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Tencent’s global gaming ambitions suffering while Indian apps are banned

S & P Global Market Intelligence said Chinese internet company Tencent Holdings Ltd. needs to find another source of revenue growth following the ban on major mobile games in India.

India will be based in China on September 2, after banning 59 Chinese apps in June, including Tencent’s popular online multiplayer game “Player Unknown’s Battlegrounds Mobile” or PUBG Mobile and “Arena of Valor”. Banned 118 apps that put or linked to China. “Tencent is working with Indian authorities to” guarantee the continued delivery of apps in India. “

“We do not expect significant material effects [Tencent] Because India accounts for only 3% of PUBG Mobile [overseas] “Last year’s sales,” said Lisa Hanson, president of market research firm Nico Partners.

PUBG Mobile is the world’s most profitable game app as of July 2, with worldwide sales of over $ 3 billion. According to sensor tower data, China contributed 52% of total revenue in the local iteration “Game for Peace.” The United States was ranked second with 14% of revenue, and Japan was ranked third with a 5.6% share.

“But the potential for further growth and loss in esports tournaments is immeasurable,” Hanson said of the app ban in India.

According to Niko Partners, India has the highest total PUBG Mobile downloads in the world (excluding China), accounting for 40% of total installations. Meanwhile, about 40% of India’s esports prizes came from PUBG Mobile tournaments.

Experts say Tencent Games needs markets outside of China to drive growth as domestic growth slows. According to China-based market research firm Qianzhan, China’s mobile games as of March 31, 2019, compared to 468 million on June 30, 2019 and 459 million on December 31, 2018. The number of players was about 592 million.

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Internet companies have previously said they are aiming to derive half of their online game revenue from overseas markets. Between April and June, about 23% of online game revenue came from outside China.

President Donald Trump signed August 6 orders US companies to ban Tencent’s dealings with WeChat. “We don’t expect Tencent’s existing investment in US companies to be affected,” Hanson said. “There are certainly risks to Chinese game developers who run games in China,” he said.

A partnership between Tencent and a local game studio could help avoid potential losses from a national ban, according to an August research note by Morningstar senior equity analyst Chelsea Tam.

Examples of these partnerships include the co-development of “Call of Duty Mobile” between Tencent and Activision Blizzard Inc., and the split of sales rights between two companies in different regions.

“This will take into account the interests of local businesses and reduce the likelihood that foreign governments will take action against Tencent in our view,” she wrote in a memo. In India, the list of banned apps did not include “Call of Duty Mobile” or Tencent’s 100% owned Supercell Oy “Brawl Stars.”

Experts said Tencent needs to rethink its global strategy to continue its expansion.

Zeng Xiaofeng, senior analyst at Nicocent Partners, said Tencent is expected to reduce global game distribution and operations and instead leave work to foreign investors.

“We will be more cautious about expanding the US gaming sector, especially in terms of acquisitions of US gaming companies,” Tencent said.

Pursuing alternative markets is another Tencent option, experts say.

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Chinese internet companies like Tencent have the potential to expand into the Middle East. Shawn Yang, deputy research director at Blue Lotus, a China-based investment bank, said the region is characterized by high demand for online entertainment, high power consumption per capita, and robust mobile network coverage. Stated.

Southeast Asia, South Korea and Japan are also good targets due to the penetration and cultural similarities of existing mobile games, according to Yang.

“We don’t have to panic about regulatory activity in India and the United States,” he said. “In the short term [Tencent] You definitely need to slow down. But in the long run, we still have the opportunity to go abroad and grow in multiple markets. “

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