Chinese tech group Tencent Holdings, one of the world’s biggest video game companies by revenue, has amassed a huge portfolio of studios that it is equipping with generative artificial intelligence and other tools for growth.
Tencent’s game revenue grew to RMB 197.7 billion (USD 28.6 billion at current rates) in 2024, a fourfold increase over a decade earlier. This equals JPY 4.4 trillion, putting it within range of the JPY 4.67 trillion (USD 30.5 billion) in revenue at Sony Group’s video game division, the creator of the PlayStation.
The company will continue to explore mergers and acquisitions and also work with overseas studios to bring Chinese games to global users, said James Mitchell, Tencent’s chief strategy officer.
Tencent, founded in 1998, offers services including electronic payments, video sharing, video and music streaming, and AI centered around its WeChat app, used by 1.4 billion people.
The company entered gaming about 20 years ago. Then in 2011, Tencent bought US-based Riot Games, famous for its League of Legends online game. This signaled a shift from a domestic, do-it-yourself strategy to a global and open one. Since then, Tencent has made acquisition after acquisition using the profits earned in the huge Chinese market. Games now make up roughly 30% of its revenue.
Tencent has acquired or invested in roughly 230 companies in the video game industry for a total of RMB 157.7 billion in deals, according to Chinese research firm ITjuzi. Its investments in US-based Epic Games and Finland’s Supercell are two notable examples.
To get the most out of those investments, “each studio can tap into Tencent’s collective knowledge while keeping its own creative independence,” said Zhu Yong-yi, vice president of global game business strategy at Tencent. He said the strategy is to support investees in areas such as development and marketing.
“Over time, we see which ones can truly develop their own IPs and become sustainable,” Zhu said.
Tencent has gained the knowledge to support these companies by making improvements based on user feedback analysis through its own services, including WeChat. Such insights can raise development efficiency while also increasing the likelihood of creating a hit game. This is partly why the company has teams scattered across China, Europe, and the US.
Tencent helps the studios with overseas expansion, user testing and other efforts. User testing is critical in game development to increase the odds of a hit by refining plots and gameplay. Some studios have their own expertise, Zhu said, while “others rely on [Tencent] for research, user-experience testing or tech support.”
This often means in-house assessments in the early stages of development. Then, as the game approaches completion, it is also tested with casual gamers, dedicated fans and influencers.
Tencent also develops generative AI that can streamline tasks such as character creation for game companies. The tech group’s AI tools have been used in around 40 games including the hit Game for Peace. One game development team member said the AI is capable of working basically at the same level as a human creator.
The tech group said using generative AI to create character designs can compress a month-long process into just a few hours. The team member said AI is being used solely to complement human creativity, but it lets developers focus on other aspects such as operability.
HSBC has noted Tencent’s effective use of AI in attracting users.
The spread of smartphones helped expand the global video game market. Some Japanese startups such as Mixi and GungHo Online Entertainment once rode the same wave, but the combined net profit of Japan’s top ten game startups has fallen by nearly 70% from nine years ago. The Japanese market was big enough at the time that they delayed expanding overseas.
Tencent has grown, but two-thirds of its gaming business is dependent on China, and it lacks global IP on par with Nintendo’s Mario. That is why Tencent is working hard to build its network outside China.
The Chinese group’s free cash flow for April-September totaled RMB 88.7 billion (USD 12.8 billion), leaving plenty for mergers and acquisitions. Zhu said the company plans to “diversify across genres and markets, supporting teams in different styles of games.”
Tencent also faces competition from emerging rivals in China, including Chinese companies reaching the global gaming market. These include Century Games with its hit Whiteout Survival, and Mihoyo (Hoyoverse) with its flagship title Genshin Impact.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.