Sony Group Corp. is considering acquiring Kadokawa Corporation, the parent company of Elden Ring and Dark Souls developer FromSoftware, in a move that could give Sony access to cross-platform content and shows beyond gaming, according to a Reuters report quoting sources.

The acquisition would also give Sony direct control over FromSoftware, in which it presently holds 14% stake along with Chinese gaming major Tencent Holdings Ltd which bought 16% stake in 2022. With IP-driven franchises becoming the key driver in gaming and entertainment sector, companies are prioritizing the acquisition of content creators over hardware innovation.

Kadokawa Corporation, a media conglomerate founded in 1945, has diverse interests across publishing, anime, and gaming. FromSoftware, its subsidiary, is well known for challenging titles that combine intricate world-building with punishing gameplay. The studio's 2022 blockbuster, Elden Ring, a multi-platform game, co-created with fantasy author George R.R. Martin, has sold over 20 million copies. 

If the acquisition goes through, Kadokawa's expansive library of manga and anime IP will give Sony access to trans media story telling platforms, content apart from games. The deal will also strengthen its intellectual property (IP) portfolio at a time when the gaming industry is experiencing record growth.

Gaming Industry in Flux

According to PwC report, the gaming sector, valued at approximately $220 billion in 2023, is poised to reach $321 billion by 2026, driven by mobile gaming, esports, and the rise of immersive technologies like virtual reality. Major players like Sony, Microsoft, and Tencent are actively consolidating assets to secure their share of this growing market.

Sony's interest in Kadokawa comes amid a wave of industry consolidation. In 2022, Microsoft acquired Activision Blizzard for $68.7 billion, and Sony responded by purchasing Bungie for $3.6 billion. Gaining full ownership of Kadokawa would position Sony to compete more effectively in this high-stakes landscape, particularly against Tencent, which has aggressively acquired stakes in various gaming studios. 

Strategic Implications for Sony

The Asia-Pacific region, particularly Japan, remains a global hub for gaming innovation, and the acquisition could further solidify Sony's leadership in this market. The company already owns a 2% stake in Kadokawa and a 14% stake in FromSoftware. Acquiring Kadokawa outright would give Sony full control over FromSoftware's operations and its future projects, including the highly anticipated Shadow of the Erdtree DLC for Elden Ring.

This move aligns with Sony CEO Kenichiro Yoshida's vision of investing in "lovable characters and IPs" that can drive long-term growth. It also expands Sony's ecosystem by potentially integrating Kadokawa's anime and publishing assets with its gaming, music, and film divisions. Sony's focus on VR technology, including its recently launched PSVR2, suggests that the Kadokawa acquisition could contribute to more immersive experiences in the future.

However, analysts also point out that the proposed deal is not fully risk free as the not all recent acquisitions by Sony was successful, including Bungie which saw massive layoffs recently.

Kadokawa's shares surged to their daily limit of 3,745 yen following the news, reflecting investor optimism about the deal's  potential.