23 March 2019
Tencent could reap big rewards from its investment in the US-based developer of the super-hit game Fortnite. Photo: YouTube
Tencent could reap big rewards from its investment in the US-based developer of the super-hit game Fortnite. Photo: YouTube

This new game could become Tencent’s next cash cow

Six years ago, Tencent Holdings (00700.HK) made an investment in a struggling US-based game developer. Last year, that developer trial-launched a game which became a super hit, raising the prospect that it could emerge as Tencent’s next major cash cow and growth driver.

Epic Games, now a household name for game players, was founded in 1992 in North Carolina.

The company shot to fame after releasing Unreal, a 3D first-person shooter game. It then released several other popular games including Gears of War, Infinity Blade, etc.

In 2011, the company decided to switch its focus to developing games that are geared towards the wider public. But the transition was a difficult one, especially as existing income sources began to dry up while technology needed for the new game type was both costly and time-consuming to cultivate.

By 2012, some employees started to question whether the company had sufficient capital to support its new strategy.

In June that year, Tencent decided to pump in US$330 million for a 48.4 percent stake, and became the largest shareholder of Epic Games.

With the backing of the tech giant, Epic Games has been able to focus on developing the new game.

Trial launched last year on Xbox and PlayStation, and the new game — Fortnite — became an instant hit. Official launch is expected to be announced sometime this year.

Fortnite: Battle Royale is a co-op sandbox survival game, requiring players to manage resources at a safe home base, and then go out on missions to collect resources and obtain rewards.

The game has earned US$130 million in February alone, making it the world’s third highest-grossing console game behind CoD WWII and FIFA 18, according to Superdata.

Fortnite has just become available on Apple’s iOS last Friday, and it will be released on Android soon. Currently, mobile game market has a size that is several times of that of consoles. Therefore, the game has tremendous upside in revenue growth.

In fact, Fortnite has already become the most-watched game on Twitch, the video game live streaming platform.

A 26-year-old American player nicknamed Ninja has become the most popular player on the dominant video game streaming platform with over 3 million followers. He revealed in an interview with CNBC that he is making a monthly income of over US$500,000. This, to a certain extent, reveals how popular the game is.

The game has just started to gain popularity in the US market, and it stands a good chance of drawing much higher income when it is introduced to China. As the major shareholder, Tencent is set to reap huge rewards.

The full article appeared in the Hong Kong Economic Journal on April 6

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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