Tencent challenged by startups like Genshin Impact devs miHoYo

Tencent Holdings is the world’s top video games company by revenue, and it’s not about to change any time soon.

Last year, Tencent’s two biggest mobile titles, PUBG Mobile and Honour of Kings, each brought in over $2.6 billion. This is on top of revenues coming from Tencent’s numerous platforms, like WeChat, China’s biggest social network.

However, Genshin Impact, the biggest global launch ever for a Chinese game, didn’t come from Tencent. In fact, miHoYo published and distributed its hit outside Tencent’s ecosystem. Instead, miHoYo sold the game through its website and various third-party platforms.

“The meteoric rise of smaller, non-Tencent backed studios focusing on niche genres such as miHoYo, HyperGryph and Papergames reveals that Tencent underestimated part of how the industry would evolve,” Owen Soh, founder of EastLab Consulting, told South China Morning Post. “With Genshin Impact, miHoYo has set a major precedent: an independent Chinese studio can launch a global mega-hit from one day to the next, even without Tencent‘s help,” adds Serkan Toto, CEO of game industry consultancy Kantan Games.

Not that Tencent didn’t see the potential of Genshin Impact. The giant previously approached miHoYo for a stake in the company, but miHoYo declined — even though the studio was offered to set its own terms.

In any case, Tencent can no longer afford to just focus on MOBA, first-person shooters and battle royale games. Reflective of the evolution in players’ tastes, young start-ups like miHoYo, Lilith Games and HyperGryph are beginning to account for more and more spots in gaming charts.

In addition to these emerging challenges, Tencent is also on the defensive against Alibaba and ByteDance, both seriously commited to expansion into gaming.

In response to the increasing competition, Tencent is now “taking a less conservative approach to mergers and acquisitions,” in the words of Niko Partners’ Daniel Ahmad. This includes investing in smaller companies than usual, and at earlier stages. Overall, the compamy invested in 29 video game companies in 2020 and will undoubtedly continue its M&A activities in 2021.

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