Disney, Apple Set Sights on Activision Blizzard

An Activision Blizzard–Disney merger is looking very possible. After months of stock price decline, Activision Blizzard (ATVI) has become an acquisition target for several companies. Walt Disney (DIS) is slowly emerging as a potential buyer as the race for gaming revenue heats up.

Amid talks of an Activision Blizzard–Disney merger, Tencent (TCEHY) has focused on strengthening its international presence. The company has inked a deal with Pokémon as it seeks to expand its footprint into the US and Japan. The emerging wave of consolidation does not come as a surprise given what is at stake in the gaming industry.

Currently, there are more than 2.5 billion gamers around the world. Combined, the gamers present a $152 billion market opportunity. By coming together, companies hope to better compete for gaming revenue.

Nick Licouris of Gerber Kawasaki believes an Activision-Disney merger could happen. By joining forces, the two companies could successfully pursue gaming revenue. Disney’s history in the video game industry is also fueling talks of a possible merger. After buying Playdom and Club Penguin, Disney went on to launch Infinity, a gaming platform. However, after losing millions, Disney had to change its gaming strategy. Instead, the company opted to focus on licensing deals, letting the likes of Electronic Arts (EA) use its popular characters at a fee.

Disney and Activision are already close, another reason why a merger could be in the cards. For starters, Disney has a deal for televising Activision’s Overwatch League. Disney’s history in storytelling also makes it a perfect fit for Candy Crush, which Activision acquired in 2016.

However, an Activision-Disney merger would not be cheap. Even though Activision has shed a substantial amount of market value, it still boasts a market cap of more than $30 billion. Additionally, Disney may encounter some competition should it decide to make a move for Activision Blizzard.

Apple, with its massive cash pile, is another possible Activision Blizzard buyer. According to JPMorgan Chase analysts, video gaming presents a unique investment opportunity for Apple. Given that Netflix and its video content is valued at $140 billion, Apple’s purchase of Activision Blizzard and entry into video gaming looks realistic.

By acquiring Activision Blizzard, Apple stands to gain access to an industry growing at an impressive rate. The eSports market alone is poised to reach $1 billion.

Tencent’s and Pokémon’s gaming deal hints at a consolidation spree taking shape in the gaming industry. The two companies’ alliance should help them pursue gaming revenue, and offer them synergies. For starters, Tencent will provide Pokémon entry into the lucrative Chinese gaming industry. In return, Tencent should be able to strengthen its footprint in the gaming industry, especially in Japan and the US. Nintendo (NTDOF), a major Pokémon stakeholder, stands a chance at entering the Chinese gaming industry, which is dominated by local titles.

“While Tencent has focused mostly on China in the past, we are now looking at the gaming sector with a much more global perspective,” TiMi executive Vincent Gao said in an interview in June. “This will make the company pay better attention to IP protection.” Tencent is not new to the gaming industry. The company already offers Pokémon Go clone Let’s Hunt Monsters, one of the highest-grossing apps in China. Given that success, Tencent believes it is time to expand abroad through strategic partnerships. A strong franchise with a company of Nintendo’s caliber should help bolster the Chinese company’s international presence.

Consolidation in the gaming industry started early this year, when a slew of banks led by JPMorgan Chase and Bank of America invested $145 million in mobile gaming studio Jam City. The massive investment empowers Jam City to ramp up research and development activities in the race for new gaming titles. The game developer has also inked a multiyear deal with Disney.

While the $145 million investment came as a surprise, it points to a new strategy in gaming investments. Games are becoming a go-to revenue driver for many companies. Mobile games alone generated a record $63.2 billion in revenue last year, according to Newzoo. With the amount expected to reach $81.3 billion by 2020, it makes a lot of sense for companies to cooperate to strengthen their competitive edge.

An Activision Blizzard-Disney merger would create a force to reckon with in gaming. Tencent and Nintendo-backed Pokémon could also benefit significantly by joining forces.