Global gaming giants are on a shopping spree – and Tencent has its mind set on finding the “hidden gems”

Tencent, currently under regulatory pressure at home, has also joined the new trend in hopes of developing its global publishing business further.

As of early 2022, three major video game companies have made seismic acquisitions, thus significantly changing the industry landscape. 

On January 10, Take-Two Interactive, the publisher of Grand Theft Auto, announced that it would be purchasing the mobile game company Zynga for $12.7 billion, which marked the most expensive acquisition in the gaming industry’s history. 

Several days later, Microsoft unveiled its plans to acquire Activision Blizzard for $68.7 billion, which is more than five times the size of Take-Two’s investment. 

At the end of January, Sony disclosed it would be buying Destiny 2’s developer Bungie for $3.6 billion. Furthermore, in March, the Japanese conglomerate planned to acquire the Montreal-based video game company Haven Studios for an undisclosed amount. 

Quite unlike its rivals, Tencent, the world’s largest gaming corporation (in terms of revenue), is rather focused on adding small and medium-sized studios to its portfolio.

On March 15, the company acquired a majority stake in the Spanish game studio Tequila Works, which developed the games RIME & Song of Nunu, and on February 25, it bought the Polish developer and publisher 1C Entertainment for an, again, undisclosed amount.

Tencent’s first acquisition in 2022 was Inflexion Games, a Canadian studio that is developing the survival game Nightingale. The game will be published by Level Infinite, which is Tencent’s publishing brand for international markets, and will be available sometime later this year. 

In addition to acquiring its new assets, Tencent has also invested in 3 game studios – the New Zealand-based RiffRaff Games, the Spain-based Novarama, and the Canadian developer Offworld Industries, according to Crunchbase.

However, even this rate of deals is slow compared to last year when the company would close a game-related deal every 3 days on average. Throughout 2021, Tencent has acquired and invested in more than 100 gaming companies, 70% of which are from China, according to NikoPartner.

In recent years, the Chinese company has been making a big effort to grow its publishing endeavors overseas. Last November, it appointed Zoran Roso, who was previously employed in the marketing sectors of Activision Blizzard, Sony, and Take-Two, as its marketing director of the global publishing sector. A month later, Tencent launched Level Infinite, which will be publishing games of the company (or other companies) internationally.

“Level Infinite’s launch represents the next stage in Tencent Games’ evolution as a global publisher and a trusted brand,” said Tencent Games Global’s CEO Michelle Liu. 

As China tightens its antitrust regulations, Tencent’s might face more and more challenges in regards to managing its acquisitions and investments in the domestic gaming industry. This could be the reason as to why Tencent has been increasingly focused on deals within the international market as of recent months. 

In 2021, China’s top market regulator, the State Administration of Market Regulation (SAMR), ordered Tencent Music to give up all of its exclusive music licensing deals after the company had monopolized the rights to 80% of all music tracks in the market. Around the same time, the SAMR also blocked the merger deal between two video game streaming companies that shared Tencent as their shareholder on the grounds of antitrust regulations. 

Simultaneously, Tencent’s domestic game business hit a major roadblock as authorities froze its game licensing abilities for 8 months, in addition to limiting the amount of time video game players under the age of 18 could play on a permanent basis.

Therefore, the global market surely plays a significant role in Tencent’s plans for the sustained growth of its gaming business. Last month, the Hong Kong-listed tech company posted a lower-than-expected quarterly report, with the revenue of its overall gaming division reaching 42.8 billion yuan ($6.72 billion), which is only 7% higher than last year. In the fourth quarter, the domestic gaming revenue has risen by just 1% to 29.6 billion yuan, while the international gaming revenue had risen by 34% year-on-year to 13.2 billion yuan.

Competition has also played a big role in Tencent’s decision to acquire and invest at the rate that it has. Genshin Impact, the open-world action role-playing game launched by the Shanghai-headquartered miHoYo in 2020, quickly took the world by storm, with its revenue soaring to more than $1.8 billion in 2021. Moreover, Lilith Games’ AFK Arena and Rise of Kingdoms, which were launched in the domestic market in 2020, outperformed Tencent’s games of similar genres.

As these hit gaming titles from relatively newer and smaller game creators have posed a threat to Tencent’s position in the market, it would only make sense for the company to bring in numerous small and mid-sized gaming studios to aid it in the competition of creating games that can meet the specific demands of gamers, and solidify its leading stance in the industry.  

Tencent’s gaming business has become an internationally formidable force through the acquisitions and investments made in recent years. The giant is clearly committed to its ambitions, and we can only expect more and more overseas studios to be entwined with the Tencent brand in the years to come.