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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.’”