HONG KONG: Tencent Holdings Ltd is pressing China’s top smartphone vendors and app stores to boost the cut of revenue it gets from games sold through their platforms, people familiar with the matter said, stepping up efforts to claw back profits as its business slows.
The social media giant is seeking as much as 70% of the sales generated from its games, up from just 50% now, said the people, who requested anonymity discussing private negotiations. That would bring Tencent’s portion in line with the proportion shared with game publishers on other platforms, including Apple Inc’s iOS store and Google Play, which each keep 30% of revenue that comes from apps. Negotiations vary from platform to platform, and Tencent may not be asking as much from each app store operator, the people said.
Tencent is keen to shore up its bottom line as growth in China, the world’s No. 2 economy, decelerates, sapping consumer spending on entertainment and hurting advertising. The company’s gaming division – its largest – was battered in 2018 by a series of regulatory crackdowns and in May, Tencent reported the smallest increase in sales since going public in 2004.
At the same time, Tencent has gained leverage in negotiations because the pipeline of new games has shrunk, the result of Beijing’s clampdown on what it views as gaming addiction among youths. Fewer than 5,000 new games will be approved this year, versus more than 8,500 in 2017, Asia-focused gaming researcher Niko Partners estimates.
The social media titan initiated talks in recent weeks with most of the country’s largest app stores, run by leading smartphone makers such as Oppo, Lenovo Group Ltd and Xiaomi Corp, as well as internet outfits such as Baidu Inc and 360, the people said. Tencent is focusing on only a subset of its games at present, they added. But if the 70-30 split becomes the standard, that could translate into billions of US dollars of additional revenue annually.
Tencent dominates the market thanks to its all-purpose WeChat app, which serves more than a billion people, and a development machine that consistently cranks out hits such as Honour of Kings and Peacekeeper Elite. — Bloomberg