Chinese technology conglomerate Tencent Holdings, the owners of social networking application WeChat, reported a 35-per-cent jump in its quarterly profits yesterday, with growth in their gaming business resuming after a long regulatory freeze in China.
Chinese authorities had suspended the country’s gaming licencing process for new games in 2018, only restarting it in December, which led to China’s gaming annual revenue growth in 2018 to be at its slowest in over a decade.
Tencent’s gaming division has since released ten games in the second quarter of 2019, which pushed their smartphone gaming revenue to $3.2bn (€2.1nbn), a 26-per-cent increase from the last quarter.
This was helped by the success of games such as Honour of Kings, Perfect World Mobile and an augmented-reality game Catchya. In comparison, desktop game revenue dropped nine per cent to $241.7m (€216.9m).
However, these gains were offset by a slowdown in their advertising business, with growth at a record low of 16.3 per cent, with a seven-per-cent drop in media ads. This was a marked decrease from the 39-per-cent growth in their second quarter 2018 results.
The increase in competition for advertising dollars has come from short-video apps like ByteDance’s TikTok.
Leading sports properties such as the National Basketball Association, Major League Baseball, the International Cricket Council, the Los Angeles Dodgers, and soccer teams including Bayern Munich, Borussia Dortmund and Liverpool, as well as many others, are creating content on TikTok, which allows users to post up to 15-second video clips which are often accompanied by music and video effects. This helped ByteDance’s valuation hit $75bn (€67.3bn) in July, according to media reports.
In a call with analysts reported by Wall Street Journal, Tencent executives pushed their strength in longer, high-quality content. In July, Tencent and the NBA announced a five-year extension of their current rights deal, which will now run through to the 2024-25 season.
Tencent president Martin Lau said: “Many users questioned the value of high-quality content given the popularity of user-generated short-video content. But time spent on Tencent videos continue to show healthy growth.”
Tencent has tripled its NBA viewership in the last four years, with 490 million viewers on its platforms, and 21 million fans watched Game Six of the 2019 NBA finals on Tencent, making it the most-watched NBA game on a digital platform in China.
However, Bytedance has also been active in the sports rights market, previously acquiring short-form mobile content from rights-holders including the Chinese Super League, NBA, ITTF, China Volleyball League and WWE, and acquired a 30-per-cent stake in Chinese online sports content platform Hupu in a deal worth RMB1.26bn ($180m) in June.
To add to Tencent’s headwinds, the bearish global economy has hurt marketing spending, and according to Bloomberg reports, Tencent chief strategy officer James Mitchell said: “Our assumption is that the macro environment will remain difficult for the rest of the year.”
“The situation of the heavy supply of advertising inventory will continue for the rest of the year, and potentially into the next year,” he said, adding sectors hit would include the automobile, real estate, and financial services industries.