Shares of Sony Group fell 13% on the Tokyo Stock Exchange on Wednesday, Bloomberg reported. This was recorded as the sharpest decline since October 2008. It all happened shortly after their rival Microsoft announced a $69 billion deal to buy game publisher Activision Blizzard Inc.
Microsoft’s acquisition of the new bomb is said to secure intellectual property for its Xbox Game Pass service. At the same time, it wiped out 20 billion USD of Sony’s market capitalization in one day. The push to attract paid subscribers with an extensive game portfolio challenges Sony’s traditional console business model based on high-end exclusive titles and hardware sales. Games and network services currently account for about 30% of Sony’s revenue.
Microsoft announced Tuesday that it has more than 25 million Game Pass subscribers. According to Phil Spencer, Xbox director, they “will offer as many Activision Blizzard games as possible in Xbox Game Pass and PC Game Pass,” including existing and new titles. Call of Duty, Diablo and World of Warcraft are among the highly successful franchise titles developed under the umbrella of Activision Blizzard.
Asymmetric Advisors’ Amir Anvarzadeh said: “Sony will face a huge challenge to stand on its own in this costly battle. With Call of Duty now more likely to be exclusively added to the roster. Game Pass, the difficulties for Sony will become more and more difficult.”
Elsewhere in the games industry, publishers saw stocks rebound after Microsoft’s announcement, with Capcom Co. and Square Enix Holdings Co. rose more than 3.7% on the Tokyo Stock Exchange. Analysts, including Jefferies’ Atul Goyal, see the move as raising valuations for game companies with strong content and IP gaming portfolios.
Sony has maintained a consistent lead in sales and exclusive games over competing Microsoft products across several generations of PlayStation and Xbox. Now, the US adversary has signaled its determination to spend more heavily to close that gap. And of course, Sony will be under pressure to respond to those blows.
Morningstar Research analyst Kazunori Ito said: “Sony will struggle to match Microsoft in terms of how much it can afford to spend on popular IP games. The company’s stock declines show investors are worried that Sony might not be able to continue to win if the industry really does move away from the hardware-based model.”
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