Tencent, Lego look to pull China’s games market out of the doldrums with new offering

Internet giant Tencent Holdings has teamed up with The Lego Group to launch a new video game next week, which could provide a spark to China’s US$38 billion games market months after a regulatory restructuring halted the approval of new licences and led to the industry’s slowest first-half growth in at least a decade.

Tencent, which operates the world’s largest video game business by revenue, on Wednesday ran three advertisements about the new game co-developed with Danish toymaker Lego on the official account of its Tencent Games unit in Chinese microblog Weibo. No details were provided.

“Today, we announce a piece of good news,” the advertisements said. “After a strategic cooperation in January, Tencent and Lego Group will unveil a co-developed game on September 19.”

The partnership between Tencent and Lego, which was announced in January this year, covers the creation of a Lego video zone for children on the Tencent Video platform as well as the development, publication and operation of Lego-branded licensed games.

It also includes the publication and operation of the online operation system for Lego Boost – a building and coding set that lets children bring their Lego brick toy creations to life – and the joint development of Lego Life, a safe social network for children in China.

“We’ve seen more and more Chinese children engage with the world digitally, and the partnership will bring them safe and imaginative digital Lego content that also supports their needs of learning, development and entertainment,” Jacob Kragh, the general manager at Lego China, said in the statement announcing the pact with Tencent in January.

Hong Kong-listed Tencent did not immediately respond to a request for specific information about the new game it co-developed with Lego.

The release has come at a time when the Chinese government is giving the Communist Party propaganda department the power to licence video games, marking an effort to increase control of the

country’s gaming market.

Approvals of licences for new games have been suspended since the end of March, and a government source recently told the South China Morning Post it may take a further four to six months to finalise the new licensing system.

China’s online game market, the world’s largest, has experienced dramatic growth in recent years, but the government is showing increased concern about what it sees as the industry’s negative aspects, including violent content and its effect on the eyesight of the country’s youth.

The move to centralise game approval in a single bureau was confirmed for the first time in a document published last month on the website of China’s education ministry, which outlines how China plans to address myopia – nearsightedness – among children.

Tencent president Martin Lau Chi-ping said in a post-quarterly results conference call with analysts last month that the government was aware that the regulatory restructuring has affected the video games industry.

Still, Lau said Tencent has “at least 15 games in our portfolio that have been approved [by the government] for monetising”.

The halt in new game approvals has resulted in a heavy toll on the biggest player in China’s gaming industry. Tencent, which posted a 2 per cent drop in second-quarter profit on lower gaming revenue, has seen about US$190 billion wiped off its market value since the company’s stock hit its peak on January 23.

China’s gaming market, however, is dominated by a top players such as Tencent and NetEase, so the decrease in the total number of games approved this year is likely to hurt small developers.

In the first half, China’s top 20 mobile games accounted for more than 56 per cent of overall industry gross revenue – and 16 of those were from Tencent and NetEase, according to data from CNG.