Tencent bets on the back of the game going overseas

Our reporters Xu Xinyi and Wu Kezhong report from Shanghai

Recently, the "2023 China Game Overseas Research Report" (hereinafter referred to as the "Report") released by Gamma Data, a third-party research institution, shows that in 2023, the global game market will increase by 6% year-on-year, while the actual sales revenue of China's self-developed games in overseas markets will decrease by 5.65% year-on-year.

Showlo, a game operator, told China Business News that in the past two years, the game industry has faced problems such as market saturation, high customer acquisition costs, and high production costs overseas. At the same time, the ebb of capital has also caused the game industry to break the chain to a certain extent, and manufacturers choose to be conservative in going overseas.

Despite this, Tencent, the world's most profitable mobile game manufacturer, still chooses to continue to bet on games going overseas. At Tencent's annual meeting on January 29, Tencent CEO Pony Ma called games "the company's trump card business" and said that going overseas is Tencent's greatest hope for internationalization.

Going to sea is under pressure

"For planning, going to sea has definitely become more difficult. The quality is getting more and more rolled, and the gameplay is getting more and more rolled. Hu Jing (pseudonym), a game planner who works for a domestic SLG manufacturer, said.

The overseas revenue of domestic games has declined for two consecutive years. According to the report, from 2019 to 2021, the sales revenue growth rate of domestic games in overseas markets reached 20.95%, 33.25%, and 16.59% respectively, and from 2022 to 2023, the situation took a sharp turn for the worse, with revenue falling by 3.70% and 5.65% year-on-year.

Thirty percent of enterprises believe that the biggest challenges facing the overseas business are: fierce competition in the overseas track, rising traffic acquisition costs, and lack of localized talents.

Regarding the current overseas business, Hu Jing said: "The more SLG games players have seen, the higher the requirements for quality and gameplay. It's easier to churn players, and it's harder to retain. "Overseas players have become picky, so that the producers have to cheer up and do a good job in product service," the norm is always adjusting. ”

Showlo told reporters that market saturation, high customer acquisition costs, and high production costs are all reasons why the pressure on games to go overseas has increased. In addition, the decrease in external investment has affected the internal circulation of the game industry, which has also led to the decline of the vitality of games going overseas.

During the epidemic in 2020, the game industry benefited from the "stay-at-home economy" effect brought about by the home dividend, and investors were once very optimistic about the game market, and domestic games going overseas also ushered in a wave of enthusiasm. Nowadays, the activity of investment in the game market has declined, and the era of rapid expansion of games has been bid farewell to overseas.

According to Gamma Data's 2021 China Game Market Investment and Financing Survey Report, the number of investment events in China's game sector doubled year by year from 2019 to 2021, with 57, 117, and 209 respectively, and the 2022 Non-listed Game Enterprise Competitiveness Report showed that in the first half of 2022, the number of investment and financing by game companies decreased by 78.2% year-on-year.

The pressure on domestic games caused by the ebb of capital is all-round, and going overseas is one of them.

"If Chinese game manufacturers are a pool, if there is no fresh water to store in, there will be less export. Manufacturers will choose to be conservative in going overseas. "Some manufacturers can't save up, so they have to lay off employees and go out of business," Showlo said. The general environment of the game industry is cold, and you can get a glimpse of the layoffs and optimization of the game industry in the past two years. ”

According to the report, while the overseas revenue of domestic games has further declined, the global market has begun to show signs of recovery. In 2023, the global game market size will be 1,177.379 billion yuan, a year-on-year increase of 6.00%, of which the global mobile game market size will be about 606.267 billion yuan, a year-on-year increase of 1.98%. The report mentions that although the global market size has been boosted, macro factors such as inflation and global monetary policy also need to be taken into account. A substantial recovery in the market remains dependent on further upside in the global economy.

Showlo told reporters that the cycle of game profits will be slower, and some developers and publishers will shrink their profits, and there will be no chance to break the game in the short term.

The way to break the game

Mature markets are still the main direction for games to go overseas, and it is expected that Chinese game companies will continue to dig deep into these regions in the future.

According to the report, China Mobile's overseas revenue is mainly concentrated in the United States, Japan, South Korea, Germany and other countries. In 2023, the U.S., Japan, and South Korean markets will provide more than half of the overseas revenue for China's overseas games.

In the Japanese and South Korean game markets, the revenue of domestic games has turned positive from negative growth in 2022, but in the United States, Germany, and the United Kingdom, it still continues to decline.

Differences in market preferences may explain the differences in the situation of domestic games in different regions. According to the report, among the top 100 products in the European mobile game market, SLG and elimination accounted for 26.71% and 26.07% respectively, and the two together provided more than half of the turnover, and in the Japanese mobile game market, RPG (role-playing) games provided 51.88% of the turnover due to the prevalence of two-dimensional culture.

With the domestic market ushering in the launch of ACG products in 2023 and the public beta of some blockbuster ACG products, overseas manufacturers have also expanded their revenue in areas where RPGs are prevalent.

In the era of rapid expansion of overseas markets, Chinese manufacturers are thinking about how to hold their current positions.

According to the report, 63.6% of the surveyed companies chose to strengthen the long-term operation of their products in the face of the pressure of going overseas, more than 40% of the enterprises believe that obtaining global IP, expanding diversified categories, exploring side play and external team cooperation are also the key points of breaking the game, and expanding diversified cultural themes, deepening localization, and expanding marketing models are also valued by many enterprises.

Traffic channels such as Facebook, Google, and TikTok have always been the main layout positions for Chinese game companies to buy overseas and acquire customers. Game companies are beginning to focus on emerging methods, such as KOL (opinion leader) promotion, short videos, live broadcasts, etc., to directly deliver content to the audience, or link with well-known IPs to overseas audiences, so as to gain the attention of the audience.

According to the report, localization of overseas products is the most critical element. Overseas enterprises should not only pay attention to the localization of content, but also conduct in-depth research on local payment channels and traffic channels.

From the perspective of the distribution of overseas business of Chinese game enterprises, Japan, South Korea, Hong Kong, Macao, Taiwan, Southeast Asia and other neighboring regions are the first choice for Chinese game companies to deploy overseas game business. At the same time, Chinese game companies are focusing on distant markets, and in addition to the United States, Europe and other economically developed regions, they are also trying to tap the potential of markets such as Brazil and Saudi Arabia.

The report pointed out: "It should be noted that the game preferences of users in distant regions and China are quite different, and on the layout side, it is necessary to choose categories with high user preferences, and on the other hand, it is necessary to do a good job of localizing or customizing products based on market characteristics." ”

Tencent's "Greatest Hope"

Despite the pressure to go global, strong gaming companies still see it as the only way to grow.

On the same day that the report was released, Ma Huateng said that going overseas is Tencent's biggest hope for internationalization.

Ma Huateng proposed that Tencent should focus on its main business in the game business, not make too much hardware investment, and invest more energy in going overseas. He said that he hopes to do a thorough and solid job in software and game research and development, rather than being an enemy of other game companies or hardware manufacturers from a deep perspective.

According to a report by Sensor Tower, a third-party research organization, Tencent's overseas mobile game revenue will increase by 13% in 2023, ranking second after miHoYo in the revenue list of overseas mobile game publishers.

In the third quarter of 2023, Tencent's value-added service business (mainly games) increased by 4% year-on-year to RMB75.7 billion, accounting for 49% of revenue.

Among them, the game revenue in the international market increased by 14% to 13.3 billion yuan, achieving double-digit growth for three consecutive quarters. Growth factors include a rebound in PUBG Mobile revenue, with high contributions from Goddess of Victory: Nikki, VALORANT, and Triple Match 3D.

In December 2021, Tencent Games launched a new overseas brand, Level Infinite, and since the third quarter of 2021, Tencent has separately disclosed its game revenue in the international market in its financial reports.

Gao Dongxu, founder and chief analyst of China Entertainment Think Tank, pointed out that the rapid growth of Tencent's overseas game revenue has greatly increased the confidence of the industry and investors when the growth of the domestic game market has peaked, which is also the result of Tencent's overseas capital layout and acquisition in the past few years.