During the drawn-out process of Microsoft acquiring Activision Blizzard, one regularly voiced concern was that this purchase would spark an arms race.
Rivals like Sony would feel that they had little choice but to respond in kind with major acquisitions, locking up studios and content not so much for console exclusivity today, but to build out the portfolio that would be needed for hypothetical subscription and streaming services to be competitive in the future.
No other company in the industry has pockets as deep as Microsoft's, but there are a lot of potential acquisition targets out there in the industry whose price tag is only a fraction of Activision Blizzard's.
The announcement this week that Sony is in discussions to buy publishing group Kadokawa is arguably a sign of that concern becoming a reality, but it's not accurate to describe this as being entirely a response to Microsoft's spending spree.
Kadokawa is a big, sprawling group company which houses a number of different subsidiaries that could be of significant value to Sony's stated ambitions and goals for the coming years. It's also an acquisition that has the potential to be very tricky and costly in the long-term – a serious concern given Sony's poor track record with acquisitions in recent years.
Reporting about the potential deal in the western media has largely focused on Kadokawa being the parent company of FromSoftware, creators of Dark Souls and Elden Ring, and that's an entirely reasonably framing.
FromSoftware is the jewel in Kadokawa's crown, with Elden Ring alone making an absolutely enormous contribution to the company's bottom line in the years since its launch. It's the most profitable part of Kadokawa's business by far – in the most recent financials for the company, the gaming division was buoyed massively by sales of Elden Ring and its DLC, Shadow of the Erdtree, and while it accounted for only around 12% of the company's sales, it contributed almost a third of the overall operating profit.
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Sony Interactive Entertainment
FromSoftware
M&A