Sony buying Elden Ring’s media conglomerate would be a match made in IP heaven

Japanese media conglomerate Kadokawa recently confirmed that Sony sent it a letter of intent to acquire Kadokawa (increasing its current 2% stake).

Kadokawa owns FromSoftware, the developer of Elden Ring, a 25-million-selling game that became a huge cultural moment in 2022. The synergies with PlayStation are clear, but gaming is just the beginning.

Kadokawa is a media conglomerate also operating across almost every entertainment segment Sony covers.

Sony's games and anime verticals have most to gain from Sony acquiring Kadokawa

The two Japanese companies complement each other across the board, but Sony’s gaming, video, and cross-entertainment efforts have the most to gain.

The advantages for Sony’s core business (PlayStation) are obvious:

• Franchises and IP: Among other IP, Kadokawa owns Elden Ring and Dark Souls under FromSoftware, Tenchu under Acquire Corp, and Danganronpa under Spike Chunsoft. Sony already gets a 30% cut of these games’ revenues on PlayStation. If it owned Kadokawa, it would get 100% (and up to 30% off-platform)
• Talent: FromSoftware’s designers are considered some of the best in the craft. It has also worked with PlayStation on a second-party basis in the past, on PS4 exclusive Bloodborne and PS3/PS5 exclusive Demon’s Souls. Sony already has a 14% stake in FromSoftware, so full ownership would continue a trend of other organic Sony acquisitions (Insomniac, Bluepoint)

• User acquisition: Like it did with Bloodborne, Sony could make FromSoftware games (timed) exclusives on PlayStation consoles. An exclusive first-party PlayStation Elden Ring 2 or Bloodborne 2 would complement Sony’s strategy of exclusive prestige games that get fans in the door
• Subscription value adds: Sony could also add selected legacy Kadokawa games to its PlayStation Plus multi-game subscription as a value add for subscribers
• Possibility to deepen the Nintendo relationship: PlayStation recently published a first-party PlayStation game on Switch for the first time (LEGO Horizon Adventures). Kadokawa owns Acquire, the lead team on one of Nintendo’s biggest 2024 first-party games (Mario & Luigi Brothership). Owning Kadokawa could bring Sony closer to Nintendo’s sphere, helping generate off-platform revenues
• User-generated content (UGC): Kadokawa owns the RPG Maker software, an easy-to-use toolkit aiming to democratise 2D game creation. PlayStation is active in UGC with Media Molecule, so there are light synergies here

Sony’s anime angle: Capitalising on a growing global trend

Kadokawa would also boost Sony’s video output, especially for anime, which has huge growth potential, particularly in the West.

While just 8% of consumers identify as anime fans in the US, UK, Canada, and Australia, fandom grows with each new generation:

Sony is very active in the anime space. Its Aniplex subsidiary plans, produces, and distributes anime via a diverse portfolio of TV, film, games, and franchise merchandise.

Sony also owns Crunchyroll, the main video-streaming distribution platform for core anime fans (15 million paid subscribers). Sony hopes to scale Crunchyroll globally as anime continues to grow in popularity worldwide.  

‘’We aim to contribute to the anime creator community by spreading Japanese anime around the world,’’ said Sony CEO Kenuchiro Yoshida.  Kadokawa’s benefits to Sony’s business here are clear:

• Complementing Aniplex’s anime and cross-entertainment efforts: Kadokawa would add value to Aniplex’s diverse anime portfolio, via theatrical films, video games, and merch. Like Kadokawa, Aniplex’s activities span home media, original soundtrack production, and events (musicals, stage performances, and live promotions). Aniplex also handles copyright management, licensing, and direct-to-consumer sales through its e-commerce platform, Aniplex Online.
• Anime video for Crunchyroll: Kadokawa’s high-profile anime content, including hits Sword Art Online and Re:Zero: Starting Life in Another World would be an ideal fit for Sony’s Crunchyroll anime service. Crunchyroll is a cross-entertainment vehicle for Sony that complements its cross-media efforts. For example, music from Sony's Jpop artists is often featured in the intros and outros for anime shows Sony owns
• Anime games for Crunchyroll: In 2023, Crunchyroll announced its Game Vault for subscribers to its top tier, featuring an array of Android and iOS games for anime fans. Kadokawa actively develops games based on its owned IP, including The Eminence in Shadow: Master of Garden. Acquiring Kadokawa would be a boon for Crunchyroll’s cross-entertainment ambitions.
• Anime production houses for IP adaptation: Kadokawa produces almost 40 anime works a year. Sony is looking to bring its PlayStation IP to video, and – as shown by Pokémon and – more recently – Netflix’s Castlevania and Arcane, anime is a viable way to adapt games (and is often cheaper than live action)
• In-real-life (IRL) entertainment: Sony has outlined intentions to extend its entertainment IP to the physical world, including via in-cinema concerts. It recently acquired the Alamo Drafthouse Cinema in the US. Kadokawa’s Cinema Yurakucho business in Japan could complement this IRL strategy in the East, where Sony’s Aniplex is already active via IRL musicals and performances

Of course, both Sony and Kadokawa are Japanese companies, which would smoothen the acquisition logistically. And Kadokawa’s other owned businesses across merch, book, film, and more could also oil the Sonycross-entertainment machine.

It’s all about IP and cross-entertainment – Sony and Kadokawa agree on strategy

As Sony outlined in its Corporate Report 2024, a major part of Sony’s long-term vision is maximising its IP value across all major segments through:

1. IP creation: New content
2. IP cultivation: Strengthening IP via community building with partners, creators, and fans)
3. IP 360 extension: Expanding IP to new categories like merch and in-real-life entertainment

This fits almost perfectly with Kadokawa’s outlined IP strategy, which similarly revolves around four core pillars:

1. Creating IP
2. Delivering it to users
3. Discovering and nurturing talent
4. Connecting fans

‘’Our IP takes a variety of forms, including books, animation, and games,’’ said Kadokawa CEO Takeshi Natsuno.

‘’We use the Group’s editorial and production capabilities, along with technology, to convert narratives generated by creators and the latest information and ideas into intellectual property that can be delivered to users in various forms.’’

Kadokawa’s and Sony’s leadership team are clearly on the same page. Based on this, the cultural similarities between the two companies, and everything else discussed in this article, the two companies would be a match made in IP heaven.

But it’s not over yet – possible bidding wars and regulator scrutiny

Kadokawa has now publicly confirmed Sony’s intent to buy it, which means other would-be buyers are aware (and undoubtedly eyeing Kadokawa, too).

Remember when TakeTwo put in an offer to buy Codemasters? EA swooped in with a better offer and successfully bought the company. Something similar could happen with Kadokawa.

China’s tech giants would inherently be interested –  especially Tencent, which already has a 7% stake in Kadokawa and has been heavily investing in Japanese entertainment companies and poaching talent across the board.

Compared to Sony, companies like Tencent and NetEase also have more capital to play with. A bidding war is on the cards.

Regular scrutiny is also possible, as Sony’s leading position in anime – via Crunchyroll and Aniplex – would be bolstered by Kadokawa, perhaps piquing anti-competitive concerns.

However, anime is an art style / genre, so it may be difficult for regulators to argue that it is a market. 

Either way, Kadokawa’s IP is something of a sleeping giant, and it looks like it’s about to be awakened.