Playtime’s Over

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What’s going on?

Tencent reported worse-than-expected quarterly results on Wednesday, as China’s regulators make it nearly impossible for the tech powerhouse to start a new game.

What does this mean?

China’s making life tough for the gaming industry. For one, it’s restricted under-18s to just a few hours of gaming a week, which means less spending on in-game purchases. And for another, studios haven’t been able to get new games off the ground, with regulators having refused to give studios the green light in nearly eight months. That’s taken its toll on Tencent: the League of Legends-owner’s domestic gaming revenue barely grew at all last quarter from the same time the year before.

Tencent’s advertising business has been struggling with crackdowns too, which have pushed companies in a variety of industries to slash their marketing budgets. The company, then, saw its online advertising revenue drop 13% last quarter, meaning its overall revenue rose just 8% – the slowest since it listed on the stock market in 2004.

Why should I care?

Zooming in: Two-stop shop.

Those crackdowns have played a part in wiping nearly $500 billion off Tencent’s market value since it peaked last year, and worse could be to come: the Chinese government is reportedly thinking about forcing Tencent to spin off WeChat Pay – part of Tencent’s WeChat messaging platform – into a separate financial company. Thing is, a big part of WeChat’s appeal is the fact it’s a one-stop shop, and breaking it up risks pushing its 1 billion-plus users away.

The bigger picture: Tencent eyes the metaverse.

Tencent’s back is up against the wall in China, so it’s branching out elsewhere: the company’s already partnered up with EA to help turn much-loved franchises into mobile formats, and it’s even launched a whole new international gaming publishing division. And if that doesn’t work, maybe this will: Tencent’s been registering trademarks and hiring developers to prepare for business in the metaverse.

Originally Posted March 23, 2022 – Playtime’s Over

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