25 October 2016
WeChat allows Tencent to channel 500 million monthly active users to its entertainment services. Photo: Bloomberg
WeChat allows Tencent to channel 500 million monthly active users to its entertainment services. Photo: Bloomberg

How Tencent uses WeChat to command entertainment space

Tencent Holdings Ltd. has an ace up its sleeve in its battle for market leadership with Alibaba Group Holding Ltd. — WeChat.

The wildly popular app allows Tencent to channel 500 million monthly active users to its entertainment services, a huge consumer base for subscriptions or marketing — pay dirt for media and advertising partners.

Combined with a willingness to throw cash at top-tier film, television, game and music content, Tencent has locked down exclusive deals with some of the biggest names in Hollywood, eager to piggyback on the US$190 billion Chinese group’s growing success, according to Reuters.

Shenzhen-based Tencent, whose WeChat and QQ social networks are as ubiquitous in China as Facebook Inc. is elsewhere, has spent billions of dollars in recent years building up its content library and on stakes in entertainment firms, though the company declines to give specific details on its investment.

Last month, Tencent added streaming rights to 21st Century Fox Inc.’s FOX, FOX Sports and the National Geographic Channel to its media arsenal which already includes various rights for Sony Corp.’s Sony Music Entertainment, Warner Music Group, Time Warner Inc’s HBO network and the US National Basketball Association.

“We’ve paid aggressively to buy some of the most popular content, the most established brands,” Tencent chief strategy officer James Mitchell said.

Founded 17 years ago by Pony Ma, Tencent already operates an online gaming business to rival those of Sony, Microsoft Corp and Nintendo Co.

It also owns China’s biggest music streaming service by subscribers, and by some measures runs the country’s most popular Internet video platform.

The pairing of Tencent’s active dealmaking with the success of WeChat and QQ is critical, says Mathew Alderson, who leads the China media and entertainment practice at Harris Moure in Beijing.

“I consider them to be ahead because of the reach and sophistication of their social networking tools,” he said.

The stakes are huge. Revenue in China’s online entertainment industry is set to double to more than US$46 billion by 2018 for online games and video streaming alone, according to iResearch data, prompting China’s biggest Internet companies to spend lavishly on TV shows, films, games, music and sports rights.

On the other hand, Alibaba is flush with cash after its record US$25 billion share sale in New York last year.

Alongside its affiliates, it has spent more than US$3.5 billion since the start of 2014 on stakes in video, music and gaming firms, including a minority share of Youku Tudou Inc, one of China’s biggest Internet video services.

Alibaba’s entertainment business claims music distribution deals with Germany’s BMG and two of Taiwan’s biggest labels.

It has also teamed up with Hollywood studio Lions Gate Entertainment Corp. to offer a subscription streaming service in China.

Its operations are led by former members of Tencent’s video business, who left following a leadership reshuffle in 2013.

They include Patrick Liu, current head of Alibaba’s digital entertainment unit and former head of Tencent Video.

Other firms staking a claim in China’s online entertainment market include internet search leader Baidu Inc. and its online video unit iQiyi; Inc; and Leshi Internet Information and Technology Corp Beijing.

Dealing with Tencent won’t be easy, says Mark Natkin, managing director of Beijing-based Marbridge Consulting.

“They understand what users want in terms of entertainment content, they understand how to deliver it,” he said. “Tencent knows that space better than anybody.”

Tencent’s content library, which also includes South Korean YouTube sensation Psy through a tie up with YG Entertainment Inc., is arguably deeper than that of its rivals.

In recent months, Alibaba and Tencent have taken their rivalry overseas, both setting up offices in Los Angeles to slug it out for programming deals with Hollywood studios and producers.

While both groups have financial firepower, WeChat could be a clincher for Tencent in winning deals with content producers.

“You can use content to drive very good margins, if you have the right pipes,” said one Hollywood executive.

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