Welcome to the WeChat subscription number of “Sina Technology”: techsina
Text / Tang Fei
Source/Value Planet Planet (ID: ValuePlanet)
Among global game companies, Tencent is the absolute hegemon.
Newzoo data shows that 2021 will be a brilliant year for gaming, with total global revenue approaching $200 billion. Of that, $127 billion was created by the top ten companies.
Among the top ten companies, Tencent ranks first, with revenue of about $32.2 billion in 2021, an increase of 9.9% over the previous year. This revenue data is almost the sum of the second-place Sony and third-place Apple’s revenue, which shows Tencent’s strength in the game field.
In the 2021 global mobile game revenue rankings announced by Sensor Tower, Tencent’s “PUBG Mobile” (Jedi Survival mobile game overseas version) and “Honor of Kings” occupy the top two. App Annie’s global user spending list excludes the influence of advertising revenue, and only looks at the willingness of users to pay. Although “Honor of Kings”, “PUBG Mobile” and “Peace Elite” only ranked fourth, sixth and ninth respectively, But Tencent is the only company with three games in the top ten, and it is also a proper winner.
Source: statistaAmong Tencent’s game layouts, overseas business has grown the most rapidly. In Q4 2021, Tencent’s game revenue in the local market was 29.6 billion yuan, a year-on-year increase of 1%; mainly driven by games such as “Glory of the King”, “Battle of the Golden Shovel” and “League of Legends Mobile Games”. Game revenue in overseas markets was 13.2 billion yuan, a year-on-year increase of 34%, mainly reflected in the impact of new content such as “Valorant” and “Clash Royale” and the merger of Digital Extremes.
However, in the first quarter of this year, the performance of Tencent’s game overseas business, which had developed rapidly in the past, “decelerated”.
Game giant’s growth rate slows
From an overall perspective, Tencent’s online game revenue in Q1 2021 is 43.638 billion yuan, an increase of 0.1% year-on-year and a month-on-month increase of 1.9%. This growth rate is already the lowest in the past few years.
Soochow Securities adjusted deferred income and found that Tencent Games’ turnover in this quarter was about 61.48 billion yuan, 29% more than the original revenue, but the year-on-year data was even more ugly, down 11.1%.
Overseas, the growth rate of Tencent Games is even worse. In 2022, Q1 Tencent’s game revenue in the international market is 10.6 billion, a year-on-year increase of 4% and a month-on-month decrease of 20%. This is in stark contrast to the growth rate of more than 30% at the end of last year.
According to Tencent, there are three main reasons for the month-on-month decline: the decrease in game revenue such as “PUBG Mobile”, the higher base after the adjustment of Supercell revenue in Q4 2021, and the one-time adjustment of Riot’s accounting statements.
But in fact, the global game market is shrinking, and it is difficult for Tencent to stand alone. According to Sensor Tower data, the global mobile game market revenue in Q1 2022 will drop by 6% year-on-year to US$21.2 billion, due to the explosive growth of the global mobile game market caused by the epidemic. It will peak at $22.6 billion in Q1 2021.
Although the market is not good, but Tencent’s opponents are not idle. Sensortower data shows that from 2018 to 2021, the CAGR of Tencent’s game overseas revenue is 106%. Although the absolute value is not low, it has been taken by Mihayou (156%), Sanqi Interactive Entertainment (126%), and Lilith (125%). wait for the company to exceed.
Under the invasion of rivals, the market share of Tencent Games is also declining. Taking mobile games as an example, in Q1 2022, the market share of Tencent’s mobile games is 66.7%, which has dropped by 4 percentage points year-on-year and 5 percentage points month-on-month.
A series of data declines have also made some investors worry about the future of the global gaming giant. On the afternoon of April 7 this year, Tencent’s major shareholder Prosus announced that it plans to sell up to 191.89 million shares of Tencent through its subsidiary MIH TC Holdings, accounting for about 2% of Tencent’s issued share capital, with a total amount of 100 billion Hong Kong dollars.
On June 1, 2021, Tencent’s share price closed at HK$607.93 per share, and on June 1 this year, Tencent’s share price was only HK$360.4 per share, a drop of more than 40% in one year.
“Cash Capability” Failure
Returning to the game operation itself, the decline of Tencent Games’ overseas growth rate may also hide a greater threat.
The existing achievements of Tencent Games are not so much due to its excellent creativity and sophisticated production, but rather due to its continuous investment and acquisition of high-quality games or game studios around the world.
This “buy, buy, buy” strategy has continued since the era of computer games. One of the most famous cases is Tencent’s 100% acquisition of Riot, which included the world’s most popular computer game “League of Legends” at that time. This product not only helped Tencent to make a lot of money in the era of terminal games, but also provided money for the future cash cow “League of Legends”. “Honor of Kings” provides a template that can be used for reference.
Today, one of Tencent’s most profitable games, “PUBG Mobile”, is also an international version created after it became a shareholder of Bluehole Studio and obtained the copyright of “PUBG Mobile”.
Although Tencent, which is not bad at money, has been singing all the way by relying on its “banknote ability”, after entering 2021, Tencent’s acquisition and investment frequency have changed.
Compared with itself, Tencent Games has reduced both the number of investments and the amount of investment. According to IT orange data, in 2021, Tencent has invested in 61 game companies with a total amount of more than 18.6 billion yuan. In the four quarters of the year, Tencent made 29, 14, 16 and 2 shots respectively, showing an overall downward trend. In the first three months of this year, Tencent only made 4 shots, with a total amount of 779 million yuan, a sharp drop from 7.201 billion yuan in the same period last year.
On the outside, an excellent game R&D team is the sweet pastry pursued by almost all major game companies. Take Tencent’s old rival NetEase as an example. From 2013 to 2020, NetEase’s investment pace was relatively stable, with an average of about 3 investments per year during the eight-year period. By 2021, NetEase’s investment will enter an explosive period. According to incomplete statistics, NetEase has made 17 investments within a year, of which the proportion of foreign investment is slightly larger than that of domestic investment (53%: 47%).
The new rival ByteDance is also intensively “buying”. In the first half of 2021, ByteDance intensively invested in four game companies including Game Air, Mutong Technology, Youai Interactive Entertainment, and Code Universe, and in the second half of the year, it invested in Youmi Interactive Entertainment, Thunder Hanhai and Maibo Games. Most of these companies are related to games going overseas.
Overseas, ByteDance has also achieved some success. In May this year, ByteDance invested in Madfinger Games, a Czech game development team. The studio has developed a number of FPS games such as “Shadow Gun: Legend” and “The Division: Urban Survival”. , and there are more rumors that the two sides have begun to cooperate in the development of new games.
There are also some savagely growing companies that are not even willing to get Tencent’s support at all. The most typical case is Mihayou. This game company was established in 2011. In the early days, it relied on “Honkai Academy 2” and “Honkai 3” to gain a firm foothold. In 2020, Mihayou’s “Genshin Impact” was officially tested to the public. Not only did this product not accept Tencent The investment also completely bypassed Tencent’s publicity system.
Sensortower data shows that in the TOP10 ranking of mobile game revenue in China in 2021, “Genshin Impact” ranks first, with annual revenue exceeding US$180 million.
In order to defend against these opponents, in addition to promoting products to go overseas, Tencent Games also directly built “sentry” to the front line.
In December last year, Tencent officially launched Level Infinite, an overseas game brand, to strengthen its localized distribution and operation capabilities. At present, a number of game studios have been opened in Boston, Los Angeles, Seattle, Canada, Montreal, Singapore and other places, responsible for the development of different games or providing technical support. The latest news shows that Tencent has also opened a new game studio in Liverpool, UK, led by Pete Smith, vice president of global partnerships at Tencent Games.
It can be seen that the overseas strategy of Tencent Games is to focus on R&D on one hand and localization on the other. It is hoped that by absorbing global talents (studio) to improve R&D strength, supplemented by localized operations to enhance user penetration and stickiness.
However, judging from the results of Q1, a series of operations of Tencent Games are still in the early stage and have not brought benefits in the short term.
Rising costs eat into profits
Going out to sea may have been an option before, but now it is a must.
For all the participants in it, fighting in the “Red Sea” seems to have become inevitable.
Newzoo’s “2021 Global Game Market Report” shows that in 2021, Chinese games will account for nearly 26% of the global market with a revenue of US$45.6 billion, followed by the United States, accounting for about 24% of the global market. The countries combined cover half of the global market, and the other half of the market is scattered in Japan and South Korea, Europe, Southeast Asia, Latin America, the Middle East and other regions.
Putting aside the Chinese domestic market, in the world’s major mobile game markets such as the United States, Japan, and South Korea, the market share of Chinese publishers has maintained a relatively high level and maintained a relatively high growth rate, and the market share in many major countries has remained at 20% or more. Among them, in the US market, Chinese publishers have a market share of 21%, and user spending has increased by 35% year-on-year; Japan has a market share of 22%, and user spending has increased by 6% year-on-year; South Korea has a market share of 23%, and user spending has increased by 28% year-on-year. %. Among the world’s top 2000 mobile games, China’s market share is 23.4%, an increase of 3.6 percentage points over the same period last year.
After game manufacturers flocked to the sea, the cost of games going overseas has risen. Mihayou CEO Liu Wei revealed in an interview in 2020 that the research and development of “Yuan Shen” has invested 100 million US dollars. From “Yuan Shen”, there is a demonstration, “take 100 million US dollars to make games, and then use 100 million US dollars to push games”.
This is also reflected in the financial reports of many listed companies. Taking IGG, an overseas veteran, as an example, IGG’s R&D expenses in fiscal 2021 will be HK$1.254 billion, an increase of 82% year-on-year. R&D expenses as a percentage of revenue were 21%, up 8 percentage points from 13% in 2021.
Likewise, Tencent did not escape this “fate”. In Q1 2022, the cost of Tencent’s value-added services segment (including online games and social networks) was 36.055 billion yuan, a year-on-year increase of 10.8%. In the first quarter, the company’s overall gross profit margin was 42.1%, a year-on-year decrease of 4 percentage points, and the net profit margin was 17.51%, a year-on-year decrease of 18 percentage points.
Rising costs and erosion of profits are only the first problems that Tencent games face when going overseas. The bigger problem is that the social + game play on which Tencent is famous is simply “unplayable” in foreign countries.
The two social products of WeChat and QQ in China have billions of users. With the help of the stickiness and relationship chain of social products, Tencent has successfully exported a variety of game works, from the early “QQ Farm” and “QQ Dance Dance” to Today’s “Glory of the King” and “League of Legends Mobile Games”. However, foreign social networks have been dominated by giants such as WhatsApp, Facebook and Twitter, and Tencent does not have the foundation to convert social traffic into game users.
If you pay to buy the volume, Tencent will inevitably fall into a hard battle with its peers.
Judging from the marketing investment of the entire industry, the purchase volume of games in 2021 will increase significantly compared with the same period last year, and the purchase volume in the first half and second half of the year will increase by 31% and 26% respectively. And it is foreseeable that the cost of purchasing will only get higher and higher. IGG mentioned in the financial report that Chinese game companies have increased their efforts to deploy overseas markets, which has also intensified the competition in the industry and increased the cost of corporate promotion.
Summarize
On the evening of June 7, the official website of the State Press and Publication Administration announced the second batch of game version numbers this year.
It is worth noting that there is still no version number information of Tencent and its products in this list. When the version number was issued on April 11, manufacturers including Xinxin Network, Youzu Network, Chuangmengtiandi, Lilith, and Baidu all got the version number, and Tencent was not on the list at that time.
This makes Tencent’s position slightly embarrassing. In the context of strict domestic market supervision, “if you don’t go overseas, you will be out” seems to be a foreshadowing, especially under the pursuit of “back waves” such as Mihayou.
Ma Xiaoyi, vice president of Tencent Interactive Entertainment Business System, also said in an exclusive interview with GamesBeat: “Before, I only spent about 20% of my time overseas, and most of my time was spent in China. Now, I will spend 60% of my time It’s all spent on the global market.”
For Tencent, the good news is that the previous investment and layout still give the company an unparalleled R&D + IP advantage. However, the overseas track has “more monks and less porridge”, and the prospect of Tencent Games going overseas is worth pondering.
This article is reproduced from: http://finance.sina.com.cn/tech/csj/2022-06-08/doc-imizmscu5742943.shtml
This site is for inclusion only, and the copyright belongs to the original author.