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An overview of Tencent’s burgeoning games dominance
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In the West, tech giant Tencent is not yet a household name. While its size and acquisitions have made frequent headlines, its presence has remained understated relative to competitors like Amazon and Google, with the name occasionally peppered into conversations as an example of China’s burgeoning influence on technology and entertainment around the world.
But in China, Tencent is everywhere. It’s behind the nation’s most popular messaging app, WeChat, with over 1.2 billion monthly active users. It’s the behemoth that created QQ.com, one of the country’s largest web portals and the world’s fourth most visited website. And with Tencent Music, it also owns the majority of China’s music services, with 841 million active users.
It’s also China’s — and the world’s — biggest game company. And with a growing presence internationally, we recently decided to take a closer look at how it operates and what it owns.
Beginning with Riot Games in 2011, Tencent has been steadily acquiring an extensive portfolio of international game studios. And as one of the largest tech conglomerates in the world, it also wants to build the metaverse — to construct a sprawling, digital universe that doubles up as a diverse gaming platform, made up of various IPs. During the tech behemoth’s third-quarter results earning call in 2021, its usually reticent CEO, Pony Ma Huateng, spoke about the company’s vision for the metaverse, saying that Tencent currently has the resources to develop its version of the idea. To Tencent, that path can be chartered via a mix of video games and a gamified social media experience — or a real world experience that’s supplemented by both augmented reality and virtual reality.
The firm has begun laying the foundation of this project, with one of its first steps being founding a new studio under one of its gaming subsidiaries, TiMi Studio Group. Codenamed “F1,” this studio will span across China, the United States, Canada, and Singapore, and it’s the company’s first team under a new “Future” label.
Of course, Tencent is far from the only tech giant looking to build a macrocosm of virtual services and environments; NetEase, Epic Games, and Facebook’s parent company Meta, among others, are all gunning to forge their own hyperconnected virtual worlds. What sets Tencent apart from these corporations is its size and ubiquity across industries, with investments that include social media, games, television, cinema, music, e-commerce, medical technology, and comics.
When it comes to the games part of that, Tencent’s dominance is prodigious yet stealthy. By revenue, it’s the world’s largest video game publisher, with approximately $6.7 billion in game revenue in the fourth quarter of 2020. Online games make up a major portion of its profits at 32%, and many of those products target mobile players in the domestic Chinese market. These include Peacekeeper Elite, which is the Chinese version of PUBG Mobile, and the wildly popular Honor of Kings, which is the dominant MOBA game in China. Then there is Riot Games’ League of Legends, a game that is now Tencent’s flagship PC game in China, and whose studio was also completely bought out by Tencent, with the firm finalizing its purchase of Riot Games in 2015. The company’s streak of game industry investments has continued at a rapid pace; research firm Niko Partners estimated that, on average, for most of the first half of 2021, Tencent closed one games deal every 2.5 days.
It’s clear that Tencent is expanding its games portfolio by setting its sights globally; 25% of its games revenue is now derived from international markets, and that figure grew by 20% year-on-year in the third quarter of 2021. Tightening regulations from the Chinese government on its local gaming industry — alongside those of film, popular entertainment, and tech industries — have also contributed to Tencent’s push outside of China, despite the country having the world’s biggest gaming market. Yet the narrative around Tencent’s rapid expansion is often remarked upon with a sense of unease, fueled by anti-Chinese rhetoric. Take for instance how Tencent’s investments have drawn the scrutiny of even the U.S. government, while Epic Games’ CEO, Tim Sweeney, felt the need to address the company’s investment on Twitter, including rumors about how the Epic Games Store is covert spyware used to steal personal data.
Tencent has been mired in controversy within China, though, with claims of sexual harrassment surfacing since 2017. Videos of female employees unscrewing caps from water bottles wedged between the thighs of their male colleagues at a company event have spread across social media, for instance. Tencent apologized for the incident via an official statement on Zhihu, a social media platform.
Then there are accusations of plagiarism, with many Tencent’s products and services being largely similar to those of its competitors. One of Tencent’s fiercest critics is Jack Ma Yun, the co-founder of tech conglomerate Alibaba, who has said that “the problem with Tencent is the lack of innovation; all of their products are copies.” China’s tech scene is notoriously tolerant of imitations — there’s even a colloquial term for this trend known as “Copy to China.” But despite this culture, many say Tencent’s transgressions have been more egregious because of how frequent — and at what scale — these infringements have taken place. For instance, Tencent started a Groupon-like e-commerce service following the immense popularity of a Chinese e-commerce platform called Meituan. Its instant messaging service, Tencent QQ, is a revamp of QICQ, itself a clone of AOL’s ICQ (Tencent lost an intellectual property lawsuit against AOL in 1998). And there’s QQ Farm, a farm management simulator game, which resembles the social game Happy Farm, among others.
These scandals have yet to stem Tencent’s investment fervor, though. Unlike investments by companies like French media conglomerate Vivendi SE, whose purchases have often been likened to hostile takeovers, Tencent has favored investing “in a ‘silent’ manner.” Daniel Ahmad, a senior analyst at Niko Partners who gave that quote in an interview with Financial Times, elaborated that Tencent’s executives “do not rebrand their portfolio companies and generally leave those companies to continue the excellence that made them attractive to Tencent in the first place.” From Riot Games to Grinding Gear Games, the studio behind Path of Exile, Tencent has invested in more than three dozen international gaming companies to date (we’ve had to update the list featured in our sidebar multiple times since we began working on this story).
The bulk of these investments have been consolidated under Tencent Games, the company’s game publishing arm, which also houses five internal corporate groups: TiMi Studio Group, NeXT Studios, Aurora Studio Group, Morefun Studio, and Lightspeed & Quantum Studio Group. In addition to this, the company recently launched a new game publishing division under Tencent Games known as Level Infinite. This division is dedicated to publishing both Tencent’s games and others internationally, while providing support to games such as Dune: Spice Wars, Vampire: The Masquerade – Bloodhunt, Warhammer 40,000: Darktide, and Don’t Starve: Newhome, as well as games from Tencent’s internal studios.
Speaking recently on the official podcast for Level Infinite, Eddie Chan, chief strategy officer of Tencent Games Global, mentioned that this new division is more about differentiating itself from the parent company as a games entity, rather than distancing itself from the Tencent brand. “I think it’s really about a brand that better represents what we want to strive for, and it’s just different from what Tencent represents today,” said Chen. “It’s less about necessarily separating from, sort of, the Chinese business overall, but more about a vision and ambition of really leading the industry when it comes to games, and being at the forefront of games.”
(There also used to be a Tencent Boston, established in 2008 — the only game the studio produced was a Facebook browser game known as Robot Rising. The studio appears to have gone under around 2013, with its official Twitter account ceasing updates around that time. It has since been referred to as the most mysterious Tencent studio by Chinese gamers, due to a mystifying lack of portfolio or information around the developer.)
Here is a rundown of each of Tencent’s internal corporate groups:
TiMi Studio Group developed smash hits Pokemon Unite and Call of Duty: Mobile. But before working on those, it made its name with a MOBA that drew public criticism, with the Chinese media and an advocacy group pointing to the game as one of the leading causes of video game addiction among youths in China. Its popularity in the country even led to an update in China’s Minors Protection Law. That game is Honor of Kings, which is among the highest-grossing games of all time and reached over 100 million daily active players in 2020. Hoping to replicate some of that success overseas, while creating a mobile version of the wildly popular League of Legends, TiMi also developed Arena of Valor, an adaptation of Honor of Kings designed to better cater to the sensibilities of international players. In addition, the group has made a foray into mobile esports by establishing the King Pro League, a league centered on Honor of Kings.
Now, TiMI looks set to develop more than just mobile and MOBA titles, as it focuses resources on creating triple-A games with greater global appeal. Aside from its seven studios in China, the studio group has opened three studios in North America: one in Los Angeles, one in Seattle, and most recently in Montreal. TiMi Montreal is developing triple-A, service-driven, open-world games, while TiMi Seattle is working on a yet-to-be-named cross-platform, first-person shooter, with TiMi Los Angeles being the North American studios’ management and operations hub. The Los Angeles and Seattle studios are collectively known as Team Kaiju.
Launched in April 2017, NExT Studios is the newest internal Tencent corporate group, and has developed some of the most eclectic games at Tencent. NExT Studios has largely steered clear of mobile and free-to-play offerings from other IPs, instead leaning into a vision for games centered around the studio’s culture of originality; that is, a vision that encourages anyone across the team to develop and influence the direction of its games. As a result, the studio has focused on developing console and PC titles based on original IPs. This philosophy led to many small sized, indie-like games created in the studio’s initial years. That is why many of its earliest games carry a distinctly indie flavor, such as audio-driven mystery game Unheard, which requires players to discover clues by eavesdropping on conversations and listening to other sounds, and Biped, a pint-sized, co-op action adventure game about two robots that traverse fantastical landscapes and solve puzzles together.
“We […] want to release games from an approach that prioritizes and respects the personal expressions of their developers,” said Shen Li, the general manager of NExT Studios, in an interview with Chinese site Gameres. “It’s not always up to the director or producer to propose the direction for the game; in fact, anyone on the team can suggest their own ideas.”
In recent years, the studio has developed more “AA” styled — or mid-sized — games, which has seen the studio producing more conventional offerings that feature high-tech, high-fidelity flair, often without losing the scrappiness and creativity of indie offerings. One such title is the upcoming SYNCED: Off-Planet, a tactical shooter that was announced at the 2021 Game Awards.
NExT is also carving a niche as a studio that is focused on creating next-gen motion capture and photogrammetry technology — tech that will help it create games with more realistic graphics and animation. This technology includes projects such as Siren, a digital personality that’s powered by a face rendering software, which relies on real-time motion capture and boasts realistic facial details. The same software will be used in SYNCED: Off-Planet to create realistic-looking digital characters. Then there is Matt AI, which seeks to recreate authentic digital humans in real-time, but with AI technology rather than facial motion capture.
Established in 2008, Lightspeed & Quantum Studio Group has a long history of creating games across different genres — from casual card and mahjong games to MMORPGs. Lightspeed & Quantum is currently working with Respawn to produce a mobile version of Apex Legends, both for release in China and globally.
Best known for Peacekeeper Elite, the reskinned version of PUBG Mobile that was tweaked to meet China’s tightening regulations on the games industry, Lightspeed & Quantum is currently made up of five studios — Quantum, Anyplay, Tiki, Lightspeed LA, and Uncapped Games — with gaming veterans holding leadership roles in these studios. With these studios, it’s also looking towards creating large-scale, triple-A titles, which is aligned to Tencent’s vision to expand its presence overseas.
“Our main focus is still on mobile games, but we hope to be able to transition towards making games for other platforms eventually,” said Chen Yu, general manager of Lightspeed & Quantum in a 2020 interview.
Many of the group’s Western studios are in the midst of developing their own portfolio of games. LightSpeed LA, in particular, is headed by Steve Martin, previously a producer at Rockstar, with a team made up of ex-employees from Respawn Entertainment, 2K Games, Insomniac, and Rockstar. Not much has been shared about LightSpeed LA’s first game, other than it’s going to be an open-world title made for PlayStation 5 and Xbox Series X. And then there’s the newest addition to the Lightspeed & Quantum collective: Uncapped Games, a team that’s looking to create the next big real-time strategy game. To that end, Lightspeed & Quantum have recruited Blizzard veterans David Kim, Jason Jughes, and Zhongshan Zhang to lead the team.
In China, Aurora Studio is synonymous with MMO offerings Moonlight Blade and Legend of Xuan Yuan, which are based in the Chinese fantasy setting known as xianxia, a popular literary genre in Asia that combines the acrobatics of Chinese martial arts fiction and elements of Chinese mythology. But what drew international attention to the studio is its latest offering, Ring of Elysium, a free-to-play battle royale game that managed to carve out a niche among heavyweights of the genre — Fortnite and PUBG — when it was released in 2018, with seasonal content and additional features to the battle royale formula, as popularized by PUBG.
Compared to the other Tencent corporate groups, Morefun Studio Group has kept a relatively lower profile, at least globally. Its current portfolio of games — mostly made up of mobile games from original and existing IPs such as Naruto and One Piece — have been developed predominantly for the Chinese market so far.
Through its myriad gaming investments, as well as its metaverse plans, Tencent has made plain its dedication to make gaming a major driver of its success. Its acquisitions of foreign gaming studios, as well as the expanding repertoire of Tencent Games and its internal corporate groups, make Tencent a powerful force internationally.
As with the rapid consolidation happening in the West at the moment, that power brings questions of monopolies and leverage over competitors, and Tencent isn’t the only Chinese tech behemoth pursuing the global games market. NetEase and Billibilli have also made in-roads into toppling Tencent’s position in gaming, while declaring their intentions to create their own metaverses.
Given Tencent’s rapid expansion in recent years, what’s certain is that Tencent has been relentless about its ambition — and the odds are high that more games will be entwined with the Tencent brand in the years to come.
Correction (March 4): A previous version of this story misspelled Eddie Chan’s name and title. We’ve updated the article to correct both.
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