What Disney can teach Microsoft in the gaming wars

Buying up dusty franchises can pay off. And maybe there are still Star Wars-esque gems that languish.

Good content is hard to find. Look at Microsoft Corp. It pays $69 billion to buy Activision Blizzard Inc. — and by extension, the rights to that company’s major video game franchises, including Call of Duty.

That’s still less risky than the alternative: building games from scratch. Budgets can be huge and all expenses are no guarantee of success. A new game can bombard and stumble across the entire company, as the failed release of Cyberpunk 2077 showed. Shares of CD Projekt SA are still trading about 70% below the record set before that disastrous launch.

There is another way. Since Microsoft, Sony Group Corp., Tencent Holdings Ltd. and other giants engaged in greedy wars for content, they should consider Star Wars strategy.

When Walt Disney Co. Lucasfilm Ltd. and Marvel Entertainment Inc. bought for about $4 billion each, picked up fan-friendly properties that had seen better days and needed new management. People like Black Panther and Thor were second-rate heroes who had never been box-office tent poles, and Star Wars languished after the Jar Jar Binks years. Under Disney’s tutelage, once-obscure characters such as Boba Fett and Moon Knight have become the mainstays of support for the Disney+ streaming service, as the company adopts a multimedia strategy that spans film, television, cartoons, and more.

But are there still Star Wars-esque franchises? A number of Japanese gaming companies might fit the bill: Capcom Co., Square Enix Holdings Co., Konami Holdings Corp. and a few others. They don’t have a blockbuster game like Call of Duty, but they have extensive catalogs – and would cost a lot less than $69 billion.

Square Enix not only owns the Final Fantasy and Dragon Quest series, but also owns Tomb Raider thanks to its acquisition of Eidos in the late 2000s. It trades at just 15 times earnings. Osaka-based Capcom owns the Resident Evil and Street Fighter franchises, along with the cash cow Monster Hunter and a host of stagnant or dormant second-rate properties from Dino Crisis to Mega Man.

Even Konami, for whom gaming has largely been relegated to an afterthought, still owns the rights to the likes of Metal Gear Solid and Silent Hill. Although the company has mismanaged these titles for years, gamers’ memories of their heyday remain deep. In the right hands, they would be a valuable addition to the catalog of deep pocket investors. Even with a 50% premium, Konami would be bought for less than $14 billion — and it would include a money-grubbing array of fitness centers at no extra cost.

As Microsoft and now Sony build their on-demand gaming catalogs, the value of household names will only grow. The film industry is an object lesson. Big budget movies now come almost exclusively from secure, licensed properties. Even franchises like The Fast and the Furious or superheroes who have also run like Aquaman are capable of taking in billions as eager fans generate a salutary cycle of hype.

In gaming, there are not that many recognizable assets left. That’s one of the reasons private equity firms are reportedly looking to France’s Ubisoft Entertainment SA, the video game publisher that makes the Assassin’s Creed franchise. Other opportunities abound: Kadokawa Corp. has more than tripled in value since early 2020, aided by ownership of From Software, creator of the critical darling and sales hit Elden Ring.

Saudi Arabia’s sovereign wealth fund takes note: It has scored big on its investment in Activision and has now taken a stake not only in Capcom, but also in Japan’s Koei Tecmo Holdings Inc., which owns relatively small properties such as Ninja Gaiden and Dynasty Warriors, and Tokyo-based online game maker Nexon Co.

Admittedly, doing mergers and acquisitions in Japan is not easy. The double-barrelled names of Bandai Namco Holdings, Koei Tecmo and Sega Sammy Holdings are testament to the series of mergers that the Japanese video game makers have gone through. But those unions were mostly out of desperation — sinking companies clinging to each other for survival.

Still, Japan isn’t the same place Microsoft executives laughed out of the room when they tried Nintendo Co. over 20 years ago. to take over. Companies in other sectors are beginning to show that even hostile takeovers are no longer taboo. And for US companies looking at Japanese targets, there’s an added boost: The yen is at its weakest against the US dollar in two decades.

One estimate puts Marvel’s value, bought for $4 billion, at $53 billion in 2021. That’s, of course, thanks to Disney’s shrewd stewardship. In the right hands, some of the faded gems of Japanese gaming can regain their old shine – and pay huge dividends to their new owners.

Geroid Reidy is a Bloomberg Opinion columnist on Japan and the Koreas. He previously led the breaking news team in North Asia and was deputy bureau chief in Tokyo.

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