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Sony’s Pursuit of Anime Publisher Holds More Opportunity Than Risk
By Takashi MochizukiNovember 26, 2024 at 3:05 PM GMT+3
Star-crossed business partners
Kadokawa Corp., publisher of everything from anime to manga to adult magazines, last week declared it had received a formal expression of interest from Sony. It was the latest development in a long-running back and forth between the two entertainment giants.They’ve been testing the waters for a potential combination for years, but never quite resolved differences over the degree of commitment. Tokyo-based Kadokawa wants its city neighbor to buy it entirely or not at all, while Sony has long sought to surgically extract assets related to anime and video games.
The fact the two are now at a formal stage of negotiation is very encouraging. Both sides might actually be ready to get serious and thrash out a deal.
Kadokawa, established in 1945, is a rare beast in modern Japan. It holds the rights to more than 100,000 anime-friendly fantasy and sci-fi novels and comics, and it has the capabilities to create anime series from scratch. Beyond that, it has broad and deep connections within the country’s creative sector, making it easy to attract award-winning artists. And, lest we forget — because Sony certainly hasn’t — Kadokawa holds stakes in highly reputable game studios, including Elden Ring developer FromSoftware Inc.
Most importantly, though, Kadokawa is a publicly traded company. Its few peers, like Kodansha Ltd. (Attack on Titan) and Shueisha Inc. (One Piece, Dragon Ball), are private, and their longtime owners dismiss takeover bids without a second thought. But a listed company has a more diverse group of owners and the world’s intellectual property hoarders stand a better chance.
Kadokawa has over the years attracted the attention of Microsoft Corp., Tencent Holdings Ltd. and South Korea’s Kakao Corp. Anime is one of the fastest-growing segments of the entertainment industry, and an entire generation that’s grown up with the biggest franchises is rising in purchasing power and ramping up spending. Japan’s anime industry doubled in a decade to ¥3 trillion ($19.5 billion) by 2022, according to the Association of Japanese Animations.
The Tokyo company, led by founding family member and former chairman Tsuguhiko Kadokawa, has long turned away suitors. But the 81-year-old has now departed the company after his involvement in an Olympics bribery scandal, and Kadokawa had an infamous cybersecurity breach that hurt its reputation (and value) over the summer.
Sony, primed to make more aggressive IP forays, is motivated to build out its content portfolio in an effort to support its PlayStation platform while also feeding its various other entertainment products. A big reason for why the likes of Tencent were interested in Kadokawa is the belief that they, the acquirer, could make more effective use of its IP libraries by going across genres and media types.
Made-in-Japan anime has been a fruitful business for Sony in recent years. Sony’s anime planning subsidiary Aniplex scored a huge win by turning the Shueisha-owned Demon Slayer into an anime series and later record-setting movies. Then there’s also Crunchyroll, a US anime distributor that Sony bought in 2021 for $1.2 billion, which holds a leading position in distributing Japanese anime internationally. But Sony still largely relies on outside publishers for anime IP, and the company may be growing tired of sharing decision-making powers and sales.
Sony knows how much more you can make from content if you own it. The company is the owner of the world’s largest library of music master licenses, generating revenue every time a song is played. And in games, Nintendo Co. pulls in a hefty amount of bonus revenue by licensing its game characters to filmmakers, merchandise purveyors and theme park operators. Fellow game publisher Capcom Co. leverages licensed items and events to boost sales of its flagship franchises including Monster Hunter and Resident Evil. Sony itself is also making Hollywood movies based on its game IPs like Uncharted.
Buying Kadokawa would instantly make Sony a much more formidable player in anime. And those fantasy universes are readily translatable into PlayStation games or more ambitious feature films.
And then there’s FromSoftware, led by famed video game creator Hidetaka Miyazaki.
One investor joked that Miyazaki alone can be worth at least a third of Kadokawa’s market value, as he is capable of producing massive hits one after another. Before Elden Ring, he authored renowned series Armored Core and Dark Souls, the latter giving rise to a genre of game dubbed “soulslike” for its unforgiving gameplay.
Sony, a fellow shareholder in FromSoftware, would secure its grip over that prized asset by also gobbling up Kadokawa’s share. And while it’s unlikely that Sony would rush to make those games exclusive to the PlayStation, Miyazaki’s works are reliable earners and ripe for expansion into different genres of entertainment.
Robin Zhu, an analyst at Bernstein, said buying Kadokawa is “probably the best deal Sony can make right now” and “one of the most consequential transactions in the video game industry’s history.”
Granted, the path to a deal looks harder today than a week ago. Reports about Sony’s interest spiked Kadokawa’s shares, pushing its market value to $4.1 billion. It’s still possible that Kadokawa may receive other offers. And any buyer would need a good idea for what to do with the company’s breadth of less enticing assets.
Kadokawa’s governance may also be questioned, as the company’s had the bribery allegation, the cyberattack and an underpayment issue that Japan’s Fair Trade Commission warned about this month. Integrating that smoothly into the broader Sony empire would be no easy task, Macquarie Securities analyst Hiroshi Yamashina said.
Yet, for all the drawbacks, Sony grabbing Kadokawa’s prized IPs and creative talent can bring in billions of dollars in revenue for years to come. There’s a lot more opportunity than risk with this corporate adventure.
Sony’s Pursuit of Anime Publisher Holds More Opportunity Than Risk
Sony Group Corp. is flirting with one of the biggest takeovers in the history of Japan’s storied entertainment sector. But first...
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