Supercell takeover propels Tencent into entertainment super league

Chinese internet giant now forecast to seize 13 per cent of the US$99.6-billion global games market this year

PUBLISHED : Wednesday, 22 June, 2016, 9:54pm
UPDATED : Thursday, 23 June, 2016, 9:06am

Tencent Holdings has taken a major step towards becoming a global entertainment powerhouse, after its blockbuster acquisition of Finnish mobile game developer Supercell, analysts say.

The Shenzhen-based internet giant said on Tuesday it had agreed to lead a consortium to buy up to 84.3 per cent of Supercell, for US$8.6 billion.

“We see the deal as helping Tencent accelerate its efforts to develop a global entertainment business spanning different media formats, including movies,” said Ricky Lai, a research analyst at Guotai Junan International, on Wednesday.

The purchase — from majority owner SoftBank Group Corp, and certain Supercell shareholders — follows Tencent’s participation earlier this month in a new joint venture with private equity firms Sequoia Capital China and FountainVest Partners to accelerate the mainland expansion of WME-IMG, the world’s largest entertainment, sports and media agency.

The company’s recent deals represent a longstanding strategy by Tencent to expand its media and entertainment relationships, as well as build up its war chest of valuable entertainment content, according to Lai.

Tencent chairman and chief executive Pony Ma Huateng told a press briefing with Chinese media in March that his firm was well-positioned to accomplish that goal.

In December Tencent revealed it was teaming up with Alibaba Group founder Jack Ma Yun’s Yunfeng Capital and Huayi Brothers Media to buy a Hong Kong-listed company for HK$547 million, with a plan to turn it into an international film production outfit. Alibaba owns the South China Morning Post.

But the Supercell acquisition represents Tencent’s single biggest investment in a video games company.

The firm 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.

Tencent could leverage Supercell’s insight to expand its game offerings to global markets
Daiwa Capital Markets analyst John Choi

Blizzard Entertainment, a subsidiary of Activision Blizzard, created the popular Warcraft game series, which was recently adapted into a big-budget, live-action Hollywood movie with the same name.

Already the world’s largest video games company by revenue, Tencent is now forecast to seize 13 per cent of the US$99.6-billion global games market this year after completing the Supercell deal, according to research firm Newzoo.

“This year, Supercell is on track to make over US$2 billion outside of Asia,” Newzoo chief executive Peter Warman said.

“This is significantly more than the US$1.3 billion Tencent made outside of Asia last year, the majority of which came from [Riot Games-developed online game] League of Legends.”

Newzoo forecast the combined games revenue of Tencent and Supercell to reach US$13 billion this year, up from an estimated total of US$11.1 billion last year.

Founded in 2010, Helsinki-based Supercell has brought four top-grossing games to market on both Apple’s iOS and Google’s Android platforms.

Those include Hay Day, Clash of Clans, Boom Beach and Clash Royale, which Supercell estimated as being played by more than 100 million people daily.

“Tencent’s unrivalled games operation and distribution capability will likely boost Supercell’s performance in China, and Tencent could leverage Supercell’s insight to expand its game offerings

to global markets,” said Daiwa Capital Markets analyst John Choi in a research note.

He added that Tencent’s existing US$16 billion net cash balance was “more than enough” to fund its investment commitment in the Supercell deal.

Tencent said it will provide US$3-4 billion of the purchase price, while the rest will be financed by investments from potential consortium co-investors and bank borrowings.