Chinese tech giant Tencent sees first quarterly revenue decline

Sony, Tencent, NetEase continue to look for deals to expand into new formats, new markets

Mobile game revenue accounts for more than half of the mobile game market. Sony is looking to diversify beyond consoles with its new dedicated PlayStation mobile gaming division.

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Sony’s PlayStation has long dominated the console market.

But the business model for console games has changed. It’s not just about selling hardware and then hoping people buy new games. It’s about continuing to squeeze revenue out of these games with regular updates where people pay to buy and sell subscription services.

Sony’s deal flow, particularly its acquisition of Bungie, underscores that push.

“Their goal is to have enough content to incentivize players to buy their proprietary hardware, pay a monthly fee for a subscription service run by PlayStation (PS Plus), and buy the occasional digital game through the PlayStation Store, for which Sony gets roughly a 30 percent cut. %,” Tom Wijman, head of gaming marketing at data firm Newzoo, told CNBC.

“Buying up studios is the safest way to secure exclusive content for their ecosystem – especially with the acquisition spree from Microsoft, one of Sony’s main rivals in gaming.”

Sony is also looking to expand beyond consoles. Last week, the Japanese giant said it was setting up a dedicated unit to oversee the development of mobile games, a relatively new venture for the company that has dominated the console space for years.

The acquisition of mobile-focused Savage Game Studios is another key part of that strategy.

“Sony is stepping out of their comfort zone to stay competitive,” Wijman said.

According to Newzoo, revenue from mobile games accounts for more than 50% of the overall gaming market, while consoles account for about 27% of sales. So Sony is going after a bigger piece of the pie.

Sony’s acquisition will help it strengthen its intellectual property and game library as it looks to expand into mobile gaming.

Tencent and NetEase

Tencent and NetEase, China’s two largest gaming companies, face tougher domestic markets, underscoring the importance of their overseas investment and acquisition strategies.

Last year, Chinese regulators limited the amount of time people under 18 could play online games and froze approvals for new games. In China, games require regulatory approval to be released and monetized. Those approvals only resumed in April.

Meanwhile, the resurgence of Covid-19 in China and subsequent lockdowns in the country’s major cities have hurt economic growth. That led to the worst quarter in revenue growth for some Chinese tech giants, including Tencent.

Facing a more challenging domestic market, Tencent and NetEase have sought overseas growth through acquisitions and investments.

“Tencent and NetEase have primarily built their gaming businesses in China. Now that their home market is increasingly regulated and difficult to operate, the two companies will accelerate their global expansion strategies,” Wijman said.

Tencent owns or invests in some of the world’s largest gaming companies, including League of Legends developer Riot Games.

NetEase’s strategy focuses on acquiring high-profile intellectual property. By acquiring Quantic Dream, the Hangzhou-based company can release the upcoming Star Wars game. NetEase has released mobile games based on the Harry Potter and Lord of the Rings series.

For both giants, owning or owning the studios behind international blockbusters in the gaming world has become a key part of that strategy.

While NetEase has been less aggressive than Tencent in its deal activity, it stepped up in the last year.

Another part of the two companies’ investment strategies also highlights their console ambitions. NetEase and Tencent have grown largely by focusing on PC and mobile games, rather than consoles, which were banned in China for 14 years prior to 2014.

But the two behemoths have begun to turn their energies toward console gaming.

Earlier this year, NetEase hired a console industry veteran to run its Japanese game studio. Tencent-owned developer TiMi Studio has opened offices in Montreal and Seattle, focusing on PC and console games.

Re-acquisitions and investments in other game studios could also help both companies acquire IP for console games.

Tighter regulation and a quest for growth in China could push NetEase and Tencent to continue their investment and acquisition strategies.

“Finally, if Chinese government regulation continues to put pressure on NetEase and Tencent in the domestic market, I think they will also be eager to look into M&A,” Wijman said. “Their global expansion strategy has only just begun.”

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