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Tencent

Former Chinese online games market leader gets investment from Tencent

The deal marks the latest games-related acquisition made by Tencent after its takeover of Finnish mobile game developer Supercell in 2016.

PUBLISHED : Wednesday, 07 February, 2018, 5:31pm
UPDATED : Wednesday, 07 February, 2018, 11:28pm

Tencent Holdings has bought an undisclosed stake in privately held online video game developer Shanda Games, an acquisition that would further expand the internet company’s pipeline of content for the booming global games market.

The transaction, which a Shanda Games spokesman confirmed on Wednesday, marked the latest initiative by Tencent to bolster its position as the world’s largest games company by revenue, following its US$8.6 billion takeover of Finnish mobile game developer Supercell in 2016.

Based in Shanghai, Shanda Games was an early leader in China’s online games market, with hits such as fantasy online role-playing game The World of Legend.

“It is part of Tencent’s strategy to convert classic, popular PC-based titles into mobile games, which is what this Shanda Games deal may represent,” said Karen Chan, an equity analyst at investment bank Jefferies.

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The Shanda Games spokesman declined to provide details about the amount of Tencent’s investment, the size of its stake or when the deal was made.

Tencent did not immediately respond to inquiries about its new games-related investment.

The Shenzhen-based company, online search provider Baidu, and e-commerce firm Alibaba Group Holding, which owns the South China Morning Post, are each building up their portfolio of intellectual property as they compete in developing various products for China’s vast entertainment and media industry, including in streaming video and music, digital advertising, film and games.

Total revenue of the entertainment and media industry in China is forecast to reach US$264.3 billion in 2020, up from an estimated US$228.1 billion this year, according to PwC.

Tencent, which also operates popular social-messaging-payments-and-gaming platform WeChat, has been stepping up its efforts to develop its war chest of valuable entertainment content, especially for mobile games.

The company already owns significant stakes in United States-based developers Riot Games, Epic Games, Glu Mobile and Activision Blizzard, as well as South Korean firm CJ Games and Japanese company Aiming.

Games, including mobile and social games, are expected to make up about 50.4 per cent of Tencent’s estimated total revenue of 241.8 billion yuan (US$38.5 billion) last year, according to data from Jefferies.

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Research firm Newzoo estimated China’s games market was worth US$32.5 billion last year, which made up more than a quarter of the US$116 billion global games market. Worldwide mobile games revenue was projected to reach US$50.4 billion.

Founded in 2001, Shanda Games was spun off by parent Shanda Interactive Entertainment and listed on the Nasdaq stock market in 2009. It later fell behind in the domestic games market against Tencent and NetEase as these companies moved ahead in bringing mobile games in China, the world’s biggest smartphone market.

Shanda Games was delisted in 2015 after it was taken private by Capitalhold in a deal valued at US$1.9 billion.

Following a restructuring of its business, Shanda Games has sought to become more competitive in bringing popular mobile titles to the market.

Earlier this month, the company appointed Tang Yanwen, who previously served as its chief operating officer, as its new chief producer in charge of overseeing the launch of a new series of mobile games.