Entertainment

The real reason Take-Two bought Zynga

Like its fellow peers in the major publishing market, Take-Two Interactive needs a mobile strategy.

The real reason Take-Two bought Zynga

Zynga comes with a number of benefits beyond just its game properties and mobile talent.

Photo: Joop/Flickr

Take-Two Interactive just made the biggest acquisition in the history of the video game industry, agreeing on Monday to buy arguably the most well-known name in social gaming, Zynga, for $12.7 billion.

That the publisher behind Grand Theft Auto would buy the creator of FarmVille, and for more money than Microsoft paid for all of Elder Scrolls- and Fallout-maker Bethesda, tells us everything we need to know about the future of gaming. Here’s why.

Mobile gaming is the only part of the industry that keeps growing. Sure, we’ve heard this countless times before, but the pivot to mobile is such a common theme in the game industry because it’s been attempted time and again for the last nearly 15 years. And mobile has only gotten bigger each and every year since the App Store launched in 2008, now accounting for more than half of the $180 billion game industry, Newzoo reports.

  • Like its peers in the major publishing market, Take-Two Interactive needs a mobile strategy, and its half-hearted attempts and building one in-house through small acquisitions of companies like Two Dots creator Playdots hasn't cut it.
  • We saw this with Activision Blizzard and EA, both of which needed to acquire major mobile game makers to make inroads in the market. Activision Blizzard bought Candy Crush maker King in 2016 for nearly $6 billion, while EA bought Glu Mobile and Playdemic last year for a combined $3.8 billion.
  • It’s telling that Tencent’s purchase of Supercell more than a half-decade ago for $8.6 billion is the second-largest ever acquisition in the game industry. Mobile firms are building the fastest-growing, most accessible games in the market these days, and they require a fraction of the development cost of a big-budget game.

The traditional console business model has gone out of style. Once upon a time, a publisher like Take-Two would foot the bill for one of its studios, like Rockstar for instance, to make a new hit game. This game, call it Grand Theft Auto, would sell tens of millions of copies for somewhere around $60 a pop.

  • This traditional model, while still active, is no longer the financial engine of the game industry. Most of the growth today is coming from mobile games, which grew 7.3% annually last year while console gaming actually declined 6.6%.
  • This growth is twofold. Mobile games are better at monetizing over their lifetime than console games, and can do so for a much, much larger audience of casual gamers. Everyone with a phone in their pocket is a potential customer, while it remains nearly impossible to even purchase a new PlayStation 5 due to constrained supply and pent-up demand.
  • The console gaming audience isn’t changing. It’s still the same core gaming demographic generating about $50 billion in annual revenue and consisting of somewhere in the low hundreds of millions of players.
  • Catering primarily to that audience, with ballooning blockbuster game budgets, is a more expensive and risky business model than diversifying the portfolio across all platforms and betting on a future where mobile phones, through chip upgrades and cloud gaming, become even more powerful portable gaming machines.

Take-Two wants to bring its games to mobile. It sounds like an obvious strategy: put Grand Theft Auto on the iPhone. But it’s harder in practice. GTA Online is Take-Two’s biggest moneymaker, generating millions per day, and figuring out a way to build a native mobile version of that is a far more complex task than porting classic GTA games to iOS.

  • To make a solid mobile game that can rival Tencent and Krafton’s PUBG, miHoYo’s Genshin Impact or Supercell’s Clash of Clans, Take-Two needs mobile expertise. Zynga is one of the few U.S.-based companies with experience in developing massive free-to-play games that can achieve the scale of Asia and Europe’s biggest live service games.
  • Zynga comes with a number of benefits beyond just its game properties and mobile talent. The company has a marketing, ad and analytics division through its purchase of Chartboost, and it just opened up a blockchain gaming division.
  • Zynga has also established a track record of handling sensitive IP, with Harry Potter: Puzzles & Spells. Disney has also entrusted Zynga to build a new Star Wars game, due out this year for mobile and Nintendo Switch. That makes the company an ideal candidate to develop Grand Theft Auto, Borderlands or BioShock spinoffs for mobile.

Take-Two’s stock has taken a hit since yesterday, dropping close to 15%. Zynga’s stock, on the other hand, shot up, of course, because its investors are getting bought out to change Zynga from a public company into a Take-Two subsidiary at a healthy premium.

But the trepidation around the deal might be short-lived. Take-Two is certainly getting serious about mobile years too late, and paying a hefty price to acquire Zynga in the process. But over the long arc of the game industry, investing in the only part of the industry that’s growing the overall pie sounds like a prudent move. And if the next version of GTA Online launches on mobile, we’ll certainly know who should get the credit.

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