The hottest concert venues this year have all been virtual. John Legend and Coldplay’s Chris Martin used Instagram Live to perform after tour dates were cancelled. Elton John launched a classic concert series on YouTube. As the pandemic continues, virtual and augmented reality events will become a more significant part of the entertainment sector. Sony has bought itself the chance to become a leader in the industry.
The Japanese tech group has acquired a 1.4 per cent stake in US-based Epic Games for $250m. Epic Games, the company behind multiplayer combat smash hit game Fortnite is also the creator of Unreal Engine, which creates design tools for developers. As well as developing games it could be used to make virtual reality events more immersive.
Sony’s stake is expensive. The deal values Epic at nearly $18bn — more than 20 times the valuation Tencent agreed to when it took a 40 per cent stake for $330m eight years ago. As a minority shareholder, Sony will not gain a meaningful influence over Epic Games’ plans either.
But as Sony readies for the launch of its next generation PlayStation 5 console this year, new game visuals made in collaboration with Unreal Engine show great potential. New games with better graphics should boost demand for PlayStation VR headsets. Sales of 5m units in the three years since launch have been stronger than expected but remain small as a portion of total company sales.
What Sony gains will go further than games. Fortnite which now doubles as a social media platform, could also be used to distribute Sony’s portfolio of music and films.
Sony shares are up 30 per cent in the past year, reflecting approval for the company’s strategy. Yet even after those gains, Sony trades at an enterprise value at 1.4 times forward sales — a fraction of global peers including Nintendo and Tencent.
Sony’s upcoming new console launch is enough to underpin share prices this year. Its deal with Epic Games gives the price even more space to run.
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