Sony Close To Acquiring Japanese Digital Conglomerate Kadokawa Corporation

In a power move by Sony Group Corporation, famous for its premium electronics, movie, and television division, and their juggernaut powerhouse in the video game industry, the PlayStation brand, just made a play to close an acquisition deal with another Japanese mega-corporation, the Kadokawa Corporation. However, it’s not as cut and dry as you might think, as there are quite a few details regarding this deal to understand the context and what the implications of this acquisition entail, should it happen.

So, today, we’ll look at what prompted Sony to decide to attempt to purchase Kadokawa Corporation. We’ll also look at the history of the partnership between the two gigantic Japanese conglomerates. There is also the concern for a monopoly that will be formed if the deal goes through. With so much to cover, let’s get started.

Why Is Sony Interested In Acquiring Kadokawa Corporation?

The common trait of both Sony Group Corporation and Kadokawa Corporation is that both are Japanese in origin. If you’re aware of Japanese culture and the taste for anime (Japanese animated television series and feature films), manga (Japanese version of Western comic books), and light novels (the Japanese version of novels with an informal writing style aimed at young adults and teens), then it’s easy to understand why this acquisition is a highly lucrative opportunity for Sony.

The Kadokawa Corporation is home to over 100,000 IPs from its anime back catalogue alone. The company is also famous for its involvement in other ventures, such as offering educational and vocational tools to schools. Kadokawa Corporation offers a highly attractive platform for creative individuals to showcase their talents in animation, publication, and video game development and design. Should Sony acquire Kadokawa Corporation, this goodwill will transfer along with all the other assets to Sony.

However, the biggest draw for Sony is the gaming division that Kadokawa Corporation owns. Specifically, the video game developer FromSoftware. This name might ring a bell for gamers as FromSoftware is the company that introduced and then popularized an entire genre of unique action-adventure roleplaying video games dubbed by the fandom as ‘Soulsborne’ (comprised of the Dark Souls trilogy (1, 2, 3), Demon’s Soul, Demon’s Soul Remake, Bloodborne, and most recently, Elden Ring)  and its countless inspirators Souls-like. Sony’s most profitable arm, PlayStation, seems like a natural match for FromSoftware and its rich library of video game properties. So, FromSoftware is the ultimate prize that Sony is looking to grab. Will it be able to do so? That bit’s up in the air, let’s find out why that is.

Sony’s Initial Letter Of Intent Was For FromSoftware, Not The Entire Kadokawa Corporation

Now, we come to the thorny side of the acquisition, which is, for the time being, a point of contention between Sony Group Corporation and Kadokawa Corporation. Basically, while acknowledging publicly Sony’s letter of intent to purchase FromSoftware from Kadokawa Corporation, the latter declared that it’s either the entire Kadokawa Corporation that’s up for sale or nothing at all. This is an all-or-nothing situation that FromSoftware owner Kadokawa Corporation is sticking by.

What remains to be seen is whether Sony will accept these terms or not. It’s likely that the deal will go through because both corporations are set to benefit from this outcome. This arrangement and its earlier iterations have been the subject of conversation between Kadokawa Corporation and Sony in recent years, and they’re well-acquainted with each other. However, now that this news is public, there is another possibility that could happen, which is other potential buyers making their bid for Kadokawa Corporation. 

Related: See our coverage of Ubisoft’s financial situation in 2024 and its shareholders expressing interest in a buyout by Tencent Holdings Ltd. for a different sort of acquisition deal.

It should be noted, however, that Kadokawa Corporations have received offers in the past from other potential buyers, including Tencent Holdings Ltd., the largest video game company in the world in terms of revenue, and even Microsoft, the American tech giant. Having said that, the shareholders of Kadokawa Corporation have always elected to remain independent and thwarted attempts for buyouts. Now that their stance has softened on an acquisition deal, it seems Sony is the likely candidate that’s best suited to purchase Kadokawa Corporation outright. 

What Caused The Change For Kadokawa Corporation To Agree To An Acquisition?

The long-and-short of the reason for Kadokawa Corporation to change its attitude toward a buyout/acquisition deal has to do with a change at the helm of its leadership. According to a report from The Associated Press, one of the founding members of Kadokawa Corporation, Tsuguhiko Kadokawa, landed in legal trouble with an Olympics bribery scandal, and it was responsible for making the stock value drop by a significant margin.

The Olympic bribery scandal for the Kadokawa Corporation was a nightmare scenario, financially, and in a public show of distancing itself from Tsuguhiko Kadokawa, the corporation let go of his services. But this wasn’t the end of the headache for Kadokawa Corporation as there was another disaster waiting in the wings. In August of this year, a report by Japan Times shed light on the cyberattack that led to data breaches of 254,241 people. Given that one of the very public ventures of Kadokawa Corporation involves education and vocational services to schools in Japan, this was a huge blow to its reputation.

Both these scenarios compounded the financial standing of Kadokawa Corporation and its shareholders. Under new management to appease the concerns of the shareholders, the decision to accept an offer to buy the corporation in its entirety was seen as an easy way out for landing profitable returns. Now, we’re in a situation where Sony’s interest seems like a win-win situation for both parties involved.

A Concise History Of Collaboration Between Sony And Kadokawa Corporation

There is a foundation for Sony and Kadokawa Corporation to close this acquisition deal between themselves. Over on the video games front, Sony has dominated with surging demand for its home consoles, the current generation one being the PlayStation 5. Sony is always looking to organically invest and grow its beloved first-party library of video game intellectual properties. Acquiring FromSoftware via the purchase of Kadokawa Corporation will immediately inject Sony’s video game collection with a massive boost.

There have been more than a couple of collaborative projects between FromSoftware, the parent company of Kadokawa Corporation and Sony’s PlayStation. For instance in 2009, for Sony’s PlayStation 3,  FromSoftware was contracted to work on an exclusive video game which turned out to be the original Demon’s Souls, the true progenitor of the Soulsborne genre. Sony had the rights to the game, while FromSoftware developed it. Sony capitalized on the nostalgia factor and commissioned a remake for Demon’s Souls but without FromSoftware’s involvement, and used one of its in-house studios, Blue Point, to develop the remake as a flagship launch title for the PlayStation 5 and the result was a commercial and critical success.

When Sony was in the handheld gaming market, Sony reached out to FromSoftware to make a game for their system, the PlayStation Portable. The game was called Another Century’s Episode Portable, and it found critical acclaim and produced mild sales. After that, during the PlayStation 4 era, Sony and FromSoftware’s final major collaboration happened with Bloodborne, the Lovecraftian gothic horror action roleplaying game that formed the second half of the Soulsborne genre. So, given the professional relationship in the industry between Sony and FromSoftware’s owner, Kadokawa Corporation, it’s highly likely the acquisition will happen.

How The Employees At Kadokawa Corporation Feel About The Sony Acquisition?

If the positive buzz from the interview of a senior-level employee is to be taken at face value, the Sony acquisition is getting a lot of support. A Japanese media outlet, Bunshun, shared the juicy details, and we’ve got the translated version of the interview. The employee in question stated:

“The people around me are thrilled at the prospect of an acquisition by Sony. That’s because there’s a certain number of people who are dissatisfied with the Natsuno administration… They expect if Sony were to acquire the company, they would get rid of the President first.”

For context, the Natsuno administration is in reference to the former founding member who was involved in the Olympics scandal and the current CEO of Kadokawa Corporation, who is still in charge despite the hacks that led to the breach of personal information of a lot of people. Anyway, there is a flip side to the opinion about this deal. Realistically analyzing the implications of this deal, it might not be all sunshine and rainbows for the employees after its completion. Any acquisition, especially done by Sony in the past, like Firewalk Studio and Bungie, was followed by mass layoffs.

So if that pattern tells anything it’s that with such a large purchase, there will be a lot restructuring, and lots of jobs will get cut. Not only that, there is also a belief that while the entertainment side of Kodakawa Corporations will be in the clear, the rest of the wings will either be let go, or put under strict scrutiny to justify their existence and how they could make Sony shareholder a profit. Lots of in-development projects might also face cancellation or get shelved as well without Sony’s own management giving them the green-light.

Both Sony And Kadokawa Corporation Shares Skyrocket Amidst Deal Speculation

After the official acknowledgment of the letter of intent Sony sent to Kadokawa Corporation, Reuters reported that Kadokawa Corporation shares experienced a surge of 16%, which is always a positive development. Similarly, now that word of progress for the acquisition is becoming more substantial, Sony’s own shares are undergoing a jump in market value, with a 4.1% rise, according to industry investment news.

A simple glance at the statistics show that both are set to gain from the acquisition deal. They’re tailored to each other’s strengths, and can further Sony’s hold over the entertainment industry, particularly gaming and anime divisions. The plethora of IPs can pave the way forward for new levels of growth and creativity.

Industry Concerns Of Anime Monopoly By Sony

Some analysts believe that the powerful acquisition of Kadokawa Corporation by Sony would be detrimental to other anime companies. It’s being described almost as if it constitutes a monopoly, but the fact is that it is simply untrue. This acquisition will ultimately give the industry a strong competitor among other giants, creating healthy competition, which is always good. The creation, distribution, and merchandising would be a seamless transition for Sony.

Netflix, Kodansha, Disney Plus, Toei Animation, Sunrise Filmworks, and even Shueisha are all direct competitors for Sony’s own Aniplex, and if the deal goes through, Kodansha. It still wouldn’t give Sony a monopoly; otherwise, the Japanese Fair Trade Commission wouldn’t have allowed such an acquisition.

Final Thoughts

Well, that’s all the available information so far on the deal between Kadokawa Corporation and Sony about the former’s acquisition by the latter. It’s a lot to process and digest, and there’s still a hiccup stalemate between the two, but things seemingly are going in a direction that indicates the deal will finalize.

For more comprehensive coverage on other topics, we point you toward CD Projekt Red and their highly anticipated Project Polaris, aka The Witcher 4.