Sony (NYSE:SNE) and Tencent (OTC:TCEHY) are the two largest video game companies in the world by annual revenue. Sony generates most of its revenue from PS4 consoles and games, while Tencent makes most of its money from mobile games.

That's why it was surprising when App Annie's annual "State of Mobile" report revealed that Sony's Fate/Grand Order was the highest grossing mobile game of 2019, marking the second straight year it beat Tencent's Honor of Kings. Let's take a closer look at Fate/Grand Order to see how it complements Sony's other businesses.

Promo art for Fate/Grand Order.

Image source: Aniplex.

A brief history of Fate/Grand Order

Sony Music's subsidiary Aniplex mainly publishes music and anime series. It eventually diversified into mobile games and launched Fate/Grand Order in 2015. The game was a mobile expansion of Type Moon's Fate/Stay Night, a visual novel franchise launched on Windows PCs in 2004.

Prior to Aniplex's launch of Fate/Grand Order, the Fate franchise had already expanded to console games, comics, anime, novels, spin-off series, and toys. Those products gave Fate/Grand Order a massive audience, especially across Asia, when it launched on iOS and Android devices.

Fate/Grand Order is a free-to-play RPG which encourages players to collect "servants" to fight their battles. Servants can be bought with "Saint Quartz", an in-game currency which can either be earned or purchased with real money. The game is particularly popular in Japan, South Korea, and China.

Aniplex publishes the game in Japan and North America, Netmarble handles the game in South Korea, and Bilibili (NASDAQ:BILI) publishes the Chinese version. Sega of Japan also launched an arcade version in 2018. Fate/Grand Order notably generates the lion's share of Biibili's gaming revenue, which accounted for over half of its top line last quarter.

Fate/Grand Order.

Image source: Aniplex.

What does Fate/Grand Order mean for Sony?

Aniplex is a subsidiary of Sony Music, so Fate/Grand Order's revenue feeds its music business instead of the game and network services (G&NS) division, which houses its PlayStation consoles, games, and services.

Sony Music's revenue grew 18% annually to 421.5 billion yen ($3.85 billion), or 11% of its top line, in the first half of fiscal 2019. The unit's operating income grew 19% to 75.8 yen ($690 million), or 15% of Sony's operating profits.

The growth of that division, along with Sony's growing image sensor business, offset the softer growth of its consumer electronics and PlayStation gaming divisions in recent quarters. For the full year, Sony expects Sony Music's revenue to rise 5% to 850 billion yen ($7.8 billion), but for its consolidation of EMI Music to reduce its operating profit by 40% to 140 billion yen ($1.3 billion).

Sony splits its Music unit into the Music Publishing, Recorded Music, and Visual Media and Platform divisions. Aniplex's business is included in the Visual Media and Platform segment, which generated 28% of the Music division's revenue (or 3% of Sony's total revenue) in the first half of the year. Sony doesn't break down its Visual Media and Platform's revenue by games, anime series, or other media content, but most of its business likely comes from Fate/Grand Order.

Is Fate/Grand Order losing momentum?

Fate/Grand Order is a major growth engine for Sony Music, but it could be losing its momentum as it approaches its fifth anniversary. Sony already stated that its Visual Media and Platform business generated lower sales in the second quarter, "primarily due to lower sales for Fate/Grand Order," but noted that the growth of its music publishing and streaming revenue offset that decline.

Aniplex also recently announced a new anime series based on Fate/Grand Order, which suggests that it's trying to revive interest in the aging game. Fate/Grand Order's slowdown might marginally impact Sony, but it could be more meaningful to publishers like Netmarble and Bilibili.

The key takeaways

Fate/Grand Order's success indicates that Aniplex could launch more Fate games to expand its mobile gaming business. That growth could complement Sony's larger PlayStation business, pull more licensing revenue from partners like Bilibili, and nurture the franchise's growth across other media platforms.