MAY 15, 2014 • In first quarter financial reporting Tencent Holdings Ltd. announced that its smartphone mobile games revenue tripled from 600 million yuan ($96.3 million) to 1.8 billion yuan ($289 million) from the previous quarter. During the period the paying player base for this mobile content more than doubled. For the quarter ending March 31 mobile revenue accounted for 17.4% of the 10.4 billion yuan ($1.7 billion) generated by online games. Online games as a whole accounted for 72% of the 14.4 billion yuan ($2.3 billion) in the value-added services category. That category is Tencent’s major driver of income, accounting for 78% of the company’s total revenue. Platform revenues from mobile games also helped to increase Tencent’s social network revenue 16% to 4 billion yuan ($642 million). Much of Tencent’s mobile business is directly tied to distribution through its extremely popular WeChat app.
Impact: How Tencent performs following its huge mobile investments is important because it is China’s largest listed tech firm, and WeChat is the driving force behind app distribution via chat networks. So where Tencent goes, other major game companies in the country are following fast behind. Our biggest question concerning too much capital investment in mobile games centers around what level of return can be had compared to online computer games. No question PC-based titles are still the lion’s share of Tencent’s business, with new games such as Blade & Soul doing extremely well. But what we can see today is that mobile has become a huge chunk of the company’s income. Tencent is actually double dipping, earning money from both virtual item sales off its smartphone titles, and from overall distribution fees from its mobile social networks. Added together, that is 5.8 billion yuan ($931 million), or 40% of the revenue in the value-added services category. That percentage will open some eyes. So while it is true that revenue from publishing mobile game content still has a long way to go to overtake PC online games, if you can control major distribution access via a WeChat as Tencent does, then mobile games are a much bigger money maker. And the company is doubling down on furthering chat network integration by spending $1.2 billion since January on new e-commerce, real estate and digital mapping initiatives. At this rate Chinese e-commerce giant the Alibaba Group might be the only player able to effectively compete if they can get their entry into smartphone game distribution done right. Alibaba is an online clearinghouse featuring more than 800 million items utilized by 7 million sellers. To make its e-commerce and other services more attractive to the growing numbers of smartphone users in China, Alibaba has started offering mobile games through its Laiwang message app and Taobao shopping app. The mobile game business is growing up brutally fast.Â
