27 February 2020

Game developers in a bind as Tencent makes irresistible offer

Mobile game developers in China are finding themselves in a tough bind as the country’s top internet companies dangle juicy contracts to grab their latest products.

Ideally, developers would like their games to be available in all the major platforms to reach the most number of users, but Tencent Holdings (00700.HK), which dominates the mobile internet market, is not so subtly nudging them to grant it exclusive rights to distribute their games.

It is offering three revenue-sharing models. Under one scheme, a game developer acts as an independent operator and gets to keep 70 percent of the revenue generated by its application, with the remaining 30 percent going to Tencent.

For those opting for a joint operating model, 60 percent of the revenue will go to them while Tencent, which will provide special services including data analysis in addition to the basic hosting service, will get the remaining 40 percent.

In the third option, game developers can negotiate the revenue-sharing terms in return for exclusive distribution rights. The deal offers the game houses little wiggle room, but it is also potentially the most lucrative. It does tie up the developers to the operator, but it also provides the game designers access to hundreds of millions of users of Tencent’s QQ and WeChat services. Such an arrangement will make a whole world of difference in tapping the utmost potential of their products.

Tencent is the leading player in the desktop online game sector, which contributed more than 54 percent of its revenue as of September 2013. The company’s revenue-sharing schemes could be seen as part of its efforts to quickly extend its market leadership from desktop to mobile and prevent gamers leaving for other platforms.

In fact, Tencent is feeling the heat from other mobile game operators like Alibaba Group Holding and Qihoo Technology (QHOO.US). In January, Alibaba set up a mobile internet game platform by offering similar juicy deals to game designers. Qihoo, meanwhile, teamed up with Walt Disney, closing a deal to distribute several Disney-titled mobile games exclusively on its platform.

As such, it would be a tough call for game developers to select the platform to host their products.

Alibaba and Qihoo have their own loyal followers and game users. But tapping them would mean abandoning Tencent’s huge paid user base across various social platforms like QQ and WeChat. On the other hand, if they partner exclusively with Tencent, they will have to forsake the rest of the mobile phone users on other platforms.

Tencent’s mobile games ranked number one in China in the third quarter of 2013, as its widely popular WeChat platform attracted millions of users. Undoubtedly, Tencent is making an offer that game houses will find hard to refuse.

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EJ Insight writer