This article was first featured in Yahoo Finance Tech, a weekly newsletter highlighting our original content on the industry. Get it sent directly to your inbox every Wednesday by 4 p.m. ET. Subscribe
Wednesday, January 12, 2022
Take-Two's acquisition of Zynga gives its mobile arm the size to fight Apple's privacy changes
Take-Two Interactive’s (TTWO) $12.7 billion acquisition of mobile gaming giant Zynga (ZNGA) announced this week means the company behind “Grand Theft Auto” and the maker of “Farmville” will officially be under the same roof.
Take-Two CEO Strauss Zelnick says the tie-up will save the companies $100 million and generate $500 million in net bookings, a measure the games industry uses to count revenue from the sale of games, subscriptions, and in-game purchases. But there’s a third reason the purchase makes sense: it will help the companies fight Apple’s iOS privacy changes.
Last April, Apple (AAPL) introduced a privacy feature in iOS 14.5 called App Tracking Transparency that allows users to choose whether they want apps to follow them across the internet. That’s put a damper on the ability for game developers to make cash off of advertisements in their titles when relying on ad networks run by the likes of, say, Google (GOOG, GOOGL).
But by increasing their mobile footprint, both Take-Two and Zynga can use their own ad network to target gamers without having to rely on third-party providers. That will allow them to bypass the privacy-related roadblocks caused by App Tracking Transparency.
“More games that are contributing user traffic into the ad network allows Take-Two to better target ads and therefore charge more for advertising,” Harvard University Business School assistant professor Andy Wu told Yahoo Finance.
The result? Game companies will morph into what Wu calls “content fortresses” by grabbing as many smaller studios as possible to build out their offerings and create a bulwark against Apple’s privacy settings.
Bigger game networks mean more ad money
According to Newzoo, the mobile gaming market was expected to grow by 4.4% to $90.7 billion in 2021, while the console and PC gaming spending were expected to decline slightly. By 2024, the industry will see that increase to $116.4 billion.
With Zynga, Take-Two expects its own mobile net bookings to jump from an estimated 12% of the company’s total 2022 revenue to 50% by 2023.
“Mobile is the biggest, and fastest growing, video game content market,” NPD Group video game analyst Mat Piscatella explained. “Some of the biggest properties on mobile now include IP with Console and PC roots like ‘Fortnite,’ ‘Minecraft,’ and ‘Call of Duty.’”
Mobile games like these make money by selling mobile ads. After all, how do you think companies like King can offer games for free? Sure, game makers offer in-game purchases, but they also rely heavily on ads.
But Apple’s App Tracking Transparency makes it more difficult for game makers to track you online to sell those ads. Normally, game developers would track your activity across the web and then use that data to serve you ads via Google or Facebook parent Meta’s (FB) ad platforms. So if you’re playing a game and then, say, visit a website about biking, you’ll see ads for bikes in your games.
But App Tracking lets you opt out of having apps track you, which makes it harder for those apps to sell ads. That's why Apple's App Tracking transparency is eating into game makers' bottom line.
“As a standalone gaming company reliant on a third-party ad network, so for example, Facebook or Google's ad network, those ads are now worth less money, because of lower prices of ads on Apple mobile devices,” Wu explained.
And that’s where consolidation like Take-Two’s purchase of Zynga comes in. By offering a huge library of games, the combined companies can circumvent Apple’s privacy settings and collect data from users within their own network to sell ads.
“It's better to be part of a company like Take-Two where you're using an internal advertising network, as opposed to a third-party one to get around Apple’s privacy restrictions,” Wu said.
But if game makers have to team up to fight Apple’s changes, small developers could suffer. With App Tracking Transparency cutting into ad revenue, independent shops may be forced to sell out to their larger competitors to gain access to their ad networks.
With so much riding on advertising in the mobile game space, it’s unlikely we’ll see an end to mergers and acquisitions anytime soon. And only time will tell whether that consolidation will kill smaller, independent game studios. If that happens, it wouldn't just affect smaller game makers — it would be a disservice to gamers like me who thrive on discovering obscure titles.
By Daniel Howley, tech editor at Yahoo Finance. Follow him @DanielHowley
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn