Can Tencent's Gaming Business Rise Quickly?

Happy February y’all!

Before many people head back to their hometowns to celebrate the Chinese New Year, Tencent and ByteDance, two of China's tech giants, held their annual meetings last week. An interesting observation is that their CEOs have differing attitudes towards AI technology.

​​Pony Ma, CEO of Tencent, appears more conservative. He stated that Tencent's current focus should be on integrating its AI model into various business scenarios to enhance efficiency.

On the other hand, Liang Rubo believes ByteDance's response to AI technology has been too slow. It seems ByteDance is poised to transform into a super AI application factory in the coming year. To date, they have released six applications, but you can easily find who are their imitations.

Being conservative might not be a bad strategy for Tencent, especially considering the challenges they've faced with China's stringent gaming regulations. These range from systems designed to protect minors from addiction to the tightening of new game licenses. Today, let's delve into Tencent's gaming business, which constitutes over 30% of the tech giant's revenue.

Two weeks ago, Chinese regulators quietly removed a proposal aimed at reducing the amount of money people spend on video games. This move came after the draft proposal had severely impacted the stock prices of video gaming companies worldwide, affecting financial market stability.

According to Reuters, before China rescinded the proposal, an official associated with the government body overseeing its press and publications regulator — who was linked to the drafting of the rules — was also dismissed.

After releasing their third-quarter financial report last year, Tencent had clearly stated that gradually increasing the volume of new games would become the norm. However, this now appears to have been a reluctant admission.

During the annual meeting, Ma discussed the gaming business, saying, "...in the past year, we have faced significant challenges. We have found ourselves at a loss as our competitors continue to produce new products, leaving us feeling as if we have achieved nothing."

Ma's remarks come at a pivotal moment, as Chinese game developers miHoYo and NetEase have eclipsed Tencent with blockbuster titles like "Genshin Impact" and "Eggy Party." Although Tencent's previous successes, such as "Honor of Kings" and "PUBG Mobile," still generate significant revenue, its more recent offerings have not met expectations.

After these gaming policies, whether gaming companies can quickly rise again remains uncertain. AI, as a decisive factor in the next round of competition, has clearly impacted the production methods and cycles of gaming companies.

Wu Yangyang at YiMagazine:

"With generative AI — as this technology becomes more definitive, the gap between gaming and the 'metaverse' seems to widen. Even in a 'metaverse' constructed by head-mounted displays like the Apple Vision Pro, games developed by humans could potentially be replaced, as everything can be generated."

Tencent Gaming's global reach is also strong, beginning with a 2008 investment in Riot Games and extending to Epic Games, Activision Blizzard, and Discord, marking over 15 years of strategic investments.

However, the global gaming industry is facing a downturn. On January 22, Riot Games announced in a blog post plans to lay off 530 employees, about 11% of its total global workforce.

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