China’s Tencent on why it’s investing in studios like Gears of War’s Epic Games

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Tencent may not be a name as recognizable to the western video game industry as Activision Blizzard, Electronic Arts, Ubisoft, or even Take-Two, but that’s about to change. China’s premiere Internet services company is branching into the world gaming market, specifically North America, in a very big way. In the past two months alone, Tencent has become the first outside investor to purchase a stake in Gears of War and Fortnite developer Epic Games. It also recently inked a deal with Activision to support a China-exclusive multiplayer entry in the one of the best-selling game franchise ever, Call of Duty Online. There are even rumblings that Tencent will purchase Vivendi’s 60 percent stake in Activision Blizzard.  Tencent is the company to watch in the 2012 game business.

In an interview with VentureBeat, Tencent senior executive vice president David Wallerstein discussed why the company is starting to invest more heavily in the west. It doesn’t necessarily need to. The sheer size of the Chinese gaming market makes it a sustainable environment for a gaming company without branching out into global markets. “China now has more online gamers than the U.S. and, I believe, Japan combined,” said Wallerstein, “So you can run around crazy in the US market, or you can take on China, and your results may be pretty darned similar at the end of the day. The size of the markets is pretty similar. I think this year, the Chinese online game market will be about $8 billion, and the global market for online games is about $15 billion. So it’s roughly half.”

Why then? Why go for Gears of War or League of Legends creator Riot Games, a studio which Tencent bought a majority stake of in 2011. Because Chinese gaming tastes are starting to change.

“We started with very simple, casual games like poker or three-in-a-row games. And then we went into what are called advanced casual game, like racing games, or chasing guys around a map shooting at each other. And then we starting going for the big MMO type worlds, like World of Warcraft and Lineage, that have been popular in the western world. And now we just do every kind of gaming in every kind of genre, including social games and mobile.”

“At the end of the day, for the majority of our cash and revenues and profit… it’s coming from these deep, immersive experiences that really parallel what’s happening with console in the US. The only difference in China is that everything’s online, everything’s multiplayer, and these experiences for the most part are only on the PC.”

Consoles are actually illegal in China, so Tencent’s not necessarily looking to become a global competitor in that environment. It’s merely interested in the high level of quality in big budget console games developed in the west.

Wallerstein’s comments are important to note in light of the ongoing discussion over the changing game industry. Even if game consoles are dying out, the style of big budget development that fueled the technology’s rise remains profitable. For a company with a $52 million market cap like Tencent, the steep cost of AAA development is no great hurdle.

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