Why Jack Tretton, former PlayStation boss, is trying to buy a billion-dollar gaming company

Everyone seems to want a gaming company these days, including former Sony boss Jack Tretton.

Best known for his involvement in the creation of the original PlayStation in the 1990s and later running from 2006 to 2014 as president and CEO of what was then known as Sony Computer Entertainment America, Tretton has since been busy working with the independent development community. through gaming funds such as Interactive Gaming Ventures. Now he wants to continue that project by acquiring an independent studio himself.

In an interview with IGN, Tretton talks about his time at Sony and since then he has seen that a gradual change has allowed small studios to rely less on big publishers to bring their games to the world.

“Thanks to online stores, anyone can be a publisher,” says Tretton. “So the good news is that the barrier to entry has been significantly reduced. It’s still very costly to build a game, but a fraction of what it was in the days when you had to do AAA, a hundred million dollar project to see the light of day on the shelves. “

Jack Tretton

But that does not mean that it is easy to release such a game. He says that when Indians look for more funding, he is seeing increased interest in mergers and acquisitions. [M&A]. But Indians are reluctant, he says, because they do not want to lose their independence and going to the public market to raise capital from investors is an expensive and complex proposal. How, then, can Indie raise money from investors while remaining independent, small and secure?

Enter Tretton and his new company: PowerUp. PowerUp is SPAC: a special acquisition company. As Tretton briefly explains, SPAC companies exist for the sole purpose of acquiring or merging with existing private companies and taking it publicly as a merged entity. It’s an easy way for smaller businesses to get into general business at the same time and get more financial support, and possibly an experienced team of industry professionals behind them who can provide advice, support and guidance. In the case of PowerUp, Tretton says that it also means leaving the studio independent by remaining a minority owner.

“We want to have a more supervisory role where we may take a board seat, but we are not interested in joining the board or taking over the board,” he explains.

There are hundreds of SPACs out there, but PowerUp is relatively unique as a special effort for the gaming industry. Tretton says that the lack of SPAC in the gaming industry around $ 200 billion, especially as acquisitions become a hot topic, was part of the reason why he started PowerUp with a group of leaders who already know the gaming space. This experience, says Tretton, is something that a handful of SPACs he has seen immersing himself in gaming have so far lacked, making the designers they are asking to rely on what they are selling.

Thanks to online stores, anyone can be a publisher.


That experience is also necessary, because PowerUp’s plan is not just to throw money at projects they think could be profitable, but to actively expand gaming companies. Tretton says he is looking for companies with strong management teams that already have an eye on the market, with valuations ranging from $ 1 billion to $ 2 billion. That sounds like a lot, but by comparison, Bungie was bought by Sony for $ 3.6 billion – so imagine something about a third the size of the Destiny studio. Not a tiny indie, certainly, but independent, and not massive. And Tretton doesn’t just look at designers, either: PowerUp could be a studio, publisher, or gaming company in a field like media, esports, or advertising.

Between Tretton’s experience in the industry, including a number of actual purchase agreements, and his newly formed SPAC, he clearly has a great deal of insight into M&A in general. Even though it seems like M&A deals are popping up everywhere these days, the public really only sees the end results and nothing of the process behind them. Companies are constantly discussing merger and acquisition agreements, which is why rumors of such talks are constantly emerging and may not change. Tretton explains that there are various reasons why agreements fall through the middle of the debate. There could be one majority investor who is not involved in the daily life of the company who is not interested in the deal that destroys everything. Or it could be a valuation problem, which Tretton admits is a difficult issue, both in terms of public understanding and the stakeholder – which involves a stock calculation of both the actual amount the company is worth at the time, as well as its future prospects.

“Valuation is when you start to get bored of players, but the basic definition of valuation is that your company is valued in a realistic way, because if you are going to buy, you want to raise the valuation as high as you can to get as much cash as you can when you get a purchase, “Tretton explains. “If you are going to go to the market, you have to be very realistic about how you value your company, because the shares and the value of the company will be based on what everyone looks at it. And if you inflate it, it lasts for a few days and as soon as you fail to meet that valuation and do not reach your goals, the shares go to the toilet. “

If Activision becomes part of Microsoft, it will create space for the new Activision to pop up.


But in discussions about M&A, the parties will sometimes argue about the difference between the value of the company that is being bought on its own and what its investors see based on data. This conflict can also go in both directions – sometimes investors do not fully understand what the company can do, but sometimes companies overestimate their own ability and value. This is a complex dance that requires procurement from everyone involved.

And then there are various other various reasons why a deal could fail.

“People have a change of mind or someone else comes in at 11 o’clock and fills their heads with a vision that is different from what they were originally subscribed to at each end,” says Tretton. “You are in a contract letter, someone comes in and turns your head or you see someone who is more attractive and you go out on it. I would like to think that it would never happen, but I can tell you that everyone who has made these mergers will tell you that you should talk to many players at both ends, because contracts can fall apart and you think you are down the road with someone and the contract falls apart. It is very time consuming and very costly to make that happen. “

So what’s behind the recent rise in gaming industry acquisitions? Tretton’s theory is that the boom is limited to the number of gaming companies compared to 15 or 20 years ago, along with the sky-high numbers that the largest gaming companies are raking in every year. There is simply more to be gained and more money to do so. And, he adds, it’s good.

“You have strategic mergers and acquisitions that I think are good for the industry, because if Activision becomes part of Microsoft or Zynga becomes part of Take-Two, it’s making room for a new Zynga or a new Activision to pop up, and maybe “Someone who’s a fraction of Activision or Zynga will be the next Activision or Zynga, and those guys are going to start a smaller business with them,” says Tretton. “So I think this is a sign of growth in the industry and a sign of the value of the industry and this is all positive.

But what about the flaws? Will large companies that take over smaller ones stifle the creativity of the companies they are buying? What about on-site exclusivity for popular on-site concessions? Tretton is confident that this will not be a problem in the long run – or at least not important.

“I think the relationship between the two companies is obviously much closer once you have bought that company,” he says. “And hopefully Microsoft will have more priority for Activision than it did before Microsoft bought it. But in the end, they have been bought to drive their own profitability and boost their business to benefit Microsoft and benefit the industry as a whole.

I do not think it would be financially sensible for them to take Call of Duty and make it exclusive to Xbox systems.


“So I do not think you will see titles become privately owned on the ground … I do not think it would be financially sensible for them to take Call of Duty and make it exclusive to Xbox systems. And they certainly have not behaved that way before and I think that applies to all the other mergers and acquisitions that you see that I think you will continue to see multi-platform development. It will only be done under the wing of the acquisition company, but they are seeking to maximize the company’s profitability. And the way to maximize that return is to make a footprint on many levels.

Of course, Tretton has an interest in making acquisitions sound like a good idea at the moment, but he has also had a lot of time at the helm of one of the industry’s largest ships, so he has a clear understanding of where they could go wrong. With the experience and eye to reach a gaming company himself, Tretton wants to make sure that the increase in M&A contracts for gaming is not a change that will hurt the people who play games. Rather, he opens it will lead to bigger and better games, and more of them in addition.

“The gaming industry competition is not another gaming company, it’s time. It’s still only 24 hours a day. You have to sleep. And gaming is a much bigger threat to other entertainment than other gaming companies. If you spend more time on games, you spend less time watching TV.

“[But] the super-indexed people in games are also the people who super-index in movie attendance … and everything else, so they’re just a very avid consumer who wants to support any kind of entertainment that appeals to them … These acquisitions from these big billion dollar companies just show more and more commitment to games. If I’m a gamer, there are more and more people who are worried about going after my entertainment dollars, and if they want my entertainment dollars, it’s better to give me something really fun to do with my time. I see this as a sign that people are supporting the industry and supporting their interests, not reducing their choices. “

Rebekah Valentine is an IGN reporter. You can find her on Twitter @duckvalentine.

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