Sony’s acquisition of Kadokawa, what it means for video gaming and anime industry?

One of the biggest takeovers recently is being proposed by Sony as it continues to think about buying Kadokawa Corp. 

Last week, Kadokawa announced it had received a formal expression of interest from Sony.

A recent report says the two companies have long-eyed a potential partnership.  They have never been able to get on the same page about their level of commitment.

Kadokawa wants only a complete acquisition or nothing at all

According to Kadokawa, Sony is attempting to purchase only individual assets linked to video games and anime, while the publishing giant does not want to sell a portion of the company. With talks entering the formal stage, there is hope they can eventually close a deal.

Kadokawa, which dates back to 1945, has the rights to more than 100,000 fantasy and sci-fi novels and comics that fit for anime adaptation. It is also able to create anime series from scratch and has strong relations within Japan’s creative industry. It has been able to attract top artists as well.

Much more importantly, Kadokawa has shares in well-established game studios such as FromSoftware Inc., a company that made Elden Ring.

One reason that investors and analysts might find Kadokawa attractive for purchase is that it’s a publicly traded company. This means its is easier to acquire than private players such as Kodansha and Shueisha. The owners of these companies seldom accept takeover bids.

Kadokawa has held the attention of companies such as Microsoft, Tencent, South Korea’s Kakao in recent years.

One of the fastest-growing segments in the entertainment segment is the anime industry, which has grown by 100 pc in a decade to 3 trillion ¥ ($19.5 billion) in 2022.

A takeover may have been paved for by recent changes at Kadokawa. The resignation of the scandalized former chairman, Tsuguhiko Kadokawa. He was accused in a bribery scandal tied to the Olympics. The company was also hit by a summer cybersecurity breach that damaged its reputation and value.

Kadokawa would mean added muscle for Sony

Sony wants to grow its content portfolio to support PlayStation and other entertainment products. Sony has a track record in anime with its subsidiary Aniplex and the acquisition of Internet distributor Crunchyroll, an international leader in Japanese anime.

If Sony were to own Kadokawa’s intellectual properties, it would be able to make more content of different kinds without being forced to depend on 3rd party publishers.

Getting Kadokawa would mean added muscle for Sony in anime and some assets that could be retooled into PlayStation games.

Additionally, it would secure Sony’s stake in FromSoftware. The company is headed by the beloved game creator Hidetaka Miyazaki who’s responsible for making hits like Elden Ring and Dark Souls.

“The best deal Sony could make right now is to buy Kadokawa,” said Robin Zhu, an analyst at Bernstein. He described purchasing the company as “one of the most consequential transactions in the history of the video game industry.”

The road to a deal looks less easy now than it did a week ago

Sony’s interest reportedly sparked sales for Kadokawa’s shares, making the company’s market value $4.1 billion. Kadokawa still could get other offers. Of course, any buyer will require a good idea of what they would want to do with the less enticing breadth of the company’s assets.

According to Macquarie Securities analyst Hiroshi Yamashina the aspersions on Kadokawa’s governance would be no easy task to integrate smoothly into the broader Sony empire.

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