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Analyst says a WBIE deal could "set off a wave" of mergers, acquisitions

Stephens' Jeff Cohen expects largest publishers will be looking to expand their line-ups going into the next generation

The games industry could be in for a round of consolidation, according to Stephens analyst Jeff Cohen.

In a note sent to investors this morning, Cohen discussed last week's report of a possible sale of Warner Bros. Interactive Entertainment, saying it could be the first of multiple mergers and acquisitions coming down the pipe.

"In our view, this could set off a wave of M&A as publishers look to gain scale and round out their catalogues ahead of the next console generation," Cohen said.

Cohen explained that as publishers shifted toward live service games over the past console generation, they greatly reduced the number of titles they're released into the market.

"This has led to significantly improved profitability but has left them with light title slate years," Cohen said. "We are not expecting publishers to start putting out 20+ SKUs again, but we do think the pendulum could swing more towards the center in the next generation. Video game publishing is a business where scale is an advantage."

As for potential targets of such deals, Cohen said he "would not be surprised" to see ZeniMax, Gearbox, Nexon, and Bungie being acquired.

Talking specifically about the WBIE, Cohen suggested that the publisher would be "a strong acquisition" for any of the three potential buyers named in the report: Activision Blizzard, Electronic Arts, or Take-Two.

That said, he did think WBIE was more ideally suited to one company in particular.

"In our view, Electronic Arts would be the best fit given their ability to work with third-party IP and the need for a boost in their mobile business," Cohen said. "Activision and Take-Two would also be good fits, although both companies' management teams have spoken about the value of owning their IP internally."

WBIE owns the Mortal Kombat franchise, but many of its biggest franchises -- Batman, Middle-Earth, Harry Potter, and the Lego games -- are based on licenses owned by its current parent company or other outfits.

Cohen said about 67% of EA's revenue comes from externally licensed games, while that figure is roughly 35% for Take-Two Interactive, and less than 5% for Activision Blizzard.

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Latest comments (3)

Axel Cushing Freelance Writer A year ago
Has this particular analyst actually been paying attention to the landscape the last couple of years?

Bungie - So not going to be up for being acquired again. After the misery and sweat spent to get free of Activision Blizzard, they're not going to be eager to jump into bed with anybody anytime soon, if ever again. Three or four years down the road, when they've driven Destiny 2 completely into the ground, maybe, possibly, but not right now.

ZeniMax - Seriously? They're in the acquisitions business, not selling themselves out. They buy up, they don't get bought up. Admittedly, Fallout 76 is proving to be something of a sore spot. And the Denuvo Anti-Cheat move irritated the DOOM Eternal fans. But between Starfield, The Elder Scrolls VI, and probably the inevitable remaster of Skyrim for PS5 and Xbox Series X, ZeniMax isn't going to be feeling any desire to entertain offers.

Gearbox - This one is slightly more probable than Bungie, but only very slightly. Like, a sperm whale appearing out of nowhere but not having a bowl of petunias to follow its inevitable re-entry and crash landing. They're already riding high on Borderlands 3, they've got a deep back catalog, and I doubt Randy Pitchford is even remotely interested in getting absorbed by something bigger than his ego.

Nexon - I'm thinking this guy's just pulling names out of a hat. Nexon's been making some moves into the mobile market, possibly to pivot away from the F2P PC model, more likely to diversify. And who would be buying them? Nobody here in the US, for sure. Tencent? Fat chance of that. Perfect World? Same. Nexon's got a nice little niche, they're comfy, they're clearly making enough money to at least put out a couple new titles here and there while making more inroads into mobile. They're not going to suddenly decide to offer themselves up as a corporate sacrifice.
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Take-Two Interactive Software buys ZeniMax Media becomes Take-Two Interactive Media with Bethesda as fifth label alongside Rockstar Games, 2K, Private Division, and Socialpoint

Take-Two Interactive Software buy WBIE becomes Take-Two Interactive Entertainment

Take-Two will definitely make it biggest acquisition soon. They bought Socialpoint 3 years ago and have $0 debts and $2 billion in cash. In any large deal the company will use both stock and cash. They could even rename themselves- be surviving entity while keeping the TTWO stock ticker and share price history and based in New York.
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Casey Anderson Product Manager, Big Fish GamesA year ago
I'd be surprised the studios mentioned in this article have much value to gain from additional scale.
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