The analytical company Niko Partners calculated that by mid—May 2021, Tencent had managed to conclude over 50 deals with gaming companies. This is already 1.6 times more than in the whole of 2020, and five times more than in 2019. In their new study, analysts told what forces the Chinese colossus to invest so actively in the industry.
Important: Niko Partners provided all the data as of May 10, 2021, and now the figures could change.
Key figures:
- In 2021, Tencent invested in 51 gaming companies. For comparison, in 2020 it concluded 31 M&A deals, and in 2019 – 10 M&A deals;
- now the Chinese giant concludes an average of one transaction every 2.5 days;
- most of the recent deals (39) Tencent has concluded with Chinese companies;
- according to Niko Partners, in 2021, Tencent has not yet signed agreements with companies from the United States due to a conflict with local authorities. But we recall that last week the “daughter” of Tencent TiMi Studios agreed on a partnership with the American Xbox Game Studios. It is worth noting that this is not an M&A deal;
- almost half of the deals in 2021 came from studios with experience in developing console and PC games. This is unusual for Tencent, because previously the holding preferred to invest in mobile companies. Especially if it was about deals with Chinese developers;
- Tencent has become more actively invested in growing segments in China. For example, colossus concluded 14 deals this year with developers of anime games and games for women;
- also now Tencent has started investing in an even smaller company than before, and at a much earlier stage. In 2021, she concluded six deals with startups founded no later than 2019. Moreover, some of them do not have a single ready-made project yet. It is important to point out that most startups are headed by people from well-known game studios.
Three main reasons for the growth of Tencent’s M&A activity:
Competition from ByteDance and Alibaba
Over the past year, Tencent has faced significant competition from two other Chinese giants — ByteDanc e and Alibaba.
Recall that Alibaba became the No. 4 publisher in China in 2020. Also last September, she turned her gaming division into an independent company, and later released the mobile hit Three Kingdoms Tactics.
ByteDance has hired about 3 thousand employees to work with games. In November last year, she launched a mobile store and opened a publishing division Pixmain. In addition, ByteDance itself regularly makes deals with gaming companies. Among the latter are the purchase of the Chinese studio Moonton and investments in the Czech MADFINGER Games.
Explosive popularity of small and medium-sized studio games
In 2020, several games were released, developed by relatively small studios and quickly gained popularity among gamers. Among them was, for example, Genshin Impact from miHoYo, which has earned $1.5 billion worldwide since its release in September 2020.
Lilith Games and QingCi Digital have performed well in the Chinese market. The AFK Arena and Rise of Kingdoms games from Lilith Games showed better results than Tencent projects in the same genres. The same can be said about The Marvelous Snail from QingCi Digital. By the way, Tencent recently bought a 3.33% stake in QingCi Digital for $15.7 million.
Tencent’s Global Ambitions
In the future, Tencent plans that at least half of its gaming audience will be located outside of China. However, in 2020, only 21% of the company’s total gaming revenue came from abroad.
Mobile games based on well-known IP like PUBG and Call of Duty brought the lion’s share of this revenue to Tencent. Despite this, the giant began to pay attention to the console and PC title markets, which cost over $70 billion outside of China and are simultaneously starting to grow in the Middle Kingdom itself.