How Tencent Was Impacted by China’s New Game Regulations in 2018

How Tencent Was Impacted by China’s New Game Regulations in 2018 (The Esports Observer)

• After recording the strongest ever share price growth in 2017 (162% over 13 months), with revenues from games accounting for 41% of Tencent’s total revenue, the Chinese technology giant had to embark on a significant restructuring following the 2018 crackdown on gaming by Chinese regulators.
• New areas of revenue growth now focused on corporate services like the cloud, as well as online advertising and live-streaming.
• However, due to the sheer scale in China, Tencent still remains the world’s largest game publisher by revenue, and despite the difficulties, its revenue from games still made up 33% of 2018 revenues although it grew by only 6% yoy.

Analysis & Comments

• In a way, Tencent is the gateway to China for foreign game developers – over the years, the company has partnered with, or acquired ownership stakes in a large number of overseas game developers such as Epic Games (Fortnite), Ubisoft, Activision-Blizzard, Riot Games (League of Legends), and Take-Two Interactive.
• Two weeks ago, the Chinese State Administration of Press and Publications (SAPP) approved a number of foreign titles for the first time since the end of the nine-month freeze.
• While China has been approving games on a fairly regular basis, there were some concerns that licenses were only being granted to certain genres of games, or based solely on domestic IP. This new release clearly dispels that risk.
• As a reminder, there is considerable upside for the Western developers from releasing their IP in China via Tencent and/or NetEase. At the moment I treat this as a free option.
• Note that Ubisoft is waiting for approval for Rainbow Six Siege in China. The game is already a hit amongst Chinese gamers playing via Steam, but it is only possible to see considerable monetisation when publishing and marketing with a domestic player (Tencent). Activision Blizzard is also hoping to release a Call of Duty mobile game in partnership with Tencent.

Tencent Stock Price