In the world’s biggest video game market, there is one company that reigns above all: Tencent. The internet giant, most famous outside of China for its messaging app WeChat, took in nearly $74 billion in 2020. More than a third of its immense earnings came from gaming in 2019.With more than 140 games and gaming assets across mobile, PC, consoles, e-sports, and live-streaming — both within China and abroad — the Shenzhen-based company has become a colossus of the global industry, too.

Tencent benefits from China’s thriving and ever-evolving gaming culture. The country’s gaming market was worth nearly $41 billion in 2020, with the U.S. following at $37 billion, according to gaming and e-sports analytics firm Newzoo. Internet cafes are still a popular destination for social gaming in person, and hundreds of millions of people engage with live-streaming.

But it’s also come up against hurdles at home and abroad. China’s government’s relationship with the gaming industry is strained, and there are government-imposed limits on how much time and money minors can spend on games. The Committee on Foreign Investment in the United States (CFIUS), a national security reviewer, sent letters to American Tencent-backed gaming companies last September to ask them about their data-sharing practices. 

Still, Tencent is now the world’s biggest gaming company. This week, The Wire looks at how the company stacks up against its competitors, how far its reach extends into international investments, and a Tencent-backed remnant of the once-towering Shanda Interactive.

Global Gaming Giants

Most of the top gaming companies have relied on franchise games, like Nintendo’s Mario Brothers and EA’s FIFA, but Apple and Google get their proceeds differently. Much of their profits come from taking a slice of revenue from games sold in their app stores, which rivals have protested as a violation of antitrust law. The dispute went public when the mobile version of Epic Games’ Fortnite, one of the world’s most popular games, was taken off of Apple’s app store for trying to get around Apple’s 30-percent cut of sales in August.¹Epic is suing both Apple and Google over their app store policies, and put out an animated video comparing Apple to Big Brother in George Orwell’s book 1984.

Tencent has risen to the top of the global gaming pile, in part thanks to its model of selling in-app virtual goods. In Peacekeeper Elite, for instance, players can buy a virtual purple Tesla for real-world money — or, until this week, a Burberry coat in Honor of Kings. This model, scaled up for a market the size of China’s, has reaped big rewards for Tencent, alongside other lucrative revenue streams like cloud services, popular apps and TV shows, and WeChat earnings. 

Within China, Tencent’s biggest rival is NetEase. The Hangzhou-headquartered company raised $2.7 billion in a secondary Hong Kong listing last year, following a Nasdaq IPO in 2000. It produces some of the world’s most popular PC and mobile games, such as Fantasy Westward Journey, Knives Out, and Immortal Conquest. Last year, more than 70 percent of its $11.3 billion in revenue was generate from mobile games.

Staking Claims

Tencent’s size also gives it the firepower to acquire overseas gaming firms. At least a fifth of the world’s 50 highest-grossing mobile games in 2020 are owned at least in part by Tencent, according to SensorTower data, including the two leaders: PUBG Mobile and Honor of Kings. Each generated more than $2 billion in revenue last year, according to Nielsen’s SuperData.

Tencent controls more than $22 billion in U.S.-based gaming assets, Bloomberg estimated last fall. It owns U.S.-based Riot Games, controls U.S. Epic Games, and in 2016 paid $8.6 billion for a controlling stake in the Finnish mobile games company Supercell. 

Tencent-owned gaming firms do not always disclose their revenue, but TiMi Studios’ Honor of Kings earned $2.45 billion in 2020, according to Nielsen’s SuperData. And Riot Games’ League of Legends brought in an estimated $1.75 billion in 2020.

Beyond stakes held directly in developers, Tencent’s bought its way into gaming-adjacent markets, too. It republishes others’ games in China and dominates in the domestic live-streaming industry, where it backs both of China’s major platforms, Huya and DouYu. The two companies, with encouragement from Tencent, announced plans to merge in October, though the deal is being reviewed by Chinese regulators.

Below is a list of some of Tencent’s major investments and subsidiaries.

Shengqu Games’ Imprint

Before there was NetEase or Tencent in gaming, there was Shanda, much of which lives on today in Shengqu Games. Shanda launched in 1999 when the internet was still nascent in China. It pioneered the money-making free-to-play model that games use today: luring in players with a game that’s free, then charging for upgrades and custom options. More than a decade after founder Chen Tianqiao stepped back from the company, Shengqu Games stands as a remnant, running several of Shanda’s most popular early games. 

Shengqu is now owned by conglomerate Zhejiang Century Huatong, which also produces plastic car parts and controls other gaming assets like T2 Entertainment and FunPlus Games. It’s listed in Shenzhen and valued at more than $8 billion.

Tencent’s relationship with Shengqu goes back to 2018, when Tencent invested nearly half a billion dollars in Shengqu, according to PitchBook. Tencent holds a 5-percent stake in Century Huatong’s listed shares, and, according to a March 15 disclosure, will pay $429 million to acquire an additional 5 percent.

In addition to carrying on Shanda’s legacy, Shengqu Games looks to be charting a course of its own. It was behind three of the 100 most-streamed games on DouYu last March, according to Niko Partners, tying for third with the gaming company Perfect World, behind Tencent and NetEase. It’s also expanding internationally with a more recent game, Fallout Shelter Outline, that emerged from a partnership with a Maryland-based firm, Bethesda Softworks. 

See the ultimate beneficial owners of Shengqu Games below.

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