Mojang

Tarun Hotchand Chainani

(G1303571J)

Email        :        taru0006@e.ntu.edu.sg

EM6612 MERGERS & ACQUISITIONS

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THE VIDEO GAME INDUSTRY

In 2015, if anyone can genuinely state that they don’t indulge in video games, then they would be lying. The umpteen numbers of gaming platforms where one can engage in an online battle of swords or a game of scrabble with your friends appeals to the masses.  Ranging from the traditional PC to video game consoles and handheld devices, Gartner values this as a $100B industry, with video game sales revenues expected to reach $111 Billion globally in 2015. Jane McGonigal, an American game designer and author, reported on Ted.com, that the average American child aged 8-18 year old, spends an average of 13.2 hours a week playing video games. And by the age of 21, that child would have racked up about 10,000 hours of playing time. It is approximated that the world has 1.65 billion gamers.

As China removes a 14-year-old ban on video game consoles in 2014, the likes of Sony, Microsoft and Nintendo could get excited over what may transpire over the next few years. Added with the increase in penetration rates of mobile phones and tablets in Asia and emerging markets, the video game industry will only prosper further.

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Sources : PWC, Gartner, AppAnnie, Digi-Capital, Companies

The birth of the smart phone in 2007, gave rise to yet another avenue for people to engage in numerous hours of  “thumb-numbing” recreation and reports have shown that the largest number of downloads and revenues from app downloads are in fact, GAMES.

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Sources : Digi-Capital, Flurry, AppAnnie, Gartner

The year 2014 saw a lot of IPO / M&A activity in this industry.

King Digital Entertainment PLC, maker of the Candy Crush Saga video game (a F2P app (Free to Play) with in-app purchases (IAP)), successfully listed on the New York Stock Exchange at a price of $22.50 on IPO, but has failed to live up to its pre-listing hype and is valued at $14 per share today.

Japan’s SoftBank acquired a 51% stake in “Clash Of Clans” video game developer, Finnish based Supercell OY (in a HANDS-OFF approach), for a whopping US$1.5B. SoftBank’s rationale was that there were some synergies in place, as mobile content would stimulate sales of SPRINT (also acquired by SoftBank) phones.

Both, Candy Crush Saga and Clash of Clans, seemed to have reached their tipping point and are seeing interest of their games wane, as consumers have virtually infinite options to switch over to.  It can be said, that these flash in the pan games, might have reached their eventual demise as was with the case of Zynga Inc. (makers of Farmville) whose stock has lost 73% in value from its IPO price of $9.50 and has lost over $600M to date, due to a massive erosion of its user base.

With the short life span of these games (naturally the consumer would get bored of it after a while), one might wonder what the motivation is for larger companies to acquire these minions, knowing their eventual fate.