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China’s internet service companies have long been forced to walk a fine line between growing their businesses and staying on the right side of the country’s government, which not only closely controls the content that its citizens can access, but also has a strong opinion on how that content is accessed.
Tencent Holdings, the owner of messaging service WeChat and a number of popular online games, was served a reminder of just how watchful the government is. The People’s Daily, a state-run newspaper viewed as a mouthpiece for the country’s ruling Communist Party, published a commentary on July 4 describing Tencent’s blockbuster online game Honor of Kings (which is sometimes translated as King of Glory) as “poison” and a “drug.”
The opinion piece quickly sent Tencent’s stock tumbling, although it later recovered. A day earlier, Tencent had responded to criticism that Honor of Kings was becoming addictive to children by issuing new rules limiting play time to an hour per day for those under the age of 12, and to 2 hours per day for those between the ages of 12 and 18. In addition, it said users under the age of 12 could no longer play the game after 9pm.
Honor of Kings has become a massive cash generator for the company, accounting for more than RMB5.5 billion (roughly $809 million) in revenues during the first quarter of 2017 alone. The game claims to have more than 200 million users, with 80 million considered daily active users.
Much attention in the West is paid to WeChat, which claimed 938 million monthly active users worldwide as of Q1 2017, trailing only juggernauts WhatsApp and Facebook Messenger.
Tencent’s gaming division is still the company’s massive moneymaker. According to the company’s latest earnings statement, online advertising revenues from platforms like WeChat totaled RMB6.89 billion in Q1 2017. But that figure was dwarfed by the RMB22.81 billion generated by the company’s online games.
Tencent clearly sees a future in its mobile games division, having spent $90 million to expand its stake in US-based mobile gaming firm Pocket Gems in May.
But the company is also now diversified enough to weather some minor storms, such as the recent government criticism of its biggest online game. According to Tencent’s latest earnings statement, WeChat was a key contributor to a 47% year-over-year increase in online advertising revenues in Q1 2017.
Tencent has also been conservative in increasing WeChat’s ad load so that it can preserve a solid experience for users, meaning there’s still lots of potential for increased online advertising revenues on the platform. But even that might not be enough to withstand the ire of China’s government should Tencent find itself on the wrong side of the ruling Communist Party’s policy.
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