Take Two will buy Zynga: the reasons for the largest acquisition in the history of video games

Take Two will buy Zynga

Those of you who signed up for Mark Zuckerberg's Facebook back in 2008 will undoubtedly remember the name of Zynga. A name that, over the years, seemed to be destined to become part of the memory of a short era made up of enormous changes in the digital fabric, only to disappear, leaving few faded traces behind. But it absolutely did not go that way.

Take Two, one of the largest listed companies in the video game sector, as well as the owner of the famous Rockstar Games studio - author of none other than the Grand Theft Auto series and that fifth chapter of the franchise that first broke all revenue records in entertainment history - made the decision to acquire Zynga for $ 12.7 billion, making the future operation the most expensive in the rich yet rich history of video games

To make a comparison, the recent integration of Zenimax Media (owner of Bethesda and consequently of brands like The Elder Scrolls and Fallout) in the Microsoft team cost the Redmond giant just over 7 billion dollars. Crumbs, one might say, in comparison to the apparent overvaluation of Zynga by the Take Two administration (on social media they pointed out to me that the CERN LHC cost 3 billion euros ... ndSS).

If you remember the name of Zynga it is probably due to Farmville, the "browser game" dating back to 2019 and integrated in the 'Games' section of the first iterations of Facebook which, among digital crops of all kinds, involved tens of millions of novice gamers unaware of maintaining their virtual farm on a daily basis.

The original Farmville exploded on Facebook allowing Zynga to gather 41 million users. What not everyone knows is that Zynga has proven to be able to survive the ruthless Darwinist evolution that has characterized the modern digital economy, an extremely hostile ecosystem in which the lack of innovation has often been rewarded with immediate extinction, while aggression has been able to generate profits beyond all expectations.

After racking up more than 40 million monthly active gamers on Facebook in 2008, Zynga introduced the world first Farmville, solidifying its position as the number one producer of titles. destined for social networks, and then CityVille, which even beat the records of its predecessor, bringing the total number of users to the astronomical figure of 61 million. There were 14 releases during the first four years of activity, and at the stroke of the fourth year it was time for the listing.

The entry into the NASDAQ list allowed the company to raise over a billion dollars in financing even before the opening of trading operations. Thus it was that the projects for the next decade were drawn up and pursued in complete tranquility: still unaware of the crisis that would hit the "browser games", the management decided to veer in two directions, namely that of "real-money gaming" ( such as online poker) in the United Kingdom and, above all, the development of video games for mobile platforms.

This is precisely the crux of the matter: despite the fluctuating results achieved by social-games on the classic fixed platform and the closure of several projects in the bud, the evolution of the mobile sector has guaranteed the dozens of studios in the hands of Zynga a development ecosystem that is nothing short of perfect for the proliferation of reference models, and the company has gained a level of expertise in the sector that has few comparatives in the entire industry, having created APIs and services aimed at facilitating both the publishing processes and the so-called "cross-platform use" ".

The 'second age' of the house was also characterized by the approach to real money gaming, such as Zynga Poker. The purpose of Take Two is therefore quite clear, and company president and CEO Strauss Zelnik has made no secret of it: "We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our own. leadership position in mobile, the fastest growing segment of the interactive entertainment industry, "he said in a statement. "This strategic combination brings together our best console and PC franchises, with a diverse and market-leading mobile publishing platform that boasts a rich history of innovation and creativity."

The transaction figures, which could seem exorbitant, in hindsight they are not at all. Take Two will in fact purchase all of Zynga's currently outstanding shares by paying a premium of 64% of the last closing value, effectively awarding $ 3.50 in cash and $ 6.361 in Take-Two common stock for each Zynga common share. . Debt is then added to the resulting value, for a total cost of $ 12.7 billion, at the base of which sits a loan of over $ 2 billion obtained through JP Morgan.

Take Two's goal is to take advantage of Zynga's experience and attention to innovation, as well as all its infrastructures, in order to penetrate the gigantic mobile market, the real goose that lays the golden eggs of the video game industry in which the Zelnik has failed - but has so far lazily tried - to catch on, probably because it is focused on the already out-of-the-ordinary revenues generated by its traditional video games.

Grand Theft Auto V, for example, has generated over $ 6 billion since its launch in 2013, and has succeeded in the historic enterprise mainly thanks to the online mode that characterizes it. Having placed 155 million retail copies has in fact yielded "only" just over $ 1 billion, or 20% of a total which is indeed an alien sum to the modern "AAA" gaming market for PCs and consoles, but absolutely not than that for mobile platforms.

Thanks to GTA Online, GTA 5 has broken the revenue records of any entertainment product for years. Not just video games, but also cinema and music. Clash of Clans by Supercell, a company acquired in 2016 by the Chinese giant Tencent for $ 8.6 billion, has in fact grossed $ 7 billion since the original release in the App Stores. Tencent's own Arena of Valor / Honor of Kings, an immense title in Asia to say the least, has generated profits of over $ 13.3 billion and sits at the top of any benchmark. Even Niantic's "newest comer" Pokémon GO and The Pokémon Company has cashed in over $ 7.6 billion in just five years.

To date, more than 30 individual mobile titles have generated revenue for more than $ 1 billion. According to Statista's latest projections, the mobile gaming market will exceed $ 124.9 billion over the course of 2022, with an average spend per user of $ 64 per year. By 2026, it is expected that the total number of consumers will amount to over 2 billion and 300 million (of which over 40% in China alone), and if growth were to maintain the current pace (13%), the overall value could touch share. $ 174 billion in four years.

The reason for the operation is therefore quite clear: Take Two is willing to transfer the live-game formula that has taken it to the top of the world of "traditional" gaming on mobile platforms, adapting the versatility of series such as Grand Theft Auto, but also and above all of titles with very strong licenses such as NBA 2K, to use on smartphones and mobile devices, looking for the monetization tools to transform each franchise into a source of earnings like GTA V.

There are dozens of products in the Take Two stable that could undergo a transition of some sort, just think of the aforementioned GTA and NBA 2K, Civilization, Borderlands and the many ssime other IP of the portfolio. A transition that, traditionally, is not well seen by that "core" user who in the past made the fortune of large publishers, often accompanying numerous ads with as many striking backlashes, among which the one that struck Blizzard Entertainment in the context of Diablo stands out. Immortal.

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If in the past we have seen very similar operations, on all those that have involved the excellent pairs Electronic Arts and Popcap or Activision and King, this latest acquisition looks different. Once upon a time, these were giants of traditional industry willing to plant the flag in the mobile market, but in reality each branch went its own way, keeping the focus on products like Plants vs Zombies or Candy Crush alive. Instead, Zynga's role would seem to be closely linked to the conversion of very strong traditional franchises.

It is certain that most of the software houses under the Take Two banner are experiencing extraordinarily long periods of grace, having packaged several masterpieces without almost never run into the ire of their users.

If and only if they manage to continue along the complex path of excellence that they have built in recent years, without dissatisfying the hard core, they will be able to experience a smooth and controversial transition . But the point is precisely this: in light of the revenues and projections that are maturing around the mobile video game market, it makes sense to worry - from the point of view of the company - of a possible negative reaction from what a rather close tomorrow will it no longer be the reference user?

Certainly not. Who should worry, once again, are passionate gamers and above all the great video game authors, who run the risk of witnessing the creative impoverishment of what has not yet been universally recognized as the eighth art.