Microsoft is spending $69 billion to buy game developer Activision Blizzard.

Meanwhile, the damage that the American company has inflicted on its main competitor in the market for video games and video game consoles, Sony, amounts to 20 billion dollars.

Because the share price of the Japanese electronics and entertainment company fell by 12.8 percent on Wednesday on the Tokyo stock exchange.

Sony's market capitalization fell by $20 billion in one day.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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Bastian Benrath

Editor in Business.

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Investors reacted to Microsoft's announcement with sales orders, because Microsoft has "levelled quantitatively and qualitatively or at least caught up" in the range of games for its Xbox and its online services.

That's how Serkan Toto puts it, from the Tokyo-based consultancy Kantan Games, which specializes in the video game market.

Microsoft's acquisition of this financial magnitude is a revolution in the games market, says Toto.

He still considers the fall in the Sony share price to be exaggerated: "Investors in the gaming industry often react very emotionally." Sony itself did not comment on Wednesday when asked.

Activision Blizzard offers a bunch of games, but most notably the game "Call of Duty", in which the player performs military tasks as a soldier on historical battlefields, for example World War II. He always has to shoot his way free. According to figures from Activision Blizzard, more than 100 million people enjoyed it last year.

So far, Activision's games are available on Sony's Playstation and Microsoft's Xbox.

The analysis of major damage to Sony is based on the assumption that Microsoft will offer Activision Blizzard games exclusively on Xbox and the online service Xbox Game Pass in the future.

It can, but doesn't have to, pay off.

Without exclusivity, players on Sony's Playstation could also bring money into Microsoft's coffers in the future.

But there is a precedent.

After Microsoft bought the Zenimax/Bethesda game studio for $7.5 billion in 2020, Microsoft had a number of games developed there just for its own platforms.

Microsoft has so far kept a low profile on plans for Activision Blizzard and says it wants to reach as many players as possible.

Microsoft could withdraw games from the Playstation

Sony's video game business is vulnerable to game withdrawals, said Yu Okazaki of Nomura Securities in an analysis. More than 80 percent of the game titles sold by Sony came from third-party providers. The business with video games for game consoles or as an online offer contributed 27 percent to sales and operating profit in the first six months of the current financial year.

In general, Microsoft's purchase of Activision is a declaration of war on Sony. The two companies have competed in the video game console market for two decades. Sony is usually one step ahead, even with the current models. From November 2020 to November 2021, Sony sold almost 14 million Playstation 5 units, a good 4 million units more than Microsoft with its Xbox models. Sony has more than 47 million subscribers to its PlayStation Plus online service. Microsoft has 20 million customers in the Game Pass service.

One of the most important reasons for Sony's dominating market position is that the electronics group has produced exclusive game titles for its Playstation for years and had them developed by purchased studios.

Most recently, Sony grabbed its cash register for this.

In the past year alone, the group bought five game studios and now owns 16 studios.

In comparison to Microsoft, Sony only spent “ticks” in the words of market observer Toto.

The acquisition of Insomniac Games in 2019, for example, cost Sony $300 million.

Sony is already in the metaverse

Toto assumes that Sony will not be able to withstand Microsoft's declaration of war with the strategy of organic growth in the range of exclusive games. He expects that the Japanese will now also rely on larger acquisitions. This is all the more urgent because the market for game developers has consolidated significantly in recent years. Time is of the essence, also because Amazon or the Google parent company Alphabet could be interested in game studios. Share prices of several companies in the video game industry rose on Wednesday.

But Sony's response to Microsoft could go in a completely different direction. Although the Japanese company competes with Microsoft in the video game market, it is generally pursuing a broader strategy than the American group. In the field of entertainment, Sony brings together video games, animation (anime), its own film studio, music labels and one of the largest catalogs of music rights. The company that grew up with the color TV and Walkman has diversified widely. Chef Kenichiro Yoshida evokes the connection of technology with entertainment and not only with video games.

Okazaki of Nomura Securities expects Sony to come up with a very unique growth strategy with its unique product portfolio.

For the first time, Sony is currently producing a film based on the adventure video game Uncharted.

Microsoft cannot offer such a combination in the marketing of video games and other media with its Xbox alone.

Toto from Kantan Games is thinking of special film or music offers on the Playstation in order to better exploit the variety of Sony products together.

Sony has so far only used the possibilities of integrating the Playstation with its entertainment offer very defensively, he says.