be a really interesting company to pop into the Disney structure alongside Marvel, Lucasfilm, Pixar et al"
Hence we get the likes of Tencent, and Vivendi, and Softbank, looking at games in a way nobody really could ten years ago; as a segment to fill in their portfolios. Until such time as a new shake-up appears on the horizon, large, traditionally conservative firms with major media portfolios will be eyeing up the games sector, especially in light of competitors making significant strategic moves. As a consequence, there will probably be several more multi-billion dollar acquisitions and mergers in games over the coming few years. The question is; who's buying, and who's looking like a target?
If you're a gambling man, some of the possible deals on the horizon are pretty obvious. It's not a stretch, for example, to imagine Nintendo extending its stake in DeNA should its partnership with the firm continue to bear fruit - an outreach which DeNA, whose other businesses pale in comparison to its Nintendo deal, would quite likely welcome. If you want longer odds, though, watch Disney. The House of Mouse is no stranger to games, but it's never really managed to break through into the big leagues with its homegrown efforts - and it presently owns two of the most valuable (and game-friendly) libraries of IP in the world in the form of the Marvel and Lucasfilm IP universes. In a climate settled enough for Disney to consider a really major acquisition of some kind, it would make absolute sense for it to put down a billion, or a few billion, for a really big player that could function both as an independent business under the Disney umbrella, and as an internal partner for all of the firm's stratospherically valuable IP holdings. EA is probably the first company that springs to mind in this role (especially given Star Wars Battlefront's success), but I did say long odds; so the gambler in me puts a few quid on a Disney bid for Square Enix in the coming years. Square, ever the frustrated wannabe movie studio, and no stranger to valuable IPs (or even to carefully negotiated partnerships with Disney), would be a really interesting company to pop into the Disney structure alongside Marvel, Lucasfilm, Pixar et al., arguably slotting into place far more neatly than any other firm in the industry.
It's a long bet, of course - the point is simply that this "breathe in" stage opens up the possibility of such bets, which weren't really on the table only a few years ago. Down the line, there'll naturally be a progression to "breathe out", where some proportion of the billions which have flowed into the industry in these deals will go into the funding of a whole new crop of companies aiming to disrupt the technological, creative and business status quo, and the cycle will turn afresh. By that time, though, the industry they'll be disrupting will be one that looks markedly different from the one we're in now - especially in ownership terms.