The CEO of Take-Two Strauss Zelnick has said that the current wave of mergers and acquisitions in the games space is simply the next step in the business maturing.
Speaking to Morgan Stanley's Brian Nowak at the bank's Technology, Media & Telecom Conference, the exec said that the games business is entering the third phase of maturity. The first is when there's lots of potential for growth early one, while during the second those who are good at what they do continue to grow while those who aren't start to fail.
In the third phase, companies attempt to consolidate so that they have a higher market share and thus can maintain gross margins and higher operating profits.
"It's a tricky game in entertainment," Zelnick said.
"The GE rule of 'Be No.1 or No.2 or don't play' doesn't really apply to entertainment. You could actually be No.1 in terms of revenue and lose money in the entertainment business, for example. It's hard to do that in the turbine business but you can definitely do that in the entertainment business.
"Our goal is not to have scale for scale's sake; our goal is to grow scale because it allows our developers to do more of what they love because it brings great products to consumers and because we owe our investors great performance and that includes competitive operating margins."
"Other people are doing this exact same calculus; how do you drive scale? For us, our story has mostly been an organic growth story. The bulk of our growth has been organic. We've done a couple of acquisitions that haven't generated all that much revenue. We expect an organic growth story going forward."
This comes in the wake of a number of big deals. Microsoft announced in September 2020 that it was buying Bethesda parent firm ZeniMax Media for a whopping $7.5 billion – though the deal is yet to be approved – while Gearbox was snapped up by Embracer Group in a deal worth $1.3 billion earlier this year.
British racing firm Codemasters has also been bought by Electronic Arts, who outbid Take-Two for the company.