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Interesting Dutch article about how Tencent got its influence in the gaming industry

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  • Interesting Dutch article about how Tencent got its influence in the gaming industry

    The original Dutch article

    Translation below, shamelessly mostly translated using DeepL. Credits go to Rufus Kain, who wrote the original article.

    How the Chinese Tencent is conquering the European video games market

    Not the Japanese Sony or the American Microsoft, but the Chinese Tencent is the big earner of the gaming industry. Although the tech giant gets little attention in the West, it is gradually expanding its influence - using a number of familiar tricks.

    State aid, theft, espionage and trade deficits: these are concerns that arise in any form of Chinese expansion in the West. China - essentially a dictatorship - spreads its businesses and ideas abroad without competing on an equal footing. It does so both physically (with ports and railways) and digitally (with computer chips and 5G networks), according to Western politicians and economists.

    One sector in which China wants to dominate is often overlooked. This is a sector that by definition is not taken too seriously, but that is rich in both euros and data: the game industry.

    In 2019, the global turnover of the gaming industry exceeded $150 billion, research agency Newzoo estimates. And the largest game company was not Sony, Nintendo or Microsoft, but the Chinese Tencent.

    A Chinese multitasker

    Tencent Holdings is the parent company over many of China's most popular tech applications. The Chinese equivalents of Facebook, Whatsapp, Tikkie, YouTube, Spotify and other online services are all part of Tencent's portfolio. In addition, Tencent Pictures was involved as a producer in films such as Wonder Woman and the latest parts of Terminator and Men in Black.

    But neither film, nor fintech or social media is Tencent's biggest source of income: these are video games. Whereas fintech and social media each generated less than ten billion euros, online games generated more than 16 billion euros for the company in 2018.

    The income from games is partly due to games that Tencent makes himself, such as Honour of Kings, a big hit in China. But investments in Western game companies also generate a lot of money. For example, Tencent owns 40 percent of Epic Games, the American developer behind Fortnite - the most popular game of the last three years. In addition, Tencent owns 84 percent of the Finnish game studio Supercell, known for mobile games such as Clash of Clans, and 100 percent of Riot Games, the creator of the popular League of Legends.

    This leading role in games is not surprising, says Steven Brakman, Professor of International Economics at the University of Groningen. China has followed a normal development path: from agriculture, to basic industry, to advanced products and services. Gaming fits on that roadmap'.

    But it is the way in which China inserts itself on the games market that raises questions. The company uses tricks that, according to Brakman, are also at the root of the trade war between China and the United States.

    Trick 1: Cheat

    If you don't have kids, you probably never heard of Roblox. But with 100 million active users, last summer for the first time this game was bigger than the comparable but better known Minecraft.

    In 2019, the American creators of Roblox wanted to enter the Chinese market. To this end, they first entered into a partnership - a joint venture - with a local company. That cooperation partner became Tencent. The first joint initiative? A sponsored trip for fifteen young Chinese programmers, who learned to develop games for a week at Stanford University in California.

    According to American medium TechCrunch, the collaboration was a good step for Roblox, because Roblox's number of users could increase drastically if the game is launched in China, the online medium wrote as a response to the collaboration.

    However, it is questionable whether it will come to that. When China wanted to put its high-speed railways in order around 2004, it invited German, French, Japanese and Canadian companies to help through joint ventures. The catch: 'All relevant technology had to be transferred, and even patented technology had to be handed over,' says economist Jonathan Holslag in his book The New Silk Road (De Nieuwe Zijderoute). The European joint venture partners were counting on a long-term collaboration, but China quickly caught up and took production into their own hands.

    That as a company in China you have to transfer knowledge and patents is a key issue in the trade dispute with the US,' says Brakman. All countries that want China as an outlet are running into it. So are European companies. The joint venture between Tencent and Roblox is a good example. You are forced to train Chinese young people in something you are good at. The question is whether they still need you after that'.

    'Forced' is not the right term, says professor of international economics Ebbers. After all, the companies agree voluntarily. But he confirms: 'There are many examples where things go wrong'. However, there are also success stories: 'Fast food chain KFC and Volkswagen have done very well with the help of local partners'.

    Trick 2: Unequal crossing

    Vincent's joint venture with Roblox illustrates another annoyance of Western governments: where China enters foreign markets with all kinds of products - from games and smartphones to buses - the Chinese market remains difficult for many foreign companies to enter. Ebbers: 'There is often no reciprocity. China argues that formally it is still a developing country'.

    The game industry has more of this kind of imbalance. The Japanese Nintendo had to team up with Tencent to bring its newest game console, the Switch, to the Chinese market. And the shooting game PlayerUnknown's Battlegrounds (PUBG), one of the most popular games of 2017, could only be launched in China with Tencent as publisher.

    Tencent also bought shares in Bluehole, the South Korean developer of the game. And when a year after its launch, the Chinese government continued to grumble about the violent nature of the game, Tencent replaced the game with a 'cleaned up' version full of nationalist propaganda.

    Trick 3: State aid

    A third point of discussion in China's trade war with the US is state aid," says Brakman. The Chinese state supports companies, among other things with loans on favourable terms. Holslag mentions all kinds of companies in the New Silk Road that can borrow cheaply from Chinese state banks, from shipping conglomerate COSCO and network management company State Grid to airline company Comac.

    What is certain is that Tencent also takes out loans with state banks such as the China Construction Bank and the Bank of China Hong Kong. According to Brakman, this is an indication that the Chinese policy with regard to Tencent is anything but exceptional.

    The fact that China provides state aid is not in itself unheard of. In the sixties and seventies, the Netherlands also subsidized an enormous number of companies,' says Ebbers. Shipbuilding was kept in the air for twenty years. There were many state-owned companies, such as the Royal Blast furnaces. In the transition after the Second World War, we felt that we needed a strong market and government. That didn't change until the 1980s with the advance of market thinking'.

    Again, there are plenty of examples of Western state aid. Brakman mentions the aviation industry: the US supported aircraft manufacturer Boeing, so that Europe - in order to remain competitive - also supported Airbus.

    The difference is that the Chinese government emphatically positions itself as the brain behind China's expansion. On the one hand, the state has outlined how Chinese enterprises should conquer the rest of the world (this plan is called The New Silk Road), and on the other hand, how China itself should become more independent of foreign services and products (Made in China 2025). Companies are encouraged to put these master plans first, instead of simply making as much profit as possible.

    For example, Holslag quotes from a Chinese development plan for the steel industry that China had several steel companies merged to combat 'disorderly competition between them'.

    Netflix for games

    The trade problem is actually a problem of economic systems,' says Ebbers. 'In China, the government is present by definition'. According to him, the West can best accept that presence to a certain extent.

    Holslag, however, argues in his book that Europe is actually too naive towards China, and must make stricter demands with regard to the unequal trade it creates. He also thinks we should get rid of the idea that doing business with China is good for Europe, regardless of the conditions. For China, trade is only a means to gain power, Holslag writes. The composition of trade is also interesting: China is taking more and more technology for its account. We are allowed to sell baby milk; China the machines, we pork; China smartphones.'

    In the coming years, Tencent intends to invest ten billion euros to increasing its position in Europe. Nevertheless, Tencent receives a lot less attention than Huawei, which was excluded from tenders for 5G networks in the Netherlands and other countries in December. Well, Huawei is suspected of spying for the Chinese government. But according to The Wall Street Journal, Tencent also shares sensitive user data with China.

    Tencent's European expansion focuses on cloud technology, among other things. This can serve many purposes, one obvious example of which is online gaming: in recent years, the game industry has increasingly focused on selling subscription services, rather than individual games. For example, Apple launched its subscription service Arcade in September, and companies such as EA Games, Microsoft and Sony now also have subscription services for video games. As with movies (Netflix) and music (Spotify), the games in these services are no longer the property of the user - they only pay for access.

    Chances are that the introduction of the ultra-fast 5G network will accelerate this development. The question that remains is: to what extent is Europe prepared to transfer power over its video games to a company that does not shy away from propaganda for a dictatorship?
    Last edited by lostaname; 02-18-2020, 01:34 PM.

  • #2
    China will probably collapse from Corona virus so hopefully Tencent and the Fortnite launcher go with it.


    • lostaname
      lostaname commented
      Editing a comment
      It won't. Apparently they've already found some old medication that has been out for years that people respond well to. Besides, China owns like 99% of the pharmaceutical production of the world..... you do the math

    • Cuzin_Ed
      Cuzin_Ed commented
      Editing a comment
      lostaname It can easily happen. How much of this medication do they have? Can you even trust what the Chinese Commie government says? I know I don't.

      Even with medication they will still have shortages. I don't know how much of the pharmaceutical production China owns. But that can change pretty quickly.