Inspecting and Dissecting Sony’s Acquisition Strategy

In a world where multiple industries are quickly moving toward consolidation, Sony is one of the most curious companies involved. Between gaming, movies, anime, technology, and even music – they’re one of the most diverse companies on the matter.

Sadly, acquisitions have become some kind of “game” treated as trading cards for a lot of people and fanbases. In both gaming, and movie/streaming wars, it’s essentially used as marketing. “We spent money on this, to get rights to this” is basically the reason for every single acquisition.

With the rise of consolidation that has taken over the entertainment history, so has the amount of misinformation and bad takes on acquisitions. As I both own stock within Sony and have a good point of view on their plans, budgets, and stuff like that – I feel very comfortable in talking about the subject, and in the process hopefully learn a few people about their supposed strategies and plans.

SPE just acquired Bad Wolf, making them the publisher of Doctor Who.

The Last 10 Years

To fully understand Sony, I find that we need to go back to the very interesting last 7-10 years. Sony was in a pretty bad state in the beginning years of 2010, with shareholders being worried about the state of consoles and PlayStation, the movie business side of Sony Pictures having quite a lot of misses, and multiple tech departments losing money.

The decade has been mostly focused on fixing a lot of their problems, repaying debt, and setting better goals for the future. Looking at what they’ve done, they’ve sold their stock in certain companies, focused on making segments more efficient, they’ve listened to feedback, and been smarter about going about content. Somehow, Sony turned around entirely and is now in a very good position – not only for themselves but also compared to competitors.

The biggest part for Sony during the 2010s has perhaps been that they paid off almost all of their loans, and have worked on increasing their cash on hand to end up in a much better and secure position. The company we have in front of us today is a very different one than what they were 10 years ago.

A great tool to see how companies Cash on Hand has changed throughout the years is MacroTrends. Using the tool, and looking back at earlier years we can put into context how they’ve changed during the last 10 years. In 2010, their cash on hand was around $18B, in 2015 when they’d begun making a lot of changes and paying off debt, we were looking at a low point of $13B. However, now in 2021, they’ve all of the sudden reached one of the highest points the company has ever had- over $44B cash on hand, with very low debt. (Author edit: Sony has debt, but their low debt to equity is very good. Their debt situation is also a whole lot better than it previously was. This was falsely written and not specified enough at first. Sorry about that!)

Sony Music recently acquired Crunchyroll. A very impressive and aggressive acquisition.

Recent trends and strategies

Aside from that, Sony is also very focused on its goals. While the company was very split during previous years, we now see the reality of “One Sony” in which all the different segments are collaborating with each other. Speaking of the segments, they very much so fall under segments to this day, and Sony sees them as their 3 key pillars, but we’ll put the company as 3.5 key pillars for the sake of this post.

  • Sony Music
    • Sony’s music brand, and a very successful branch of Sony that has fixed a lot of its problems as well. A big focus has been signing contracts with big musicians, giving them freedom, and having the best tech available. Sony Music has done a very good job of doing strategic acquisitions, and thus signing very big names to their brand. An example of a recent artist that has had a very positive influence on Sony Music’s strategy is Lil Nas X, which they’ve placed a lot of money and marketing for, which has been very positive for them.

  • Funimation
    • Part of Sony Music, is Funimation and Aniplex – Sony’s anime brands that they have begun to push very hard. As anime grows, and the industry is quickly expanding mixed with the fact that Sony Pictures makes a lot of money through selling content and licenses out to streaming services – a natural area of growth for Sony has been anime. They already own Funimation, Aniplex, and even a smaller gaming studio. They have also acquired Crunchyroll, which not only makes them a western anime powerhouse – it essentially gives them a Monopoly on the distribution side of anime. They have also announced a strategic partnership with Kadokawa, with a minor stake in the company.

  • Sony Pictures
    • Is in a very good place right now, in which they release multiple movies on cinema that (generally) does very well, with hits as the Spider-Man, Venom, and Jumanji movies. They have also retooled their Animation studios, and become one of the most beloved animation houses after Mitchells vs the Machines, Into the Spiderverse, and VIVO. The interesting thing about Sony Pictures, that makes them standout from Hollywood – is that they have no interest in making a streaming service, instead they have a massive focus on selling content to streaming services. This has been a big success to Sony. Recently we saw them make a deal with Disney+ worth many Billions of Dollars. They also sell content worth more than the entire budgets of movies, like selling the latest Hotel Transylvania movie to Amazon. Acquisiton and spending wise, it’s assumed that Sony Pictures won’t do much M&A-wise except if it’s deemed absolutely necessary – which can be seen in their recent merger with Zee Entertainment in India worth north of $1B.

  • Sony Interactive Entertainment
    • The final – and biggest part of Sony, is PlayStation. The latest decade Sony has strengthened its position as the most important piece of Sony, and with some necassary and well placed management changes – like appointing Shuhei Yoshida to head of Indies, Hermen Hulst as head of PS Studios, and Jim Ryan as head of PlayStation has been hugely benefitial for the segment. Aside from that they have finally found their stride on exclusive content, as in a place where they’ve fixed their problems and gotten a hold on their entire segment, which allows for them to focus on expansions instead of problem solving – something their competitors needs to figure out for themselves. Even if Sony hasn’t outright stated it yet, Mergers & Acquisitions will be one of the keypoints in this area. The truth is, while there are growth vectors for PlayStation, they are in such a great position already that they really only want to focus on expanding the amount of content for the platform – and locking down content exclusivley for the platform. In a weird way, this is the opposite strategy of Sony Pictures, in which SPE makes acquisitions that help them license out properties, while SIE instead focuses on locking away content from competitors. For now the acquisitions have been securing important teams and partners to Sony, but this might not be the case starting the next Fiscal Year, in which it’s believed that Sony – and more specifically SIE, will be very aggressive acquisitions wise. More on this later…

Demon’s Souls (PS5) developer Bluepoint Games is the latest acquisition from SIE

M&A Strategy Going Forward

Historically, Sony has made a lot of acquisitions – it’s often forgotten that most PlayStation studios are one way or another acquired once upon a time. But most acquisitions are pretty “organic” – essentially, Sony needs to do it to grow in a certain area or even from a need of securing its partners to advance them even further. Very rarely has Sony been very aggressive with their acquisitions.

Where we currently see the biggest change is actually in how their acquisitions are made. Historically, the different Sony segments have more or less went to the leaders/the board of Sony, and said that “We want to acquire X, because of these reasons”. If the board accepts this, they essentially give them a set amount sum of money to use. (Authors Note: This is obviously very simplified, but in general how it historically has looked.)

But this has changed very recently. Again, using the excellent Macrotrends website, we can see that Sony deposited around $24B this summer. Some people seem to believe that this is because a large acquisition is in motion, this isn’t true. This is essentially Sony taking from their “Cash on Hand” to essentially create their first M&A Focused budget.

Data were taken from Macrotrends.net

In other words, instead of them going on a case-by-case basis for acquisitions, each segment now has a dedicated budget for M&A. This is kinda alluded at by Sony Pictures President, Tony Vinciquerra, in which he said the following

“I think the traditional medium of television and film has probably peaked and the new growth area will be the games business, and who’s better positioned than Sony for that business? I do think you’ll see some consolidation on that side. You’ll probably see a little more on our side as well. I do think there are probably too many film studios and you might see one or two less over the next five to ten years. But I think the next area of consolidation will be the games business.”

Essentially, what he said is that yes – there will be some strategic investments by SPE – like the recent Zee Entertainment merger, or Bad Wolf acquisition. But he thinks Sony in general doesn’t see the movie and television business as the biggest growth area as they’ve kinda peaked there – meanwhile M&A within the gaming industry are looked at as an important area of growth for them from here on out.

It’s also worth mentioning that people use the $1.3B mergers with Zee Entertainment as “proof” that Sony is still prioritizing other segments over SIE. This is false, In fact, this acquisition was pretty much a “do or die” situation for SPE, if they hadn’t done the merger, they essentially would’ve had to leave India – a very big market for SPE. This is what I mean that SPE will at points make strategic investments, still, even if their budget is way lower than SIE’s (Or maybe even Sony Music)

Sony Music on their end made a lot of strategic investments during 2019-2020 but has slowed down a whole lot in that area. SIE, on the other hand, has only gone upward – having acquired more developers in 2021 than they did between 2010-2020 in total. This trend is not stopping, on the contrary, I suspect this is the beginning of this.

Head of PS Studios, Hermen Hulst, recently said SIE isn’t done with acquisitions.

So what would the budget split be? Well, if I would make guesses on how the budget could be split between the segments. My guess would be that SIE has around $13B-£18B in the budget, while the rest is pretty evenly split between Sony Music & Sony Pictures, with a bigger cut going to Sony Music. (Remember that Funimation falls under the Music branch)
This is based on their strategy as well as how they’re prioritizing the different segments within the company.

As we’ve seen by SIE’s recent acquisitions, they very much fall in line with SPE’s and Sony Music’s in that they’re securing important assets, they’re acquiring their partners to secure some of the most important assets they’ve used throughout the years. As I previously stated, this is surely set to change for 2022 and forward.

Areas of Growth for Sony

While I could speculate (And have pretty good guesses) on what the exact acquisitions Sony will make between today, and 2023, I think it’s pretty pointless all things considered to speculate about the exact companies that they will/could acquire going forward. But there are certain growth vectors for each segment that I find more interesting to talk about. Let’s go over what I think will happen M&A-wise for Sony.

  • Sony Music
    • Frankly, not much. They’ll most likely go at the pace they recently have, focus on signing big artists, and making investments where it’s deemed necessary. Ironically, I see them actually pursuing the gaming market more as well, like they’ve recently done with Fortnite and Roblox, trying to get music events in the games and signing deals to make that a reality. We might also see some technology / brand acquisitions, to attract new talent, while satisfying existing talent as well.

  • Funimation
    • There’s two areas of growth Sony focuses on here as well. They have revealed that they’re working on merging the two services Funimation and Crunchyroll. Aside from that, they basically already have monopoly on the distribution side – so the next logical move is actually owning IP. Their next move will surely be on securing some kind of publisher or larger IP holder within the area. It’ll also be exciting to see if they potentially will have collaborations with other Sony segments going forward. For example, it’s believed (And rumored) that Funimation/Crunchyroll will join PS+ as a permanent addition.

  • Sony Pictures
    • The segment will only do investments and acquisitions where it’s deemed absolutely necessary, but I believe we’ll see way less M&A activitiy from them during these upcoming months/years. (To the point that I believe this will be the least active segment, only making investments where absolutely necessary)
      They’ll continue their licensing strategy, while also trying to collaborate with SIE with the PlayStation Productions strategy. This is basically used to grow both the movie side, and the game side, and in the end grow the worth of each IP.

  • Sony Interactive Entertainment
    • Sony has ironed out most problems with their internal studios, and PlayStation 5 is going very strong forward as of now. The current focus is growth. Their internal studios both have (insanenly big) goals for growth, with most studios growing to multiple teams within each studio. Focus here is effenciency, and goal is for (almost) every developer being able to develop on a similar pace as Insomniac has been doing, which means 2-4 games in development at each developer.
      At the same time, they want to secure content and teams they deem as necessary for future growth and potential. Currently they’re in a phase of acquiring and locking down partners, as Firesprite, Housemarque, and Bluepoint. This will surely continue until around March 2022 (End of FY21), in which I suspect the strategy will shift toward more “aggressive” acquisitions to secure content.
      Areas I believe Sony see potential of growth within are VR, in which I suspect they’ll lock down 1-3 developers that are focused in the space. Multiplayer is also a growth area, and Sony sees the genre as a fickle one as it’s hard to tell if a game will be a success or not, this has been solved by signing partnerships with studios like Haven Studios, Deviation Games, and FireWalk. If the game is deemed a success, we’re guaranteed to see acquisitions in this area. Aside from that I’m also expecting some kind of acquisition in countries / areas in which Sony is lacking in. I believe there could be multiple companies of interest in the East, mainly Japan and China, but also in parts of Europe as Poland, or maybe even Canada – one of the biggest development scenes in which Sony is currently lacking in. We also cannot forget about teams that could help out with support, as well as mobile which will get a push from Sony going forward. There’s also the matter of Sony co-owning EVO and potentially wanting to lockdown a fighting game developer going forward.
I just love Astro Bot and wanted him to be present in this article.

Conclusion

The final part we haven’t really touched on yet is the fact that an acquisition isn’t like trading cards as a lot of people seem to believe. While Sony, in theory, could acquire a very big company, and afford it, we also need to remember the fact that they would have to take on every employee at the company and take on a lot of additional costs aside from just the acquisitions. This is why I suspect that while Sony will be more aggressive, there’ll still be very strategically picked, as basically everything about the company they acquire needs to fit within their plans and overall strategy.
While I frequently see “Sony should acquire Square Enix” posts flying around, people seem to forget that there’d be a massive amount of layoffs, and potentially even closures of studios that you love because of it. A purchase like that would literally be a content-securing one for Sony.

Hopefully, this gives you a much better view of the companies strategy in M&A, and potential growth areas for them as well. Feel free to ask me questions in the comments, on Social Media (@DoodMarvelous), or through my mail (contact@marsipangames.com)
I’d love to do similar posts on other companies as well if there’s interest in it, as it’s a subject I really love following. I have pretty good knowledge in Embracer as well, so if there’s interest I could perhaps make an article based on that company next.

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