Everyone seems to want a gaming company these days, including former Sony boss Jack Triton.
Best known for his co-creation of the original PlayStation in the 1990s and later running from 2006 to 2014 as president and CEO of what was then Sony Computer Entertainment America, Tretton has since been busy working with the independent development community through game boxes such as Interactive Gaming Ventures. Now he wants to continue this mission by acquiring an independent studio himself.
Speaking to IGN, Tretton said during his time at Sony and since then, he has experienced a gradual transformation that has allowed small studios to be less dependent on major publishers to bring their games into the world.
“Thanks to online stores, anyone can become a publisher,” Triton says. “Well, the good news is that the barrier to entry has gone down significantly. It’s still very expensive to create a game, but a fraction of what it was back in the days when you had to do an AAA, hundred million dollar project in the light of day on the shelves.”
But this does not mean that it is easy to release such a game. He says that as India looks for more sources of funding, he’s seeing increased interest in mergers and acquisitions [M&A]. But he says India is reluctant, because they do not want to lose their independence, and advertising themselves to make money from investors is an expensive and complex proposition. How, then, can a freelancer raise money from investors while remaining independent, small, and secure?
Enter Tretton and his new company: PowerUp. PowerUp is a SPAC: a special purpose acquisition company. As Tretton briefly explains, SPACs are companies that exist for the sole purpose of acquiring or merging with an existing private company and making it public as a joint entity. It is an easy route for small businesses to be publicly traded while at the same time getting additional financial support and, perhaps, a group of experienced industry professionals who can offer advice, support and guidance. In the case of PowerUp, Tretton says this also means allowing the studio to remain independent by remaining a minority owner.
“We want more of a mentorship role where we might take a seat on the board, but we’re not interested in joining the management team or taking over the management team,” he explains.
There are hundreds of SPACs, but PowerUp is relatively unique as a game industry endeavor. Tretton says the lack of SPACs in the roughly $200 billion gaming industry, especially as acquisitions become a hotter topic, was part of what prompted him to start PowerUp with a group of leaders already familiar with the game space. This experience, Triton says, is something that few Spax’s that he’s seen dived into games so far have lacked, leaving the developers they deal with to distrust what they’re promoting.
This experience is also necessary, because the PowerUp plan is not just to spend money on projects that they think might be profitable, but to actively grow a gaming company. Triton says he’s looking for companies with strong management teams that already have an outlook toward going public, with a valuation of roughly $1 billion to $2 billion. That sounds huge, but for comparison, Bungie was acquired by Sony for $3.6 billion – so imagine something about a third the size of Destiny Studio. Not a small independent, sure, but it’s independent and not huge. And Tretton doesn’t just look at developers, either: PowerUp might acquire a studio, publisher, or neighboring company for games in a field like media, esports, or advertising.
Between Tretton’s experience in the industry, including with a number of actual acquisitions, and his newly created SPAC, it’s clear he has a lot of insight about mergers and acquisitions in general. Although M&A deals seem to be popping up everywhere these days, the public only sees the end results, and none of the processes behind them. Companies discuss M&A deals all the time, which is why rumors about such conversations are constantly emerging and may or may not spread. Triton explains that there are a number of reasons why deals fail in the middle of a discussion. There may be one majority investor who is not involved in the day-to-day business of the company and is not interested in the deal and who spoils the whole thing. Or there could be a problem with valuation, which Triton admits is a difficult topic in terms of general understanding as well as in terms of understanding the parties involved — a topic that involves calculus regarding both the actual amount a company is worth at the time, as well as its future potential.
“Valuation is when you start to tire players out, but the basic definition of valuation is that your company is realistically rated, because if you’re going to have it, you want to raise the valuation as high as possible to get as much cash as you can on acquisition,” Triton explains. “If you’re going to go public, you have to be very realistic about how you rate your company, because the stock and the value of the project will depend on what everyone sees. And if you inflate that, it will last for a few days and once you fail to meet that assessment and fail to achieve your goals, the stock goes to toilet”.
But during M&A discussions, parties may sometimes conflict about the difference between a company’s perceived value for itself, and what investors see based on the data. This clash can go both ways, too – sometimes investors don’t have a complete understanding of what a company can do, but sometimes companies overestimate its capabilities and value. It is a complex dance that requires the support of everyone involved.
Then there are any number of other miscellaneous reasons that could lead to the failure of the deal.
“People have changed their hearts or someone else comes in at the eleventh hour and fills their heads with a vision different from what they originally shared on either side,” Triton says. “You’re in a letter of agreement, someone comes in and turns their head or you see someone more attractive and you walk out on them. I’d like to think that’s never going to happen, but I can tell you that anyone who’s done these mergers will tell you it’s better for you to talk to multiple players from both Both parties, because deals fall apart and you think you’re on the road with someone and the deal falls apart. It takes too long and it’s very expensive.”
So, what is the reason for the increase in gaming industry acquisitions lately? Tretton’s theory is that the boom is related to the sheer number of game companies compared to 15 or 20 years ago along with the higher numbers that the biggest game companies are getting each year. There is simply more to be had, and more money to do so. And he adds, that’s a good thing.
“You have some strategic mergers and acquisitions that I think are beneficial to the industry, because if Activision becomes part of Microsoft or Zynga becomes part of Take-Two, that makes room for a new Zynga or a new Activision to pop up, and maybe someone becomes a bit of a bit.” As big as Activision or Zynga is the next Activision or Zynga, and those people are going to create smaller companies with them,” Tretton says. “So I think it’s a sign of growth in the industry and a sign of industry value and it’s all positive.”
But what about the negatives? Will large acquisitions of small companies stifle creativity in the companies that are acquired? How about platform exclusivity for popular franchises across platforms? Triton is confident that, overall, these won’t be issues – or at least not significant issues.
“I think the relationship between the two companies is a lot closer once you get that company,” he says. “And we hope Microsoft becomes a greater priority for Activision than it was before Microsoft acquired it. But in the end, they were bought to drive their own profitability and grow their own business to benefit Microsoft and the industry as a whole in this way.”
“So I don’t think you’ll see titles become platform-exclusive… I don’t think it would be financially viable for them to take Call of Duty and make it exclusive to Xbox platforms. They certainly haven’t acted that way in the past and I think that’s true of all integrations.” And the other acquisitions that you see and I think you’ll continue to see multi-platform development. It’s just going to be done under the wing of the acquiring company, but they’re looking at that company’s business in profitability to maximize it. And the way to maximize profitability is to do a multi-platform footprint.”
Tretton certainly has a vested interest in making acquisitions seem like a good idea at the moment, but he’s also had a lot of time at the helm of one of the biggest ships in the industry, so he has a clear understanding of where it might go wrong. With that experience and looking to pick a gaming company himself, Tretton wants to be reassured that the increase in ultimately gaming M&A deals isn’t a shift that will hurt people who play games. Instead, he thinks that will lead to bigger and better games, and more of them along with that.
“The competition in the gaming industry is not other game companies, it’s about time. There is still only 24 hours in a day. You have to sleep. And games are more of a threat to other forms of entertainment than other game companies. If you spend more time playing, you spend Less time watching TV.
“[But] The people in the gaming hyper-cursor are also the ones who over-catalogue attendance at movies…and everything else, so they’re just a very voracious consumer who will support whatever form of entertainment they like…these collectibles from these big show companies are worth Several billion dollars more and more commitment to gaming. If I’m a gamer, there are more and more people interested in pursuing my entertainment dollar, and if they want an entertainment dollar, they better give me something really fun to do with my time. I see these as signs that people are supporting the industry and supporting their hobby, not reducing their choices.”
Rebecca Valentine is a news reporter for IGN. You can find it on Twitter Tweet embed.