Mergers and acquisitions in the games industry are picking up after "an extended quiet period," according to a new third-quarter report from Drake Star Partners.

Why it matters: Consolidation is likely to make gaming's giants even bigger.

• But it also brings the risk of further job cuts in an industry racked by layoffs this year.

Details: Drake Star tracked 33 M&A deals worth around $5 billion between July and September.

• By the sheer number of deals, that was a two-year low. But the deal value easily exceeded three of the last five quarters, when all the deals tallied in each period totaled less than $1 billion.
• M&A deals for 2023's third quarter included mobile gaming firm Playtika's purchase of Youda Games and Innplay Labs for around $450 million as well as the successful $1.7 billion offer led by Goldman Sachs to take educational gaming platform Kahoot private.
• Drake Star also counted nearly $1 billion in private investment for the quarter, up from the spring. Investments were primarily in PC, console or blockchain companies.

What they're saying: "Based on our discussions with many of the top gaming companies in the last weeks, we expect the deal volume to increase steadily over the next year," Drake Star partner Michael Metzger tells Axios.

• Metzger anticipates Tencent, Sony, Take-Two and Savvy/Scopely will be the most active buyers in 2024, while the Embracer Group is expected to divest more studios.
• Public companies, including Nintendo, EA and Nexon, are sitting on $45 billion in cash and cash equivalents, setting up the potential for more M&A, according to venture capital firm Konvoy Ventures.

Yes, but: It's been a year of panic for industry pros, who have despaired over job cuts and lessening investment.

• That bleak climate has come despite expectations by analysts that the gaming industry is returning to growth following a post-lockdown correction.

What's next: Metzger sees some hope for developers and firms seeking investments, thanks to an increase in venture capital funds focused on gaming.

• "While it is true that it is harder for founders to raise an early stage round and even harder to raise a growth/late stage round compared to 2021, it is also true that we have never had more gaming-focused VC funds than now," he says.
• He pointed to Bitkraft, A16Z's gaming fund, Play Ventures, Griffin Gaming, Vgames and Makers Fund as examples, and said "several of them are in the process of raising follow-up funds."
• "Valuations have come down, but that also makes it more attractive for VCs to invest now in the future unicorns."

Microsoft finally has some momentum again for its gaming business, reporting a 13% jump in revenue from gaming content and services compared to the same July-September period a year ago.

Why it matters: Microsoft, perpetually in third place in the console gaming market, has needed a big game to keep up with the pack.

• It is seeing positive results, at least early on, with September's Starfield, which the company says has been played by more than 11 million people. (The game can be purchased outright or played via an Xbox Game Pass subscription.)
• Last fall, Microsoft was reporting a 12% year-on-year drop in its gaming and content revenue.

Between the lines: Microsoft's gaming division has struggled due to a lack of games.

• Xbox didn't have a major game release in late 2022 nor early 2023.
• While Microsoft's gaming revenue is on the rise, hardware revenue was down 7% in the summer quarter, as Xboxes remain a tougher sell than PlayStations and Switches.

Of note: Microsoft shuffled its Xbox leadership today, in a memo first reported by The Verge.

• Sarah Bond, previously a corporate VP at Xbox, is becoming president of Xbox, reporting to Microsoft gaming chief Phil Spencer.
• Matt Booty, already head of Xbox Game Studios, will now be Microsoft's president of game content and studios, officially putting the ZeniMax family of studios (Starfield-maker Bethesda, Doom-maker id, Indiana Jones-maker Machinegames) that were acquired in 2021 into his portfolio. ZeniMax will continue to operate under its president, Jamie Leder, as "a limited integration entity," per The Verge.

Insomniac Games issued a downloadable update to its hit PlayStation 5 game, Marvel's Spider-Man 2, that replaces Cuban flags for Puerto Rican flags. And it promised to "do better."

Driving the news: The hit game, which sold 2.5 million copies in its first day of release, had incorrectly displayed Cuban flags in the home and neighborhood of Spider-Man Miles Morales, who is of Puerto Rican descent.

• Players pointed out the mistake on social media swiftly after the game's release last Friday.
• That same day, Insomniac promised a fix.

Between the lines: The Puerto Rican and Cuban flags are similar in design and are both red, white and blue, but the colors are arranged differently.

What they're saying: "We understand that accurate representation matters, and greatly regret this error," the studio stated on X, formerly Twitter, today, as it announced the flag-fixing patch was available. "We sincerely apologize."

The big picture: Accurate representation of diverse cultures is a perennial topic in video games, which have traditionally not been made by diverse teams and have often traded in stereotypes.

• For its Spider-Man games, Insomniac has populated the virtual New York City where they're set with a diverse array of civilians and has included missions highlighting the city's multicultural strengths.
• An unlockable "boricua" alternate Spider-Man costume for Miles Morales is based on the Puerto Rican flag, displaying it correctly from the start.

🎮 Connie Booth, who started at PlayStation in 1997 before the platform's launch and was head of internal game production, is no longer at the company, as first noted over the weekend by former PlayStation developer David Jaffe.

• Booth's Hall of Fame credentials include production oversight of PlayStation classics ranging from Syphon Filter and Ratchet & Clank to The Last of Us and Marvel's Spider-Man.
• Booth has not commented, and Sony has not clarified the reason for her exit. In a statement to Axios, a PlayStation rep said Booth "helped drive the success PlayStation Studios is experiencing today and her passion in fostering an environment where a team's creative vision could fully flourish has left a positive impact on many game developers."
• "We're thankful for Connie's numerous contributions to the company and wish her the best in future endeavors."

☹️ Sony's Media Molecule studio, makers of LittleBigPlanet and Dreams, says it is laying off some workers, following "significant strategic changes."

🤔 Nintendo's newly issued policies around community-run tournaments of its multiplayer series like Smash Bros. prohibit competitions of more than 200 people in person, among other restrictions. A ban on non-licensed controllers has drawn criticism from fans who say it will make it harder, or even impossible, for players who need more accessibility options, to compete.

👀 Ubisoft reported net bookings (read: player spending) of €822 million ($868 million) for April-September, up from a year ago, on the strength of "double-digit" bookings growth in its tactical shooter Rainbow Six Siege as well as a "solid" launch for Assassin's Creed Mirage, the company told investors today.

• It said that oft-delayed pirate game Skull & Bones will ship by the end of March 2024, but it delayed another large game, rumored to be its Star Wars: Outlaws, to the 12 months beginning in April.

Friday, Oct. 27

• Alan Wake II (PC, PlayStation and Xbox) and UFC 5 (PlayStation, Xbox) are released.
• The "Five Nights at Freddy's" movie premieres on Peacock and in theaters.

Saturday-Sunday, Oct. 28-29

• A quiet weekend.

Monday, Oct. 30

• Resident Evil Village (iPhone 15 Pro/iPad; already out on PC and console) is released.

Tuesday, Oct. 31

• Jusant (PC, PlayStation, Xbox) and Little Goody Two Shoes (PC, console) are released.

Wednesday, Nov. 1

• Song of Nunu: A League of Legends Story (PC and Switch) is released.

Thursday, Nov. 2

• Star Ocean: The Second Story R (PC, PlayStation, Switch), My Time at Sandrock (PC, console), Robocop: Rogue City (PC, PlayStation, Xbox), The Talos Principle II (PC, PlayStation, Xbox) and Thirsty Suitors (PC, console) are released.

Friday, Nov. 3

• EA Sports WRC (PC, PlayStation, Xbox), Fashion Dreamer (Switch), and WarioWare: Move It (Switch) are released.

Alan Wake II, out on Friday, is a very promising thriller, based on my first five hours with it on PlayStation 5 (it's getting raves from folks who finished it).

• But forget the fascinating, multilayered narrative and the lovely rendition of the Pacific Northwest and even the ample gameplay improvements to the first Alan Wake game from 2010.

I'm really digging it because it has an interactive crime board.

• You've seen this kind of thing on TV or in the movies, I'm sure.
• You pin clues to a board, they get connected with red string, and then you zoom out, to suddenly make sense of things and crack the case.
• The game makes many of the connections for you, but just having that board and handful of clues to pin on it makes for some terrific role-playing.