Main menu

Pages

Tencent chooses health over wealth in gaming revenue

featured image

When Tencent received approval for the first game in China over a year ago last week, there were neither high expectations among investors nor keen anticipation from gamers that another massive title was on the way.

The tech giant admitted it health defense It’s a little tutorial compared to big money earning hits like honor of kings. Tencent said at its annual game launch event in 2021 that the game will be part of its “social service,” using it to “promote knowledge of public health” and “explore more positive social values.”

The new mobile game was developed by a little-known subsidiary Nanjing Wangdian Technology, which is controlled by Tencent executives including co-founder Pony Ma, and was one of 73 games approved by the National Press and Publication Administration, in the fifth batch of licenses granted this year.

The approvals represented a gradual thawing of the industry after the country’s media watchdog froze gaming licensing in August 2021, as part of a broader social and economic drive to reshape Chinese society around the ideals of the Communist Party.

Daniel Ahmed, of Asian video game analyst Niko Partners, said he expects to approve more “healthy” games that align with the government’s social policy goals even though Tencent will make less money from the likes of health defense.

“We do not expect the company to be a high-level source of revenue for Tencent, as well as for Tencent,” Ahmed said.

Beijing restricted access to the games in other ways last year, such as preventing minors from playing them for more than three hours a week. It also imposed new antitrust measures against technology companies. Combined with the recent economic downturn, this has wiped out billions of dollars from the recorded valuation of Tencent, even though it remains the most valuable company in China by market capitalization.

Games have been a huge source of earnings in elevating the company to this position. The integration of games with the widespread super application WeChat, which is used by the vast majority of the population, immediately gave it access to a huge base of players.

But new Chinese measures to combat addiction appear to have curtailed that rule, at least among children. New research by Niko Partners finds that 77 percent of people under the age of 18 have reduced the time they spend playing each week, while the total number of young players has fallen from 122 million in 2020 at its peak to 82.6 million this year.

The vertical graph of the annual change in quarterly revenue (%) shows that Tencent's revenue growth is declining in 2022

With the extra scrutiny of content and titles allowing players to communicate within the game, there is also the risk of compromising the games’ appeal.

“It restricts the gameplay in many games through these methods,” said Ryan Lee, a former game developer at Tencent. “For example, red blood cannot appear in the game, and religion cannot appear.”

With revenue from Chinese gamers declining, value-added services, the business segment that includes games, accounted for 52 percent of Tencent’s revenue last year, a 10-year low and well below a decade high of 80 percent in 2014.

This year, Tencent stopped growing. The company posted negative first-quarter growth in the three months to the end of June and said it had cut staff. A management consultant for the company, who did not want to be named, said the divisions’ merger and cost-cutting may not be over yet.

Delays in approvals mean the Chinese market may have moved on to new types of games, and with such doubts, Tencent has focused on expanding existing franchises such as honor of kings And the league of legends.

“The advantage of Tencent lies in . . . existing IP and current approvals. These legacy products can be relied upon for [maintain revenue] “For a long time,” Lee said, adding that overseas markets were another major focus.

Tencent has increased investment in overseas game studios over the past two years and is chasing international growth. This month, it increased its stake in the French publisher Ubisoft, the maker of popularity Doctrine killer.

With the strength of its gaming portfolio and development resources, games are unlikely to stop being Tencent’s top revenue earners, said Ahmed, who predicted the industry would eventually bounce back thanks to the massive numbers of Chinese gamers.

“Gaming will always remain the company’s core business. Even if it generates a lower percentage of revenue, it doesn’t mean that total revenue will go down.

But for a developer like Li, the joy from work has faded. He said he lost his inspiration and felt his creativity stifled. “Gaming is getting healthier, less addictive, and less fun,” he said. “I feel like a machine.”

Comments