Tencent's empire shows cracks, Steam China, Playtika goes public, US targets foreign games, Yoozoo boss poisoned by coworker, Honor of Kings made 258m in Dec -- China Games News Roundup #11
Gaming deals last year hit a value of $33.6 billion across 664 transactions. China followed the U.S. with 27% of the total deal value and four out of the top-10 deals.
Hi Kalelanders,
A new issue of the news roundup has been long overdue. So here it is. I also feel compelled to publish this because school is about to start for me again.
Anyway, I expect this year to move as quickly for gaming as last year had. There were tons of activities in the sector last year. I’ve just learned that gaming deals last year hit a value of $33.6 billion across 664 transactions.
Mergers and acquisitions account for $12.6 billion in 219 closed deals. If you factor in announced but not closed deals such as Microsoft’s $7.5 billion acquisition of Bethesda, then the value climbs to $22.2 billion. This makes it the biggest year for deals since 2016 […]
On a regional basis, the U.S. dominated the market with 36% of total deal value, and 4-out-of-the-top 10 transactions closed with U.S.-based targets. China followed the U.S. with 27% of the total deal value and four out of the top-10 deals.
But I suspect that there were a lot more deals in China InvestGame may have missed. Still, InvestGame does a great job tallying up deals in the space.
Enough babbling, here is the structure of this newsletter.
Tencent's empire shows cracks
Tencent’s M&A has increased 3X in 2020
But Alibaba, ByteDance, and a legion of untamable startups spell trouble
Steam China arrives in 2021
Steam China will be released in 2021, trial starts on Jan 16
It induces panic among Chinese gamers
Playtika goes public
Playtika goes public at $11 billion valuation
Shi Yuzhu, who controls Playtika, was the king of Chinese games
Shi’s company invented loot boxes
The US targets foreign games
Commerce department lists games with 1m users as sanction targets
Key question: what will Biden do?
The Yoozoo poisoning case
Yoozoo’s boss Lin Qi passed in suspected poisoning by a coworker
More drama ensues, with a secret child claiming inheritance
Honor of Kings tops Dec earnings
It made US$258 million, a 58% surge from Dec 2019
Tencent's empire shows cracks
Tencent, the world’s largest gaming company, has had a historic year in 2020 but it is now finding itself fighting on multiple fronts to defend its gaming empire with both big tech nemeses and untamable startups.
The Shenzhen-based company, with one-third of its revenue coming from gaming, has invested in a whopping 29 game companies last year, three times the number of deals done than usual. Additionally, two of its signature mobile games PUBG Mobile and Honour of Kings have each made more than US$2.6 billion last year, a first for any gaming company, according to Sensor Tower.
But trouble is brewing. Tencent is increasingly running up against a new breed of high-power gaming upstarts with an attitude, believing that they can do without Tencent’s help or money. At the same time, rivals Alibaba Group and ByteDance, while traditionally not active in gaming, are now launching a full-frontal assault on Tencent’s territory. The emergence of an alliance between Huawei and Tencent’s longstanding rival NetEase is also posing a potential long-term threat.
Tencent previously approached miHoYo, the developer of Genshin Impact, for a stake in the company, but miHoYo declined despite being allowed to set the terms.
The launch of Genshin Impact has largely bypassed Tencent’s ecosystem. “About 90 per cent of ad spend went to Bilibili and ByteDance’s platforms, and players can’t even download the game on Tencent’s MyApp store,” said market consultant Owen Soh.
Steam China finally arrives
Steam, the world’s most popular video game platform on PC, will officially enter China this year through a China-only version. But this is raising censorship panic among Chinese gamers who worry that the existing version of Steam may soon be blocked as the Chinese version arrives.
Without disclosing a specific launch date, Valve’s Chinese partner Perfect World announced that they plan to launch an official version of Steam in mainland China early this year. The company also said that it will trial the service of the new platform as part of its esports carnival on January 16.
The announcement has spooked the video gaming community in China and abroad. Experts say that Steam may soon be blocked. This will not only cut millions of Chinese gamers’ access to foreign games, but it will also spell disaster for game developers which have been relying on Steam to sell games in China.
This comes amid China’s continued crackdown on foreign games and games platforms. Apple removed over 100,000 unlicensed games from its App Store last year. Unlike most other countries, China requires games to obtain licenses from the government before operating in the country. Before last year, Apple’s App Store was the only other big online game store in addition to Steam which has unlicensed games on its digital shelves.
Playtika goes public
For starters, I want to point out the irony, also the most overlooked aspect, of this story: Playtika, one of, if not the world’s biggest social casino company, is bought by the Chinese gaming tycoon whose company invented the infamous loot boxes.
OK, let’s go back and start with the IPO first.
Takahashi covered it well. One thing that has stood out to me is this:
The company’s social casino games, including Slotomania and other titles, have generated $2.3 billion in revenues in the past 12 months, but the Israeli company also has $2.3 billion in debt. Sources I’ve interviewed say they aren’t worried about that, as Playtika’s cash flow is more than enough to pay down such debt. Of more concern may be the fact that Playtika has a Chinese owner at a time when U.S.-China relations are sour, and that could spill over into a trade war.
Then again, the story behind Playtika is also enormously interesting.
The final story ended up diving into Shi Yuzhu’s business career. In my first draft, I focused much more on games and the gaming industry:
China’s gaming king Shi Yuzhu is taking his Israeli casino mobile game company Playtika Holding Corp to a listing on the Nasdaq amid rising competition and regulatory setbacks at home.
[…] the forthcoming listing of Playtika marks Shi’s loudest comeback to the gaming industry. His listed company Giant Network was once a bigger name in gaming than Tencent Holdings and NetEase. But his high-profile acquisition of Playtika was repeatedly scuttled by Chinese regulators which have long been contemptuous of the gambling business, forcing the tycoon to turn to the US for a listing.
[…] Once the top gaming firm in China, Giant Network has struggled in recent years with rapidly shrinking revenue as Tencent and NetEase dominated the domestic market. As a result, Giant started pursuing an acquisition of Playtika in 2016.
Then there are also a few other grafs I wrote about loot boxes that didn’t make it to the final story.
Shi’s earlier success in gaming is also marked by its affinity with gambling. Giant’s 2006 game ZT Online is often credited as the first game to feature the so-called “loot boxes”, which are effectively pay-to-play blind draws of in-game items.
“Loot boxes” have since become an addictive monetization feature used by many of the world’s most popular games ranging from FIFA to Genshin Impact, drawing widespread concerns among regulators who liken them to gambling. Companies like Belgium have banned the use of loot boxes in games.
But analysts remain positive about the outlook of Playtika’s upcoming IPO. TF Securities’ analyst Wen Hao said, “The US equity market is very active right now. The company will likely get a good price.”
If you want to learn more about Shi Yuzhu’s Giant, here is a piece on Abacus I wrote back in the days.
The US targets foreign games
The Commerce Department revealed a new rule on the ICTS supply chain. Somehow video games became a target…
Let’s look at what the doc says. (Also, I have to give credit to those who first flagged this news to me when I was sleeping like a log).
Originally, I planned on writing this as a standalone story titled US commerce department lists Chinese apps and games with over 1 million users as sanction targets. But the team decided to merge this story with DoD’s targeting of Xiaomi.
So if you want to get caught up with both, here is the story.
So far, experts are skeptical about how much of this rule can translate into real impact on the ground.
Vey-Sern Ling from Bloomberg Intelligence said, “If we take reference from how the bans against WeChat and TikTok have been progressing … I doubt there is the political willpower to keep kids from their LoL, Fortnite or Brawl Stars.”
Daniel Ahmad from Niko told me, “As far as I’m aware it might not even apply on a consumer level.”
But anyway, for reference, OP.GG said 1.4m people played Riot’s LoL in the US in 2019. Sensor Tower said Brawl Stars had 15.5m downloads in the US as of last June, PUBG: Mobile had 46m US downloads as of July and Call of Duty Mobile had 50m US downloads as of October.
In short, loads of games have 1m users in the US. Genshin Impact may be the latest to join that list.
The Yoozoo poisoning case
This is truly tragic. Yoozoo’s founder Lin Qi was allegedly poisoned by his coworker Xu Yao.
Not gonna lie, I was privately making some tasteless Game of Thrones jokes when Lin Qi was said to be poisoned but recovering since Yoozoo is best known for a quite shitty Game of Thrones strategy game. But little did I know that he would pass away the very next day, despite the company said that he was fine the day before. In retrospect, this story has taught me to make light of such matters.
Following the passing of Lin Qi, the team put me on a story looking into the misfortune of some of the young Chinese game tycoons.
Well, as if all this craziness is not enough, an inheritance drama immediately ensues. Caixin proceeded to cover it.
A cloak-and-dagger tale of a gaming magnate who was poisoned to death by a colleague has taken a new twist with an online allegation that a woman who bore him a son out of wedlock is seeking to exercise the infant’s inheritance rights.
[…] The same day of the announcement, a woman using the name “Sweet and Sour Pork” on Weibo, China’s equivalent of Twitter, alleged in a series of posts that her sister had recently given birth to a son with Lin. She said her sister had known Lin for 19 years, and the pair had planned to marry after the Covid-19 pandemic passed. She said her sister’s infant son should have equal rights to inherit Lin’s assets.
One of the posts featured a picture of a birth certificate issued last year for a boy whose 39-year-old father was listed as Lin Qi. It had been reposted nearly 1,500 times and received nearly 1,800 comments and more than 23,000 likes as of late Thursday afternoon.
Honor of Kings tops Dec earnings
Tencent’s top game Honor of Kings closed up 2020 on a high note.
It is simply ridiculous. This game has been out for five years and its revenue is still growing. To put it into perspective, by 2020, HoK has earned a lifetime revenue of $7.8b. To compare it with other media products, this is 2.8 times what Avengers: Endgame made at the box office. Or, The New Yorker reportedly made $115m via subs in 2018 -- HoK earned that in 2 weeks.
To wrap up this issue, this is a recent profile piece I did on Honor of Kings.
One final side note, in the paragraph above, I used The New Yorker as a comparison because I find myself increasingly puzzled by how traditional media can’t capture more of the gaming revenue. Newspapers were the purveyors of interactive entertainment via puzzles and other games in the old days. Games were a huge circulation builder. You can even argue that those games were the early forms of social games. But they somehow missed the digital gaming business entirely. Now we’re stuck with almost having to beg people to pay for news. As such, I’m writing an essay on how newspapers have forgotten that they should be in the gaming business. Let me know what you guys think.
Thanks for reading!