Tencent’s future strategy: focusing on in-house games while reducing reliance on foreign franchises

By Saloni Sehmi 65 Views

China’s Tencent has shifted its focus from developing big-budget foreign franchises for mobile gaming to creating an easy-to-play game called “DreamStar.” The game is Tencent’s attempt to compete with rival NetEase’s hit game “Eggy Party” in the party game genre. As a result of this shift, the release of “Assassin’s Creed Jade,” a game that has been under development for mobile for four years, will be delayed until 2025.

Tencent’s decision to redeploy resources reflects the changing trends in the gaming industry. Developing Western franchises for mobile phones has proven to have thin profit margins. Meanwhile, rival companies have achieved success with niche products like NetEase’s “Eggy Party.” These in-house developed games offer new and innovative gameplay, allowing companies to keep all the profits.

Tencent’s previous successes with international hits like “Call of Duty” and “PUBG” were costly endeavors. Royalty fees, app store cuts, and marketing expenses all eat into the profits. After facing setbacks with IP games, Tencent plans to be more selective in its game development process. The company is now focusing on bigger-budget games that either iterate on successful IPs or iterate on proven gameplay success in niche markets.

Tencent is also pushing for lower royalty fees in negotiations, aiming for fees under 10% of sales. This change reflects a shift in the company’s approach and greater financial considerations.

In an attempt to revitalize its gaming division, Tencent launched the “Spring Bamboo Shoots Project.” This initiative aims to incubate in-house games with novel gameplay, offering budgets of up to 300 million yuan. While this budget is smaller than major franchises, it shows Tencent’s willingness to take risks and explore non-conventional game design.

However, Tencent has experienced major setbacks that have increased the urgency for change. Last year, Electronic Arts discontinued a game developed by Tencent due to falling short of expected quality. Tencent also had to axe the development of a mobile game based on the “Nier” franchise due to struggles in finding a compelling monetization model.

The company’s in-house game, “Undawn,” also failed to meet expectations despite a significant budget and endorsement from Will Smith. Revenue for “Undawn” was minimal, highlighting the challenges Tencent faces in the mobile gaming market.

Furthermore, Western companies have started to shift away from outsourcing mobile game development to Chinese companies like Tencent. Microsoft’s recent launch of “Call of Duty Warzone Mobile” is a direct competitor to Tencent’s “Call of Duty Mobile.”

Tencent’s top two games, “Honor of Kings” and “PUBG Mobile,” also faced revenue declines during the Lunar New Year holidays. This further emphasizes the need for Tencent to adapt and find new avenues for success in the gaming industry.

In conclusion, Tencent’s strategic shift reflects the changing landscape of the mobile gaming industry. The company is moving away from big-budget foreign franchises and focusing on developing innovative and original games in-house. These changes aim to improve profit margins and address the challenges Tencent has faced in recent years.

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