(upbeat music) (lasers whooshing)
- [Narrator] From Pokemon Unite,
(dramatic music) (weapon whooshing)
to League of Legends, and Fortnite.
- All right, listen up.
- [Narrator] These are some of the most popular video games
in the world.
And behind them is a Chinese company
you may not be familiar with.
- Tencent is China's largest social media company.
It is also the world's largest
video game company by revenue.
- [Narrator] Last year it reported more than $22 billion
in revenue from smartphone games
and nearly $7 billion from PC games.
But that growth could hit a roadblock.
Since late 2020, Beijing has embarked
on a clampdown of its homegrown tech giants,
and Tencent is one of them.
It's facing more scrutiny over its business practices,
including its allegedly anti-competitive behaviors.
Regulators are also concerned
that young Chinese citizens
may become addicted to video games.
- Regulation's always looming in China.
From now on, they can only become stricter and stricter.
- [Narrator] We take a look at Tencent's vide game portfolio
over the years to see how it became a giant in the industry
and what Beijing's regulatory crackdown
could mean for the company's global empire.
(dramatic music)
Tencent made its entrance into the video game world
with one of the biggest names in the industry,
League of Legends.
(doors beeping)
But before explaining how Tencent got there,
you first need to understand
that it didn't start off as a video game company.
The Chinese tech giant has businesses
in music, video streaming and search engines.
But it's best known for its social networking app WeChat,
which is everything from handling payments
to booking doctor's appointments.
The app has over 1.2 billion monthly active users,
and that's been key to reaching a vast network
of gamers in China.
- There's no company on the planet
that has this advantage that Tencent has.
- [Narrator] Serkan Toto is an independent
video game industry consultant in Japan.
And he's been watching this sector for more than a decade.
- They turned WeChat into a gaming platform,
and they also use it
as an incredibly powerful distribution tool,
marketing tool, user acquisition tool.
They're making aggressive use of that.
- [Narrator] The company has been building
its own online games since 2003,
developing some relatively simple games like these.
(blocks banging)
(singing in foreign language)
To more sophisticated ones.
(dramatic music) (gun shooting)
Over the years, Tencent has also tried
to export some of them.
But they failed to take off in the West.
- The best example is probably Honor of Kings,
(dramatic music)
which is the world's biggest mobile game by revenue.
Very well made but they are designed
to appeal to Chinese gamers, for example.
The world building characters
or the stories, the narratives.
- [Narrator] Video game industry analysts say some
of Tencent's flops may have accelerated
the company's foreign investments.
(dramatic music)
And this brings us back to League of Legends.
In 2009, the company became the official Chinese distributor
of the US-developed game.
- It's not a casual game, it's not a very easy-to-play game.
After launch, it just developed into a crowd pleaser.
- [Narrator] Toto says this kind of growth
helped push Tencent to make a bold move
with a Los Angeles startup.
- [Serkan] In 2011, they made
their first big international investment
in a gaming company into Riot Games,
which operates one of the world's biggest PC games,
League of Legends right now.
- [Narrator] Tencent paid $400 million
for a 93% stake in the American company
and four years later, it scooped up the remaining 7%,
taking full control of Riot Games.
- Riot Games, they needed funds to scale the company.
League of Legends became big so quickly,
and on such an international scale,
mainly because of Tencent's investment.
(crowd cheering)
- [Narrator] With Tencent's backing,
League of Legends' monthly players have grown
by almost tenfold, and in the past decade,
the game has made some $20 billion in revenue.
- This early success has basically triggered something
inside Tencent, and it showed to Tencent internally
that there's a big opportunity, not only in China,
but also outside of China
if you make the right moves in terms of investing.
- [Narrator] The success of League of Legends
helped kickstart a shopping spree.
Tencent made its second big move in 2012
by investing in another American game developer, Epic Games,
the company behind Fortnite.
Activision Blizzard, which is North America's
biggest video game publisher by market value.
Supercell, the Finnish developer behind Clash of Clans.
Bluehole, the South Korean game maker
behind the battle royale sensation PUBG.
The Chinese company hasn't just acquired stakes
but also found ways to collaborate.
Roblox, the online game platform popular
with young kids entered into a joint venture
with Tencent to make its entry into China.
And the Pokemon company worked with Tencent
to develop a new game called Pokemon Unite.
And as video game companies saw a big boom
during the pandemic with people stuck at home,
Tencent has already closed 12 game-related deals
overseas this year.
- Tencent has to expand globally in the gaming market
because it needs to seek more growth.
It also become easier for them
to get exclusive distribution rights
for these games,
and that also further cements their dominance
in the home market too.
- [Narrator] But this dominance at home
has raised some concerns among regulators
about the gaming habits of young people.
- The worst crackdown that Tencent has faced so far
is probably the 2018 episode
when the Chinese government suspended approval
of new games for about a year.
- [Narrator] Then this year,
as part of a larger regulatory crackdown,
Beijing became looking more closely at Tencent.
In August, a Chinese state newspaper called online games
opium for the mind.
Later the article was taken down,
then republished without the phrase opium for the mind.
After the article's publication,
Tencent saw a big selloff
and its share price dropped about 10% in just one day.
- So there's a lot of confusion
whether that article represents any actual policy agenda.
- [Narrator] So Tencent has pushed to enforce tougher rules
than required by the authorities.
Young gamers will only be allowed
to play for one hour on weekdays
and two hours on weekends and holidays.
- We haven't seen the current regulatory storm really hit
the core of Tencent yet
when other companies took a very big hit.
It also raises the question
whether Tencent will be the next.
- [Narrator] Toto says this type of uncertainty at home
might push Tencent to see
that the bigger opportunities are overseas.
- Tencent is most likely to even more focus
on its global gaming business going forward.
You want to make sure that you use your capital effectively
outside of China to offset certain risks.
- [Narrator] Tencent said it's committed
to growing the game sector in China,
while looking at potential investments abroad
that can bring strategic value to the company.
- I think that Tencent is going to try
to acquire even more studios,
even more developers outside its home market.
- [Narrator] And that could mean
that the next blockbuster games you'll be playing
could have Tencent behind them.