Tencent Games Strategy 2019 - Niko · China Games Market Intelligence: Tencent Games Strategy 2019...

TencentGamesStrategy2019

2

ChinaGamesMarketIntelligence:TencentGamesStrategy2019

TencentGamesStrategy2019 TencentisaChinesetechnologyconglomeratefoundedin1998.Itisoneofthetop10publiccorporationsglobally,bymarketcap,andisoneoftheworld’slargestventurecapitalandinvestmentfirms.Tencent’ssuccessisatleastpartiallyattributabletoWeChatandQQ,whicharetwoofthelargestsocialmessagingplatformsglobally(despitebeingusedprimarilyinChina).Itisalsothelargestgamingcompanyintheworldbyrevenue,havinggeneratedgamesrevenueof$19billionin2018. China’sgamesmarketwasrockedbyatemporarygamelicenseapprovalfreezebetweenApril2018andDecember2018,whichledtoTencentreportingitsfirstprofitdeclineever.Despitethis,thecompanyhasbeenabletoweatherthestormandmaintainitsleadershipposition.ThisreportdescribestheboldstrategyforgamesthatTencenthasdisclosed. Tencent’searningsandoutlookforQ22019TencentreportedQ12019revenueof$12.69billion,up16%YoY,primarilydrivenbyanincreaseinPayment,CloudandAdvertisingrevenue.OperatingProfitwas$5.46billion,up20%YoYwithoperatingmarginincreasingto43%from42%lastyear.Totalgamingrevenuedeclinedslightlyto$5.2billion,down2.2%YoY.ThedeclinewasduetolowerrevenuefrombothTencent’smobilegameandPCgamesegments. Mobilegamerevenuedeclined2.3%YoY,primarilyduetofewertitlesbeinglaunchedduringthequarterwhencomparedtothesameperiodlastyear.Therewere8newmobilegameslaunchedinQ12018comparedtojust1inQ12019(whenlicensingwasjustgettingbackunderway).PerfectWorldMobile,whichreceivedalicenseatthebeginningoftheyear,wastheonlynewgametolaunchduringthequarter,generatingrevenuesofover$100millioninitsfirstmonth.PerfectWorldMobileisanRPGgameforsmartphonesthathasbeenadaptedfromthePCgameofthesamename.ThetitleisdevelopedbyPerfectWorldEntertainmentthemselvesandpublishedbyTencent. Existing(legacy)titlescontinuedtoperformwellwithHonorofKings(knownasArenaofValorintheWest)remainingthe#1grossingmobilegameinChinaduringQ12019.TencentsawanincreaseinDAUacrossitsmobilegameportfolioandpayingusersincreasedquarteronquarter,thankstoChineseNewYearpromotionsandtheintroductionofseasonpassesandsubscriptionsacrossPUBGMobile,HonorofKings,CrossFireMobileandQQSpeedMobile.SeasonpassesinF2PgameswerepopularizedbyFortnite’sbattlepasslastyearandTencentiscurrentlyexperimentingwiththismonetisationmethodinitshitlegacygames.

3


PCOnlinegamerevenuedeclined2.1%YoY,duetothelackofnewtitlelaunches.LeagueofLegendsremainsTencent’shitPCgamewithuserengagementandspendincreasingover2018. WecredithighuserdemandtothesuccessofLeagueofLegendsesportswithChineseteamInvictusGamingwinningtheLeagueofLegendsWorldChampionships.Dungeon&FighterhasalsobeenatopperformerwithpayingusersincreasingquarteronquarteraftertheChineseNewYearupdate. Tencent’soverseasgamesandearningsfrominvestmentsalsoplayedapartasPUBGMobilereached100millionmonthlyactiveusersoutsideChinaandhasnowgeneratedlifetimerevenueofnearly$400millionoverseas.TencentownsamajoritystakeinSupercell,whohavepublishedanotherhitinBrawlStars.ThecompanyownsminoritystakesinEpicGamesandGarenawhohavefoundsuccesswithFortniteandFreeFree,respectively. Q22019OutlookisPositiveWeexpectgamesrevenuetoseeanotableincreaseyearoveryearasthecompanyplanstoreleasePeacekeeperElite,GameofThrones:WinterisComing,JXOnline3Mobile,OnceUponaTime,FairyTaleMobile,AceForceWarriorandTheRhythmofTheCloudsandDreams.WeexpectPeacekeeperElite,whichisTencent’snewbattleroyaletitle,tobethestandoutgameduringthequarterasplayersfromtherecentlycloseddownPUBGMobilemigrateoverandspendinthegame.ThelargeportfolioofgamessettolaunchduringthequarterisalsoapositivesignfortheindustrythatChinesegamecompaniesarereturningtoahealthyreleaseschedule. PeacekeeperElitewillbeTencent’skeytitlefor2019PeacekeeperElitelaunchedonMay8,2019asTencent’snewself-developedbattleroyalegamebyTencent’sLightspeed&QuantumStudio,publishedbyTencentGames.ThetitlelaunchedwithzeromarketingorannouncementpriortolaunchyetisalreadysettobecomeoneofTencent’smostsuccessfulgamesever.ThegameisessentiallyacarboncopyofPUBGMobilewithafewslightchanges,andconvenientlylaunchedthemomentthatPUBGmobilewasshuttered. TencentclosedPUBGMobileinChinaonMay7,2019asthegame,whichhadbeenonthemarketsinceJanuary2018,hadstillnotreceivedalicensethatallowedTencenttomonetisethegameinChina.Meanwhile,PeacekeeperElitedidreceivealicensetomonetiseinApril2019andTencentdecidedthatit’dbeeasiertoclosedownPUBGMobileandmigrateall150millionmonthlyactiveuserstothenewgamewheretheycouldbemonetised,ratherthancontinuetooperatePUBGMobilewithnowaytomonetiseit.

4


WhilstanofficialreasonwasnevergivenastowhyPUBGMobilewasnotawardedalicensetomonetise,wenotethatanunofficialbanonKoreangameIPandrulessurroundingbattleroyalegamesinChinamayhavebeencontributingfactors,becausetheoriginalPCversionofPUBGisabattleroyalegamedevelopedinKorea.AstatementfromChina’sAudio-VideoandDigitalPublishingassociationinOctober2017notedthatbattleroyalegamesshouldstrivetoremoveasmuchviolenceaspossible,incorporateChinesevaluesandtakeintoaccountthehealthofminors(whowerespendingmanyhoursonsuchgames). Asthegamecanbemonetised,PeacekeeperElitealreadyhasastorethatsellsskins,weaponsandotheritems.WeexpectTencenttoaddadditionalmonetisationoptionssuchasabattlepassandmorelootboxoptionsinthefuture.It’scleartousthatTencenttookanumberofstepstoself-developabattleroyalegamebasedon“domesticIP”,thatdidnotutiliseaKoreanIPandexplicitlyfollowedcontentregulations,suchasremovingbloodsplatter,inordertoobtainalicense.GreatnewsforTencent,astheycannowmonetiseamobilebattleroyalegameinChina,yetnotthebestofnewsforPUBGCorpwhomaynotseeanyoftheprofitfromPeacekeeperElite’soperationinChina. Thegamehit#1ontheiOSgamerevenuechartinChinaonday1(May8th)andwenotethatthegamehasremainedatthetopofthechartssincelaunch,alternatingbetweenthe#1and#2positions.Weestimatethatthegamecouldgenerategrossrevenuesofover$150millioninitsfirstmonthandhasthepotentialtogrossnearly$1billionbytheendoftheyear,makingthetitleoneofTencent’smostsuccessfulgames.CoupledwithPUBGMobileoverseas,webelievethatthebattleroyalegenrewillbeakeydriverofgrowthforTencentthisyear. WenotethatTencenthasbeenabletolaunchbattleroyalegamessuchasPUBGMobileoverseasandPeacekeeperEliteinChinawhilstalsoaddingbattleroyalemodestoexistinggamessuchasHonorofKingsandCallofDutyOnlinewhichhashelpedboostengagementandspendinthegames.However,TencentisstilllookingtoobtainlicensesforFortnite,H1Z1BattleRoyale,RingofElyssiumandCallofDutyMobileBattleRoyaletomonetisethesegamesinChina.IfTencentisabletoreceivelicensesforthesegames,thecompanywillbeabletogrowandenhanceitspresenceinthepopularbattleroyalegenre. Agrowingpipelineofdiversifiedtitleswilldriverevenuegrowthin2019Tencenthastakenanumberofstepstogrowanddiversifyitsgameportfoliotoensurethatitcanhaveapresenceacrossallgaminggenresandcreategamesforunderservedsegmentsofthemarket.Thecompanyiscarryingoutthisinitiativebyself-developingnewgames,licensingthird

5


partygamesandbyinvestinginandacquiringdeveloperswhocanaugmentTencent’sexistinggamepipeline.ThiswillgiveTencentagreaterpresenceacrossallgaminggenresandsegments,allowingthemtoquicklyrespondtonewtrendsandreduceanynegativeimpactfromnewregulations. ThisisoneofthewaysthatTencentwasabletoweatherthestormlastyearduringatemporarygamelicenseapprovalfreezewhenChina’sgamingregulatorstoppedapprovingnewlicensesforgameswhilstitrestructuredandreformedbetweenApril2018andDecember2018.Despitebeingunabletoobtainnewlicensesforgames,Tencentwasstillabletoreleasemorethan30gamesduringthisperiodastheyalreadyhadalargenumberofgamesfaralongindevelopmentthathadbeenawardedalicensepriortoApril2018.ThishelpedTencentgrowitsgamingrevenue8.9%YoY,whichwasdowncomparedto41.5%growthintheprioryear,butit’sworthnotingthesituationcouldhavebeenmuchworse. DomesticgamesOnMarch24,2019,TencenthelditsannualUPconferencewhereitshowed20titlestodemonstratehowthecompanywasenhancingitsgamesoftwarepipelineanddiversifyingitsline-up.WhilstanumberofthetitlesweretraditionalRPG’sandShooters,TencentintroducednewSandbox,simulation,survival,rougelike,andinteractivegamesthataresettolaunchthisyear.ThecompanyalsofocusedonglobalgameswhicharetitlesthatthecompanyplanstodevelopandpublishinChinaandoverseas. Keytitlesshowcasedduringtheeventinclude: DragonRaja–AmobileMMORPGgameadaptedfromJiangNan’snovelofthesamename.ThegameissaidtobeTencent’snextgenerationRPGandwillbedevelopedonUnrealEngine4withultra-realisticgraphics,anopenworldandmore.Playerswillbeabletoexplorethesemi-futuristicworldofthenovelsandsolvemysteriestosavetheworld.ThegameisdevelopedbyLoongEntertainmentandwillbepublishedbyTencent.Wenotethatthegamehasover9millionpre-registrations. JXOnline3Mobile–A3DmartialartsMMORPGgamethatisadaptedfromthePCgameofthesamename.ThegamehasanewuniqueartstylethattakesadvantageoftraditionalChinesecultureandarttoimmersetheplayerinthegameworld.MartialartscombatinPVEandPVPmodesisavailableandanewcounterattacksystemwillbeintroduced.ThegameisdevelopedbySeasunandwillbepublishedbyTencentinthesecondquarterof2019. Wenotethatthegamehasover12millionpre-registrations.

6


AceForceWarrior–Aheroshooterthatcombinesshooter+MOBA+RPGelementswithcartoonstylegraphics.Playerscanchoosetoplayfromnearly30heroesinthegame,eachwithuniqueskillsandweapons.ThegamealsocontainsmultiplegamemodessuchasAssault,baseoccupationandmore.ThegameissimilartoOverwatchintermsofgameplayandstyle.Thegameisself-developedbyTencent’sMoreFunstudiogroupandissettobepublishedinthesecondquarterof2019.Wenotethatthegamehasover8millionpre-registrations.GameofThrones:WinterisComing–AsimulationgamebasedontheworldofHBO’spopularTVshow,GameofThrones.AsthegameisofficiallylicensedbyHBO,itutilisesofficialcharacterportraitsandstorylines.Inthegame,playersmustplan,build,exploreandbattleopponentsinarealtimestrategygametoclaimtheironthrone.ThegameisdevelopedbyYoozooandwillbepublishedbyTencentattheendofJuneinChina. ReEvolve–AsandboxgamewithstylisticgraphicsthatcontainsbothaPVEandPVPmode.Inthegame,playersmustdecidewhethertosavetheworldorendtheworldbyexploringanimmersiveopenworldwheretheywillminenaturalresources,craftnewitemsandbuilddefences.WenotethatthetitleborrowsanumberofgameplaymechanicsfromalreadyexistinggamessuchasMinecraftandTheLegendofZeldatocreateauniqueexperience.ThegameisdevelopedbyPerfectWorldandwillbepublishedbyTencent. Code:Live–Anopenworldco-opsurvivalgamewithShooterandRPGelements.Thegamehasarealisticartstyleandcontainszombiehordes,similartoDaysGoneandStateofDecay.Inthegame,playersmustsurvivetogetherbybuildingdefencesandfightingoffzombies.Thegameisaself-developedtitlefromTencent’sLightSpeedandQuantumstudios. Tencenthasbeenself-developingtitlessince2003andsomeofthecompany’smostpopulargames,suchasHonorofKingsandLeagueofLegendsaredevelopedbyTencent’sinternalgamestudios(Tencentpurchased100%ofRiotGamesin2015).TencentalsoactsastheoperatorforoverseasgamedeveloperswhowanttobringtheirgamestoChinaasaChineselawstatesthatforeigndeveloperscannotoperateanonlinegameinChinathemselvesandmustworkwithalocalpartner.AtrendthatwehaveseenacceleraterecentlyisTencentpublishingtitlesthathavebeendevelopedbyfairlylargedomesticgamedevelopers,eventhosethathavetheirownpublishingunit. RecentgamesdevelopedbydomesticChinesedevelopersandpublishedbyTencentincludePerfectWorldMobileandTheRhythmofCloudsandDreamsfromPerfectWorldEntertainment,TheWorldofLegendandDragonNestfromShandaGames,GameofThronesfromYoozoo,DragonOathfromChangyou,JXOnline3MobilefromKingsoft/SeasunandBlueMoonLegendfromKingnet.Despitehavinggamepublishingcapabilities,themselves,moredomesticgame

7


companiesarechoosingtoallowTencenttodistributetheirgameduetothecompany’sexperience,distributionchannelsandadvertisingreach. TencenthasanadvantageinChinaduetomorethan20yearsofexperienceoperatingsocialnetworksinthecountry.QQandWeChathavemorethan1billionusersinChinaandarealsousedasadistributionandadvertisingchannelforgames.GamesthatarepublishedbyTencentareabletousethesesocialnetworkstotheiradvantage,notjusttodistributeandadvertiseaboutthegame,buttofullyintegrateateverylevelincludingaccountloginsandpayment.ChinesedomesticdevelopersarediscoveringthatworkingwithTencenttopublishtheirgameinChinawouldallowthemtoreachalargeraudiencethantheyevercouldandallowthemtoearnmoreoverallthaniftheyweretoself-publish. ForeignGamesandGlobalStrategy Tencentisastrongpartnerforforeignpublishersduetoitsexperienceinvideogamedevelopmentandpublishing.Thestrategyalsoincludesinvestmentsingamingcompaniesthataugmentitsexistinggamesandpipeline,pickingupontrendsforgrowthareasglobally.TencentleveragesitspartnersexpertisewhenlaunchingitsowngamesandassistspartnerswithgamedevelopmentandlocalisationfortheChinamarket.

8


TencentGamesInvestments/M&A(Foreigngamepublishersonly)CompanyName Majority/Minorityshareholder Stake(%)RiotGames Majority 100%Sharkmob Majority 100%Supercell Majority 84.3%MiniClip Majority UndisclosedGrindingGearGames Majority 80%EpicGames Minority 48%SEA(Garena) Minority 39.7%ActivisionBlizzard Minority 5%Bluehole Minority UndisclosedCJGames(Netmarble) Minority 28%FrontierDevelopments Minority 9%GluMobile Minority 21.5%PocketGems Minority 38%KakaoGames Minority 13.5%Ubisoft Minority 5%PatiGames Minority 20%RobotEntertainment Minority UndisclosedParadoxInteractive Minority 5%MilkyTea Minority UndisclosedFatshark Minority 36%TencentisthetoppartnerofchoiceforgamelocalisationinChina,withforeignpublisherssuchasActiivision,ElectronicArts,TakeTwo,Ubisoft,NexonandothersworkingwithTencenttolocaliseandpublishtheirIPinChina.Tencenthasrecentlystartedtodeepenitspartnershipswithforeigngamepublishers,obtainingalicensetodevelopandpublishnewanduniqueversionsofforeigngameIP. PUBGMobileisthegreatestexampleofthis,withTencent’sinternalstudioshavingdevelopedthegameandpublisheditoutsideChina.ThegamehasbeenahitforTencentontheglobalstageandhasgeneratedgrossrevenuesofnearly$400million.TencentrecentlyobtainedalicensefortheCallofDutyfranchisefromActivisionandisdevelopingCallofDutyMobileforaglobalaudience.StreetFighterOnlineisanotherself-developedtitlewheretheIPhasbeenlicensedfromCapcom.OneotherwaythatTencentisaimingtogrowitsoverseaspresenceisthroughtheacquisitionofforeigngamedeveloperstocreatenewgameswhichwillbepublishedinChinaandoverseas.This

9


strategyhasworkedforTencentinthepastwiththeacquisitionofRiotGamesandminorityinvestmentinEpicGames,whichallowedthecompanytobecomethelargestPCgamepublisherwithLeagueofLegendsandFortnite,aswellastheacquisitionofSupercell,whichallowedTencenttobecomethelargestmobilegamedeveloperwithClashofClans.TencentiscurrentlylookingintoacquiringNexon,thepublisherofDungeon&Fighter,asthecompanyiscurrentlyforsale. TencentrecentlyacquiredSharkmob,aSwedishgamedevelopmentstudiothatwasfoundedbyagroupofexUbisoftemployeesthatworkedonTheDivision.SharkmobiscurrentlydevelopinganonlinegamewithanimmersivesocialexperienceforlargegroupsofgamersacrossmultipleplatformsthatTencentwillpublishinChinaandoverseas.TencentalsoannouncedajointventurepartnershipwithSquareEnixthatwillseebothcompaniescreateAAAtitlesbasedonnewIP,creategamesbasedonexistingIPandbringSquareEnixtitlestoChina.WeholdapositiveviewofTencent’soverseasgamingstrategybutnotethatthereisstillalongwaytogobeforeTencentbecomesahouseholdnameintheWest.Tencent’sinvestmentinBuytoPlayhelpsthemreachanichesegmentWeGame Tencentcurrentlydominatesthefreetoplay(F2P)PCandMobilegamesmarketbuthasnothadalargepresenceintheBuytoPlay(B2P)spaceonPC,MobileandConsole.ThisisprimarilybecauseB2PhasnotbeenabigsegmentinChinabeforeandtheinvestmentwasnotworthit.NikoPartnerstrackedtheB2PmarketwhengamesweresoldaspackageddiscsforPCintheearly2000’s.Thesegameswereusuallysingleplayeronly,soldatretailandveryexpensive.PiracyrateswereextremelyhighforthesegamesanditmadetheB2Pmarketcompletelyunviableforallgamepublishers. OverthepastfewyearswehaveseentheriseoftheB2Pgamesmarketasdigitaldistribution,higherdisposableincomes,DRMsoftwaretocombatpiracyandthegrowthofPConlinegamedistributionplatformsinChinahasledtopublishersbeingabletosuccessfullymonetisegamesbothatlaunchandpostlaunch.SteamhasbeenakeyplatformbehindtheriseofB2PgamesinChina,offeringgamerslocalisedgames,localpaymentmethodsandavarietyofpopularforeignAAAtitlessuchasDota2,GrandTheftAutoVandPlayerunknown’sBattlegrounds.Today,Steamhasmorethan40millionactiveusersinChinaandValveiscurrentlyworkingwithPerfectWorldtocreateaChinaonlyversionofSteam.

10


It’simportanttonotethattheinternationalversionofSteamcurrentlyoperatesinagreyareaasnoneofthegamesontheplatformhavereceivedalicensefromChina’sgamingregulatortolaunchandmonetiseinthecountry,yettheplatformremainsopenandoperable.ThisisalsotrueforotherB2PgamestoressuchasUbisoft’suPlaystore,EA’sOriginstoreandEpicGamesownstore.Today,B2PgamesonPCgeneratemorethan$600millioninChinaeachyear,accountingforapproximately5%oftotalPCgamesrevenue. TencentlauncheditsownB2PPCgamedistributionplatforminSeptember2017calledWeGame,withtheaimtodistributebothdomesticandforeigntitlestogamersinChinaandtakemarketshareawayfromcompetingplatformssuchasSteam.UnlikeSteam,TencentisplayingbytherulesinChinaandrequireseachandeverytitletobeapprovedbythegamingregulatorbeforelaunchingthegameonitsplatform.ThismeansthatTencentoffersamorestableplatformforpublishers,butalsorequiresforeigngamedeveloperstomakechangestotheirtitlestocomplywithcontentregulationsbeforetheycanrequestalicensetopublishinChina.ThisprocessislongandcumbersomewhichmeansmanysmallerdeveloperswillopttopublishgamesonSteamwherenoneofthisiscurrentlyrequired. TencentheldaWeGamedevelopersconferenceonMay10,2019whereitconfirmedthattheplatformnowhas300millionregisteredusersand70millionmonthlyactiveusers.Whilstthesenumbersarecertainlyimpressive,wedonotethatWeGamealsohostspopularF2PgamesfromTencentsuchasLeagueofLegendswhichinflatesthenumbers.B2Pgamesalesincreased56%YoYin2018withstandouttitlessuchasStardewValley,IceyandOxygenNotIncludedbecomingtopsellers.TencentalsonotedthattherehasbeenariseindomesticB2PgamesasChinesedevelopershaveexperimentedwiththebusinessmodel.Morethan5millionunitsofChinesedevelopedgamesweresoldonWeGamein2018. TencentfacesanumberofchallengeswithWeGameduetocontentregulationlawsandapprovaltimesinChina.Theplatformhasmorethan200titlestochoosefrom,butthispalesincomparisontothemorethan5,500gamesonSteamthathavebeenlocalisedintoChinese.InAugust2018,TencentlaunchedCapcom’sMonsterHunterWorldontheWeGamestore.Thetitleachievedmorethan1millionpre-orders,buteveryuserwasrefundedafteroneweekafterregulatorsorderedTencenttoremovethegameasitdidnotcomplywithcontentregulations.Thegamehasyettorelaunchontheplatformnearlyoneyearlater,likelybecausethegamewasresubmittedforapprovalduringthetemporarygamelicenseapprovalfreezeandhasnotbeenreviewedyet. Tocombatthesechallengesandbringmorecompliantgamestotheplatform,TencenthasextendeditsWingsDeveloperProgramtobothoverseasanddomesticdevelopers.WeGamewillnowaimtopartnerwithdevelopersthatarecreatinguniqueandcontentcompliantgamestoprovidethemwithresourcesandsupporttohelpdevelopthegameandlaunchitonWeGame.

11


Tencentisalsoimprovingtheplatformitselfwithabetterreviewsystem,improvedvoicechatcapabilitiesandanewcustomersupportprogram.AsTencentusesWeGametodistributeF2PPCgamestoo,webelievethatthediscoverabilityforB2Pgamesontheplatformishighandexpectsalesofthesegamestoincreaseasmoretitlescometotheplatform. NintendoSwitchTencentconfirmedonApril26th,2019thatitwouldbetheexclusivedistributorofNintendoSwitchhardwareandsoftwareinChina,markinganofficialentryintotheconsolemarketforthecompany. ConsoleshavenotbeenafocusforTencentinthepastduetotheconsolebanwhichlastedfrom2000throughto2014.Whilstgreymarketconsoleswerepopularduringtheconsoleban,itiscleartousthatthebanhadanotableimpactonthepotentialsizeofthemarketasconsolegamesandbrandswerenotlocalisedorpromotedinthecountry.Evenwiththebanoverturned,theconsolemarketonlyaccountsforapproximately1%oftotalgamesrevenueinChina. TencenthasattemptedtolaunchconsolehardwareinChinabefore,basedonWindowsandAndroid,withzeroresultsastheywereexpensiveandfailedtoofferanythingunique.WhilsttheNintendoSwitchcanstillbeconsideredexpensiveforChina,itwilllikelybepricedcheaperthanitscompetitorsandwillofferauniquegamingexperiencethatisdifferentfromitscompetitors.NintendohasalreadytakenstepstoincreasetheappealofthedeviceinChinabyremovingregionlock,localisingsoftwareintoSimplifiedChineseandpublishedgamesthattakeadvantageoftheportableandtabletopgamingmodeswhichplayintothesocialgamingcultureinChina.WenotethatgreymarketsalesoftheNintendoSwitchhavebeenparticularlystrongwhichisapositivesignfortheofficiallaunch. TheNintendoSwitchcanbesuccessfulinChina,especiallyduetoNintendo’sstrongfirstpartyIPsuchasMarioandPokemonwhicharealsoknowninChina.TencenthasalreadyreleasedArenaofValoronSwitchandweexpectthemtobringothergamesandperhapsevenservicessuchasWeChatorevenTencentInstantPlaytotheSwitchinordertosupportthelaunchandpitchtheconsoleasaHDdedicatedgamingdevicetocomplimentalreadyexistingPCandMobilegamehardwareonthemarket.NintendohasachancetosurpassPlayStationasthemarketleaderinChina,butweshouldnotethattheconsolemarketinChinawillalwaysremainnicheduetothehighbarrierstoentry. TheNintendoSwitchhasalreadybeenapprovedforsalebytheGuangdongMinistryofCulturebutrequiresfurtherapprovalfromtheStateAdministrationofPressandPublicationandaChinaCompulsoryCertificatebeforeitcanbedistributedinthecountry.SoftwareforNintendoSwitchwillalsorequireindividualapprovalfromtheStateAdministrationofPressandPublicationbefore

12


theycanreceiveanofficialreleaseinChina.It’scurrentlyunclearwhenhardwarewillreceiveallapprovalsandsofar,nosoftwarehasbeenapprovedbythegamingregulator.Therefore,wedonotexpecttoseemorenewsontheNintendoSwitchlaunchuntilthishappenswhichweestimatetobetowardstheendof2019orbeginningof2020. WhilstNintendoandTencenthavepartneredtodistributetheSwitchinChina,wenotethatthepartnershipmayextendtootherareassuchasNintendo’smobilegamebusiness.NoneofNintendo’smobilegameshaveyettolaunchinChinaandweexpectTencenttolocaliseandpublishthesetitlesaswellasworkwithNintendotoadaptitsconsoleIPtomobiledevices.Whilsttheconsolebusinessmayremainniche,wewouldexpectaTencentandNintendomobilegamepartnershiptobemuchmorefruitfulforbothcompanies. Trendstowatchin2019InvestmentinEsportsTencentisalreadyadominantforceinChina’sesportsindustry,operatinghitesportstitlessuchasLeagueofLegends,HonorofKingsandPUBGMobile.TencentisbuildinganesportsecosysteminChinawithamorethan$1billioninvestmentingamelivestreamingplatformsDouyuandHuyaaswellasundisclosedinvestmentinesportstournamentoperatorVSPN.ThecompanyisinvestinginitsowngamesandintroducedthefranchisemodelfortheLeagueofLegendsProLeagueandKingProLeague.AttheUPconferenceonMarch24th,TencentrebrandeditsTencentGamesArena(TGA)esportstournamenttoTencnentEsportsGames(TEG),withthenewtournamentcovering30esportstitlesacross8professionalesportscompetitions. In2019,Tencentplanstooperatemoreesportseventthisyearatamuchlargerscale,especiallyafterthesuccessofChineseteamsinesportstournamentslastyear.LocalgovernmentsinChinaareseeingthepotentialinesportsandhavesignedagreementswithTencenttosubsidiseesportscompetitionsandboosteconomicgrowth.Wenotethatesportsiscurrentlyseenasawaytoincreaseengagementandspendwithingamesandthemainvaluebeinggeneratedistherevenuefromthesegames.Asesportsgrowsandissupportedbymorestableinfrastructure,wewouldexpectittobecomeamorematerialandprofitableventureforTencent. Newtechnologyingames(AR+LBS+Blockchain)TencentisconstantlyinvestinginR&Dtocreatenewwaystoplayandengagewithgames.We’vestartedtoseenewtrendsemergingsuchasAugmentedReality,LocationBasedServicesGameplayandBlockchaingames.InApril2019,Tencentlauncheditsnewsmartphonegame‘Let’sHunt

13


Monsters’todemonstratehowthistechnologycouldbeimplementedintovideogames.ThegametakestheAR+LBSelementsfromPokemonGoandcombinesitwiththeBlockchainelementsfromCryptokittiestocreateasocialmobilegamebasedonChinesemythology. Inthegame,playerscanfindandcapturevirtualmonstersintherealworldandthenrearandtradedigitalkittensstoredonablockchain.Eachkittenisuniqueandholdsrealworldvalueastheycanbetradedonanofficialingamemarket.Thecoregameitselfhasbeenreceivedpositivelyfromplayersandthetitleisatop10grossinggameontheiOSgameschartinChina.WhilstLet’sHuntMonstersisnomorethanatechdemoandproofofconceptatthispoint,itshowswhatcanbepossibleinfuturegames. GrowthofMiniGamesMinigamesandsupercasualgamesaremakingacomebackthankstosocialmediaappssuchasWeChatandQQinChina.WeChatMiniGamesaresimple,socialandcontainacompetitiveelementtokeepplayersengagedandbringthembackdayafterday.Theyareperfectforfirsttimemobilegamersandcurrentmobilegamerswhoarelookingforasimpleyetchallengingexperience.TencentlauncheditsWeChatMiniGamesplatforminDecember2017andgamesontheplatformhavereachedmorethan400millionplayers,halfofwhicharefemale. TencenthasenabledingamepurchasesandadvertisingforthirdpartypublishersontheplatformandhasnowannouncedthatitwillbeenablingminigameswithinitsQQGameCentreappwhichhas300millionusers.Minigamesaregrowingthegamingmarketbybringinginnewgamersandlapsedgamerswithsimple,easytoplaygames.WeexpectplayersofWeChatminigamestomigrateovertomidcoreandhardcoregamesoverthenextfewyears.WhilstTencentistheleaderinthiscategory,manyothertechcompaniessuchasDouyinandTencentbackedKuaishouhavelaunchedtheirownminigameplatformsonmobile. CloudGamesand5GWith5GsettolaunchinChinathisOctober,thepossibilitiesofcloudgameshavemovedfromconcepttoafinalisedproductintheformofTencentInstantPlaywhichisacloudgamingservice.Cloudgamingwillallowgamestobestreamedfromaremoteserverinthecloudtoauser,removingtheneedforhighspechardwareandallowinganygametorunonanydevice.TencentInstantPlaypromisesthatgameswillrunin1080pat60fpsacrossPCandMobiledeviceswitharesponsetimeoflessthan40ms. TencentiscurrentlytestingthistechnologywithaclosedtestforusersinShanghaiandGuangdong.Cloudgamingisanemergingtrendin2019andwillallowthegamingmarkettogrow,

14


reachnewgamers,andoffernewwaystoengagewithgames.TencentalreadyhasarobustcloudbusinessinChinawith75%ofthetopmobilegamesinthecountryusingTencentGamingCloudalready.WebelieveTencentisuniquelypositionedtobecometheleaderinthecloudgamingmarketduetoitsexperienceincloudandgaming,nottomentionthatitwillnothavetocompetewithothercloudgamingplatformssuchasGoogleStadiaduetoGoogleservicesbeingbannedinthecountry. Outlookfor2019Withmorethan20titlesshowcasedatTencent’sUPconference,acommitmenttoesportsandincreasedinvestment/M&Ainthegamingspace,it’sclearthatTencentiscontinuingtofocusongamingasakeydriverofgrowthin2019.

Tencent Games Strategy 2019 - Niko · China Games Market Intelligence: Tencent Games Strategy 2019...

Documents

Transcript of Tencent Games Strategy 2019 - Niko · China Games Market Intelligence: Tencent Games Strategy 2019...