Sony’s $3.6 billion buyout of Bungie is just the beginning

It was hardly a surprise when Sony Interactive Entertainment announced it was acquiring a major game developer this week. By Sunday night, video game Twitter was exploding with rumors that an announcement would be coming Monday. No one had Bungie on their prediction list, though.

However, it’s unlikely this was a knee-jerk reaction to Microsoft’s $69 billion takeover of Activision-Blizzard. Jim Ryan, president and CEO of SIE, says this acquisition has been in the works for the past several months.

Whether the purchase of Bungie was a reaction to the Activision buyout or not, though, it certainly is a well-timed one. By bringing the developer on board, the PlayStation becomes less dependent on Call of Duty—and, if Bungie’s able to deliver once more, that could set Sony up with a premium first-person shooter that draws away some of the CoD audience.

Also, this purchase is almost certainly about whatever Bungie’s next project is. Sony likely wouldn’t shell out $3.6 billion just for Destiny, which analysts predict generates annual revenue in the mid-$100 millions range, says The Wall Street Journal. And while Bungie brings an expertise in live-service games, it’s still hard to justify the premium just for that knowledge. We’ll have to wait a while to hear what the new game is (though, despite Sony’s carefully worded talk about Bungie remaining a multiplatform studio and Bungie’s vow that its games “will continue to be where our community is,” it’s still a decent bet it will be exclusive to the PlayStation ecosphere).

Was this a good deal? And which video game companies could be the next big acquisition target? Bungie is privately held, so figuring out a precise value for the premium on this acquisition is an inexact science, but a look at some of the company’s previous deal numbers can give some insight. 

When Microsoft initially bought Bungie in 2000 (largely for Halo), the deal was valued at between $20 and $40 million. Sony’s offer, backwards adjusted for inflation, would have been about $2.2 billion in 2000 dollars. (Of course, at the time, Halo was an unknown—a title that had impressed people at trade show demos, but no one knew if it would connect with players in a long-term manner.)

After Bungie was once again independent in 2010, it signed a 10-year partnership with Activision that was valued at $500 million—the equivalent of $640 million today, after inflation adjustments. (And to be clear, that was a partnership, not an acquisition.) Bungie surrendered $184 million of that when it terminated the agreement in 2019, taking the rights to Destiny along with it.

So, by any scale, Sony did not get Bungie at a discount.

That’s notable, because Sony doesn’t have anywhere near the same budget for acquisitions as Microsoft (or, for that matter, a company like Amazon or Netflix, both of which have shown a growing interest in video games in the past year).

Ryan says players and investors “should absolutely expect more” acquisitions—so the online guessing game will continue for some time. EA and Konami are the biggest potential targets, as both are franchise-rich companies that could bolster the Sony portfolio. But neither would come cheap.

Activision sold for a 45% premium. Take-Two bought Zynga for a 64% premium. So, for round numbers, let’s say any major acquisition target would be looking for about a 50% premium on their market cap. That puts the price of Konami at roughly $11.3 billion and EA at a whopping $56 billion, based on their market caps as of Monday afternoon.

Two other prominently mentioned names—Capcom and Ubisoft—wouldn’t be much cheaper. Capcom has a market cap of $6.5 billion, putting the price (using our assumed premium) at $9.75 billion. And Ubisoft’s market cap is about $7 billion, which puts it at $10.5 billion, assuming a 50% premium. (Ubisoft has been fiercely resistant to potential buyouts in the past, though after weathering two years of sexual misconduct scandals at the company, the Guillemot brothers might be more open to it today.)

The consolidation in the video game world is far from over, but it’s getting more expensive. And that’s going to make it more crucial for platform holders to get the most bang for their buck if they want to see long-term returns on those investments.