The Acquisition of Kadokawa Puts Sony in Trouble

Since its founding in 2014, Kadokawa Corporation, a Japanese publishing giant, has come a long way. They aren't like any other companies because everything they did brought them success, particularly their FromSoftware division. Besides leading the most popular Souls genre, they also have a significant presence in the worlds of anime, comics, and magazines.

Last week, the news broke out that Sony is acquiring FromSoftware's parent company, Kadokawa, and since then, Sony and Kadokawa have been in negotiations for a long time. However, their negotiation has reached a dead end since Kadokawa refuses to sell in their company fragments, essentially stating that getting in means purchasing the whole enterprise. Sony, however, is only interested in the divisions responsible for video games and anime; of course,  the team behind Bloodborne, Elden Ring, and Dark Souls—FromSoftware—the Soul Stone in Kadokawa.

Kadokawa issued an official statement on this situation, but neither they nor Sony has given a final verdict. This makes things very complicated for Sony because Microsoft may seize the opportunity if Sony fails to capitalize on this acquisition. Even though PlayStation won the console war, losing FromSoftware to Xbox will drastically change things.

Microsoft has enough capital to acquire massive companies, such as Activision Blizzard, Bethesda, Mojang, id Software, Sledgehammer Games, 343 Industries, Playground Games, and many more. They wouldn't be hesitant to acquire Kadokawa, no matter the price tag. Doing so would seal Xbox and Game Pass as the exclusive platforms for any future major Souls games from FromSoftware.

Tencent is another company that has indicated interest in Kadokawa, so they shouldn't be overlooked. FromSoftware has already received investment from Tencent as they already own 16.25% of the company's share. Being partial owners means they are actively involved, not only spectators. They have the ability to seize complete control if Sony shows any signs of hesitation. They wholly owned studios like Riot Games and Funcom, as well as major shares from Don't Nod, Shift Up, Epic Games, Bloober Team, Krafton, Ubisoft, and Remedy Entertainment. And not to mention, Tencent acquiring Ubisoft is likely to happen soon. So, there's no way Sony would take Tencent lightly in this acquisition race.

So acquiring Kadokawa is no longer the issue here for Sony; the capacity to pay the asking price is which is approx. $4.3 billion. Even though it was initially $1.4 billion, this has gone beyond only video games. Massive anime assets owned by Kadokawa include KonoSuba and Re:Zero. Crunchyroll and Aniplex have already catapulted Sony to the top of the anime industry. Thus, acquiring Kadokawa would essentially render them invincible in that sector. However, if Microsoft or Tencent were to acquire Kadokawa, they would also have a presence in the anime industry. That adds another level of complexity for Sony.

Recently, the company's leadership has changed, and Tsuguhiko Kadokawa—the man who obstructed a sale—is no longer involved. Sony even provided a formal document known as a letter of intent and was ready to write down a considerable cheque. However, they are under intense pressure to act quickly because if they delay, Microsoft or Tencent surely will since Kadokawa has opened the door for negotiations with others, and these conversations will eventually get up steam. There is more at stake for Sony here than a simple acquisition deal.