Shulou(Shulou.com)11/24 Report--

This article comes from the official account of Wechat: ID:chuappgame, author: Peng Chuwei

Tencent has acquired Key Society, but in addition to Key Society, numerous overseas game companies are being invested by domestic big companies, from which we may be able to see the new direction of overseas investment by large companies.

On July 27, 2023, Visual Arts, a Japanese game company, announced that its president, Rumbo, would retire, all shares had been transferred to Tencent and Visual Arts would become a subsidiary of Tencent.

You may not be familiar with Visual Arts, but if you know anything about Galgame, you must have heard of Key. Key is a game brand owned by Visual Arts, whose founders include famous playwrights such as Ma Zhijun, who are familiar to players, and have developed famous Galgame such as "Kanon", "Air" and "Clannad". Galgame is a relatively minority category of games, and Visual Arts, as one of the leading developers of this category of games, naturally affects the heartstrings of players.

The question that most people care about is pure and simple-"can Key's Galgame go on when Visual Arts is acquired?"

Such worries are not unfounded. For a long time, "after the acquisition, the game company was forced to dissolve due to too much revenue pressure" cases emerge one after another. At the same time, it is also very common for large companies to integrate, reorganize and adjust their original corporate departments.

But now things are a little different.

New investment strategy and new trend in recent years, large domestic companies represented by Tencent and NetEase and several major investors led by the Saudi Arabian government's Public Investment Fund (PIF) are snatching game companies around the world. The acquisition of Visual Arts is only a small achievement in the battlefield of Tencent's overseas investment.

In a media interview in May 2023, Ma Xiaoyi, senior vice president of Tencent Group, said: "(Tencent) has invested more PC and console games in Europe, the United States and Japan, hoping that they will achieve game innovation and breakthroughs in that market, while helping us (Tencent) create new categories in the global market." This sentence can basically summarize the core logic of Tencent's overseas investment in the past two years.

According to the relevant data in BoCom International Research News, starting from Tencent's stake in South Korean game company Gopets in 2005, by January 2023, Tencent had made 273 overseas investments, invested in more than 60 game companies around the world, and acquired more than 10 wholly-owned subsidiaries. These companies are located in 4 continents and 17 countries and regions, including the famous FromSoftware, Ubisoft and Platinum.

Tencent's investment events and total funds in recent years (data source: IT Orange) Tencent's early investment style was a "very low sense of existence shareholder". After investing in overseas game companies, Tencent usually does not interfere in game development and will give overseas game companies full autonomy. The aim is to get real benefits such as dividends, agents and so on from the popular games they have developed by giving funds to studios that have developed or are developing popular games.

Over time, Tencent began to shift its investment focus to mobile games in 2013. According to an analysis by Financial Times, most of Tencent's investment will still be in China until 2020. After 2020, Tencent's investment began to shift to the United States and Europe, offering olive branches to traditional game makers. In recent years, Tencent's investment vision has shifted to stand-alone and mainframe, and the investment target has changed from a company of a certain size to a start-up team and small company.

Many of these investments have been successful. The 2022 release of "V Rising", "Warhammer 40K: Darktide" and "Valorant" have both achieved good market results, and these games come from overseas game companies controlled by Tencent.

Of particular concern is that the analysis pointed out that Tencent preferred early-stage investment, commonly known as "financial investment", before 2013, which accounted for 71% of all investments at that time. By 2021, Tencent's strategic investment will account for 47%. Even if it decreases slightly in 2022, it is still a high value over the years. The increase in the number of strategic investments means that Tencent's investment is more inclined to, whether the invested game manufacturers can cooperate with Tencent to provide long-term (not limited to funds) value feedback.

Between 2018 and 2020, Tencent's overseas investment is still dominated by short-term financial investment. After Tencent invested in Platinum Studio in January 2020, the head of the studio said that Tencent had pointed out some popular trends in the market to them, but had not interfered in any other affairs; the money invested by Tencent is "of great help" to them. It has also been reported that Project GG, a new game being developed by platinum, has been expanded with the help of Tencent investment.

Tencent bought a stake in German veteran game developer Yager in 2019. As a project spanning 2019 to 2022, this investment includes both Tencent's "early stage investment" and "strategic investment", which is worth mentioning:

Yager is a veteran German game developer, founded in 1999. It was well known in 2012 for its shooting game "Special Action: a chance of Life" (Spec Ops: The Line). At present, the studio has about 140 employees and was selected as the "best studio" by the German computer Game Awards in 2020.

According to media reports, Yager ran into financial difficulties after the launch of Dreadnought in 2017, and after communicating with some investors, they realized they needed a partner in the gaming industry.

Meanwhile, Yager plans to develop a free sci-fi tactical game called The Cycle: Frontier. It will include PvE and PvP content together-a game that may not be new today, but it was eye-catching enough at the time. Later, during the game test on August 9, 2019, Yager was acutely aware that this type of play was out of date and made emergency changes to the game version. later, the game changed to a similar "run away from Takov" style of play, and then became very popular with players.

This game has attracted the attention of Tencent. After making contact, Yager realized Tencent's advantages in mobile games and F2P, and accepted Tencent's investment in 2020. In addition to the funds, Tencent has also brought expertise in these areas to Yager, according to details revealed by gaming company CEO Timo in an interview.

The two sides decided to start with a minority stake. In September 2020, The Cycle: Frontier launched a pre-emptive experience, and Yager adjusted the game based on the feedback received-which also required more investment. Finally, in June 2021, Tencent acquired a majority stake in Yager and became the controlling shareholder.

This is a standard acquisition case of an overseas game company: Tencent provides funds and advice to underfunded developers, does not interfere with game development itself, nor interferes with game distribution.

In this case, Yager, as an overseas company with experience in making excellent games, has benefited a lot from its cooperation with Tencent: it has gained experience and funding related to game operation, after which Yager will continue to develop unknown new works with the support of Tencent.

From this, we can see the financial model of Tencent investment: in the short term, as a financial investment, the creative team will be freed from the financial shackles, give each other independence and autonomy, and through the acquisition of the "Golden Phoenix" in research and development, increase the probability of its studio to produce "popular styles", so as to make a profit. In the medium and long term, through cooperation, to gain more experience and technology, so as to strengthen their own R & D capabilities.

Tencent's new direction of overseas investment in recent years, with the changes in the global market environment, the market demand for content is gradually increasing. Tencent needs more popular styles to stimulate the domestic game market on the one hand, and is also strengthening its R & D capabilities on the other hand. As a result, Tencent is working more and more closely with overseas game studios it invests in.

In May 2021 and November 2022, Tencent invested twice in Remedy Entertainment, which was once known for producing Marx Payne games and works such as "mind Killer" and "Control".

The investment case also reflects a change in Tencent's investment thinking: choose to invest in game studios with strong R & D capabilities on niche tracks and work with them to develop a new IP. It is worth mentioning that in this investment, Tencent did not acquire Lvmeidi Entertainment and its IP--, which means that Lvmeidi Entertainment will continue to hold its own intellectual property rights to the new work-but try to work with it to develop a free multiplayer shooter game code name: Codename Vanguard. Tencent has signed a global development, licensing and distribution agreement with Remedy. "Code: pioneer" will be Remedy's original IP. The game is developed by an unreal engine and is open to players for free, mainly for PC and host platforms, while Tencent is responsible for developing mobile versions.

In this investment, Tencent selected overseas niche track game teams with the ability to develop 3A masterpieces. The purpose of the investment is not to obtain each other's IP authorization, but to cooperate with them to develop 3A games, and then launch their own domestic team to develop mobile phone versions.

On December 19, 2022, the mobile game "Assassin's Creed: JADE", jointly issued by Tencent's Level Infinite and Ubisoft, launched a limited time test of Alpha in external service, and conducted a new internal test overseas on August 3, 2023. The launch of this IP game is another typical case of strengthening cooperation between Tencent and overseas game companies in recent years.

This practice also brings huge benefits to Tencent's overseas game market. According to data provided by BoCom International, in the first quarter of 2023, Tencent's overseas game market increased 18 per cent year-on-year from R & D to distribution, excluding the impact of exchange rates.

The results of Tencent's overseas investment are emerging (data source: BoCom International) from the data, we can see that Tencent's overseas income in this quarter mainly comes from "Goddess of Victory: Nikki". Tencent invested a 20 per cent stake in Shift Up, the developer of the game Goddess of Victory: Nikki, in December last year, one of Tencent's biggest game company investments in 2022.

But another interesting thing is that Supercell's revenue failed to provide positive data for Tencent's revenue this quarter. Tencent bought an 84.3 per cent stake in Supercell for about $8.6 billion in 2016. According to Supercell's annual summary "The Next Chapter of Supercell" released on February 15, 2023, Supercell revenue was 1.77 billion euros, down 6% from the previous year. The profit was slightly lower than expected.

The reason for Tencent's investment in Visual Arts is deeply influenced by the case of "Goddess of Victory: Nikki". As a veteran developer of the second Yuanmei girl game, Key has great potential and already has its own mature products.

It starts with Heaven Burns Red, a mobile game owned by Key. Although for players, Key's more famous work may be Galgame, for Tencent, the mobile game "Gossip Sky", developed jointly by Key and Wright, may be the biggest reason to buy the company.

The revenue of "Gossip Sky" once exceeded that of "Victory Goddess: Nikki", which may be the main reason why the former attracted investment from Tencent. "Gossip Sky" is a two-dimensional beautiful girl role-playing game launched on February 10, 2022. According to data provided by Sensor Tower, the revenue of the game reached more than 200 million US dollars in the year from February 2022 to January 2023. This figure surpasses the previous "Goddess of Victory: Nikki" released by Tencent.

In the face of this achievement, Tencent's acquisition of Visual Arts together with the move of "Gossip Sky" is very reasonable. For players, according to Tencent's concept of "symbiosis". The acquisition of Visual Arts will not affect the future of Key, and there may even be further cooperation between the two sides.

The only thing that may not be satisfactory is that after that, Key's works probably have nothing to do with adult-related restricted content, because Tencent did not buy adult-related content during the acquisition process, and Key itself will be cut off from this part of the content.

For Tencent, this may be a closer layout of QQ, Meimei mobile games, although so far this layout may still be limited to "take down the popular style product IP", but after that, Tencent may continue to set foot on the relevant track through Key, which is experienced in the development of Meimei games.

On the foreign forum Reddit, an American player's reaction to the acquisition of Key by Tencent can well represent the impression of Tencent in the minds of players. He said: "when will Tencent do overseas localization for Sky Sky? I want to play the English version of the game."

Without stopping under Tencent's overseas investment strategy, we can see another possibility when the game company is acquired: the acquirer provides funds without interfering with the overall operation of the game company; the game company has received sufficient funds to be able to develop games in a relatively relaxed environment. These games may be "popular" or unknown, but for big companies, this is a risk they are willing to take.

Of course, there is a problem: games are easy to get, but "popular styles" are hard to find. At present, the results of Tencent's overseas investment are also beginning to show. Games developed by game companies that NetEase has invested and acquired in recent years are not expected to enter the market until 2025. It remains to be seen whether there will be the next popular style.

Investment mergers and acquisitions are taking place more and more frequently in overseas game circles. Ma Xiaoyi once said in an interview with him in the game media Gamebeat: "Game production costs a lot of money. Tencent, for example, needs US $100 million to US $300 million to ensure the high-quality output of games, and small studios need financial support to produce high-quality games. At the same time, mobile games have now reached the 3A level, so it is not cheap to develop high-quality mobile games. In this case, in order to alleviate the financial pressure, acquisition has become the choice of the industry. "

In today's global market environment, game acquisition may become more and more common. " If you want to make good, creative, high-quality games, the development cost can be as high as $100 million, $200 million, or $300 million. Small studios can't afford this risk. They need the support of big companies and big platforms. That's why there are so many acquisitions. In fact, the result of the acquisition is very obvious, more high-quality games will be launched, which is a good thing for players. "

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