Gaming battle ends in China but Tencent should still curb its enthusiasm
With growing competition games firms will need to spend more on marketing to grab smaller amounts of revenue, which will hit both the top and bottom lines
Shares in Naspers's 31%-owned Tencent jumped in Hong Kong Friday morning amid reports that China had reopened the door for new game titles.
Investors are right to be excited. Online games are an important part of the company’s revenue and a halt on new introductions saw that division’s sales decline. Regulators had frozen commercialisation, which meant that while some titles could be released, Tencent and its peers weren’t able to collect revenue.
Traders should curb their enthusiasm. The possibility of being able to publish new games, and make money from them, is undoubtedly positive. But that doesn’t mean a return to the heady days of solid revenue and fat margins.
Consumers have moved on. When you understand that gaming is merely a form of entertainment, you realise that there are many more modes of distraction available today than 18 months ago.
Live streaming from the likes of YY, Momo, Meipai and Douyu is booming right now. Many of these platforms will disappear or merge, and the current excitement will die down. Yet live streaming is here to stay, and people watching live shows aren’t playing games.
Recorded content is also growing, with the battle between iQiyi and Youku Tudou causing collateral damage in the games sector.
And the move to mobile has hit margins for games companies, too. Desktop games fared better on this metric, though mobile has more traction.
With competition from all sides, games companies will need to spend more on marketing to grab smaller amounts of revenue, which will hit both the top and bottom lines.
Perhaps the battle to publish new titles is coming to an end, but there’s a lot of damage left behind.