Sony Shares Fall Sharply After News of Microsoft Deal for Activision Blizzard

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That is a potential threat to Sony, whose PlayStation console competes with the Xbox. The two tech giants also clash head-on in subscription videogame services that offer game libraries, with Sony’s PlayStation Plus going against Microsoft’s Game Pass.

The Activision acquisition shows the U.S. software giant intends to escalate the fight for videogame dominance, and rivals could see Microsoft reserve popular games for its own offerings, Asymmetric Advisors strategist Amir Anvarzadeh said in a note.

“The headwinds for Sony [are] only going to get tougher,” Mr. Anvarzadeh said.

Still, some analysts said the stock-price drop was overblown because the videogame business accounted for only a little more than a quarter of Sony’s operating profit in the most recent half-year.

The Tokyo-based company’s movie and television business is doing well, helped by its latest Spider-Man blockbuster, “Spider-Man: No Way Home.” Another Sony business less visible to consumers—its supply of image-sensing semiconductors to customers such as Apple Inc. —is also benefiting from strong demand.

“Games is surely one of its main businesses, but they’ve also got electronics, chips, movies etc.,” said Naoki Fujiwara, a fund manager at Shinkin Asset Management.

Sony’s PlayStation Plus service, which costs $5 to $10 a month, had 47.2 million subscribers as of Sept. 30, 2021, giving it an edge over Microsoft, which said Tuesday that Game Pass has 25 million subscribers.

Sony’s PlayStation 5 console, introduced in late 2020 around the same time as Microsoft’s latest Xbox, has proved popular, and Sony’s only problem has been making enough of them to meet demand during the global semiconductor shortage.

The videogame business helped make Sony shares one of the pandemic’s stock-market winners. They rose 92% between the beginning of 2020 and last week.

But as the pandemic effect faded, Sony saw little growth in PlayStation Plus in the first three quarters of 2021, and now it faces a competitor bulking up.

Activision supplies some of the most popular games for PlayStation, such as the “Call of Duty” series. Whether that relationship will continue is one of the big questions of the Microsoft deal.

Antitrust regulators in the U.S. and abroad are likely to look at the Microsoft acquisition, including whether its ownership of Activision would give it an unfair edge in competition. Microsoft’s Phil Spencer said the transaction would help his company offset mobile platforms’ control over videogame distribution.

Sony has also sought to add to its content holdings, although its purchases are much smaller than Activision. Last year, Sony acquired a string of videogame studios including U.S.-based Bluepoint Games and U.K.-based Firesprite Games.

At the CES technology show this month, Jim Ryan, chief executive of Sony Interactive Entertainment, said the company now has 17 videogame studios in its family. He also said Sony would make a new virtual-reality headset to go with its PlayStation 5.

Microsoft tried to outdo Mr. Ryan on Tuesday, saying that if it completes the Activision deal it would have 30 videogame studios.

The newly sharpened rivalry between Sony and Microsoft comes after a thaw in 2019, when the two companies’ chief executives, Kenichiro Yoshida and Satya Nadella, shook hands and agreed to explore using Microsoft’s Azure cloud-computing service for Sony videogame services.

Since then, few further details have emerged. A Sony spokesman said Wednesday that the two companies were still talking about jointly developing cloud solutions for videogames in the medium to long term.

Write to Kosaku Narioka at kosaku.narioka@wsj.com and Yang Jie at jie.yang@wsj.com