Take-Two Interactive set to acquire Zynga in mobile gaming market expansion

Yahoo Finance tech reporter Dan Howley explains what to know about Take-Two Interactive's planned acquisition of Farmville creator Zynga.

Video Transcript

ADAM SHAPIRO: All right, don't get into a fight with Strauss Zelnick. Not only is the CEO over at Take-Two Interactive a fitness god, he has a business sense that you don't want to mess with. And then there's the deal with Zynga, right?

Let's bring in Dan Howley to help us understand what's going on with this deal. There are naysayers out there who think this is a mistake, but investors today are saying well done, Strauss.

DAN HOWLEY: That's right. They-- Take-Two, rather, purchased Zynga for that $12.7 billion. That's a huge sum, especially when it comes to video-game-company acquisitions. We had seen Microsoft acquire ZeniMax last year for around $7.5 billion, I believe, so this obviously much larger.

And the real reason that we're looking at this is is because it works as kind of a bulwark against recent privacy changes that companies like Apple have implemented. Now, just to give you an understanding, Apple put these kind of changes into place where they ask you if you want an app to track you. When you say no, you prevent apps and app developers from seeing what your interests are across the web.

So say you use something like, "Farmville," right? It's a Zynga property. Use "Farmville," then you go over to a website, and, you know, you start looking at bikes. You would go back to "Farmville." If it had offered ads, you would see ads for bikes, and that would give "Farmville" creator Zynga better sales and a better return on ads. But without-- with that put in place, the Apple privacy changes, you're not getting that. So it's hurting advertising for game developers.

So that's kind of the idea behind this purchase that Take-Two has done. They create huge networks on their own of games, and then they can use their own inside ad networks to circumvent this whole Apple privacy deal. And it's something that we're going to continue to see, and that's something that some of the professors that I spoke to-- Andy Wu over at Harvard Business School had essentially said that, look, this is something we're going to see from more game developers as they try to work around this idea of these privacy changes.

And yes, there are things like being able to purchase games outright, but the vast majority of games are free to play because of those ads. And if you look at the game space, the largest and most-- the fastest-growing, excuse me, chunk of that is for mobile games. More people use their smartphones as their main computing device than anything else in the world.

So it's going to continue to grow. It's going to continue to be a huge property, and it's going to continue to be an issue for smaller developers when they run into these kind of privacy issues that we see coming out of Apple.

EMILY MCCORMICK: Well, Dan, and speaking of the increase in mobile gaming and the growth that we're likely to see in that area, what does this deal now between Zynga and Take-Two mean for Activision Blizzard and for other companies that already have big stakes in mobile gaming?

DAN HOWLEY: Yeah so Activision Blizzard is one of the largest mobile-gaming companies out there. They have King, which has obviously their "Candy Crush" games. You've probably played it or at least seen someone play it during your commute on the subway or train or whatever. They, really, are going to continue to build out what they've had.

And really what we're seeing is these big IPs-- "Call of Duty," for instance, that's now available on mobile and has been for some time. The idea is that you try to get PC gamers, console gamers onto the mobile side of things, and that can help build revenue for mobile. They're not as expensive to build as traditional AAA games that you would see on a console or PC, so they can be cheaper, faster return on investment, and higher margins because of that.

And I think that's really what we're also seeing-- going to see from Take-Two where, you know, they do have versions of "Grand Theft Auto" on mobile. You do have their 2K series on mobile. But with the backing that they'll get from Zynga and the expertise there, they're predicting they're going to go from a 12% mix of mobile revenue for total revenue to 50% within two years. So it'll be a big change for them, and I think that that's something we're going to continue to see for gaming companies going forward.