Beijing time on March 21, according to foreign media reports, a huge change is taking place within the gaming giant Tencent: a simple and easy-to-play game with cute characters overcoming obstacles has been given priority in development, while a high-cost, complex foreign IP mobile game that was favored in the past has been left out.


People familiar with the matter said that since the end of last year, Tencent has transferred hundreds of employees from the mobile game development team of "Assassin's Creed: Codename", a project that Tencent has cooperated with French company Ubisoft for many years.

Now, these employees have turned to developing Tencent's independently developed party game "Yuanmeng Star" in response to NetEase's explosive "Egg Boy Party". It's Tencent's most high-profile foray yet into the so-called party game genre, which offers simple gameplay, mini-games and encourages players to chat together.

According to three people familiar with the matter, Tencent's change may lead to the release of "Assassin's Creed: Codename" to 2025 instead of this year. "Assassin's Creed: Codename" is an action-adventure game set in ancient China. The mobile game has been in development for at least four years.

Self-developed games are more profitable

Tencent’s reallocation of resources highlights the game industry’s shift from IP to self-research, which forces Tencent to make strategic changes.

First of all, game companies using foreign IP to develop mobile games often make very little profit. At the same time, competitors have launched seemingly niche blockbuster games, such as NetEase’s “Eggboy Party” and MiHoYo’s “Genshin Impact.” Moreover, these games are independently developed by them, so the profits are all their own.


NetEase "Egg Boy Party"

Tencent has achieved great success over the years by developing mobile games for international hits, such as Activision Blizzard's shooter "Call of Duty" and the battle royale game "PlayerUnknown's Battlegrounds" developed by South Korea's Krafton.

However, such franchise games, known as IPs, are expensive to produce.Moreover, according to people familiar with the matter, royalties will still account for 15% to 20% of sales, Apple’s App Store will take a 30% commission, and marketing and user acquisition fees may consume another 30% to 40%.

After a series of IP game setbacks, Tencent has become more cautious."We focus on fewer big-budget games. Typically, the games we invest the most in are either iterating on successful IP or iterating around gameplay that has proven successful in a niche market and bringing it to the broader market." Tencent Chief Strategy Officer James Mitchell said on Wednesday's earnings call.

According to people familiar with the matter, Tencent is also currently requesting in some negotiations to reduce the proportion of royalties to sales to less than 10%. "This was almost unimaginable a few years ago. Tencent was much more generous in the past," the person said.

Ma Huateng is dissatisfied

On Wednesday, Tencent reported a slight decline in game sales in the fourth quarter of last year. Tencent said overall gaming revenue will be weak this quarter compared with the same period last year. In the same period last year, Tencent's game sales soared as the epidemic ended.

Tencent founder and CEO Ma Huateng has been outspoken in saying that the company’s video game unit needs to do better.Tencent's gaming division had sales of 180 billion yuan (approximately $25 billion) last year, accounting for about 30% of the company's total revenue.


Ma Huateng

According to people familiar with the matter, at the annual meeting in Shenzhen in January this year, Ma Huateng told a group of employees that competitors constantly launching new products "made us feel like we were accomplishing nothing."

That month, Tencent launched the "Spring Bamboo Shoots Plan", aiming to incubate internal games with novel gameplay, with a budget of up to 300 million yuan (approximately US$42 million) for each game. People familiar with the matter said that although this is far less than the 1 billion yuan budget of large-scale IP games, this move shows that Tencent is willing to take more risks in non-traditional game design.

Foreign IP is no longer popular

Tencent has suffered some major setbacks that have put the transition on the agenda.

Last year, EA in the United States stopped the development of the "Apex Legends" mobile game, which was developed by Tencent. EA executives said the game's quality didn't meet expectations.

People familiar with the matter said that in December last year, Tencent stopped developing mobile games for Japan’s Square Enix’s “NieR” game., in part because Tencent has struggled to find a convincing revenue-generating model because its development costs and franchises are expensive.

"Mobile game developers have realized that IP is no longer a panacea for acquiring users." said Serkan Toto, founder of game industry consulting company KantanGames.

In addition, Tencent’s self-developed games also suffered a heavy setback.According to people familiar with the matter, although Tencent invited Hollywood star Will Smith to endorse the international version of the post-apocalyptic survival game "Undawn" and had a budget of nearly 1 billion yuan and more than 300 developers, the game ended in a shocking failure. As of last month, Undawn had made just $287,000 a year after its launch, according to research firm Appmagic.


Undawn failed miserably

At the same time, Western companies have begun to stop outsourcing mobile game development to Chinese companies such as Tencent. For example, Microsoft's Activision Blizzard just launched "Call of Duty: Warzone Mobile", which will directly compete with Tencent's "Call of Duty: Mobile".

To make matters worse, Tencent's top two games saw revenue declines during the Lunar New Year holiday in February.According to people familiar with the matter, compared with the same period last year, the game revenue of "Honor of Kings" and "PUBG Mobile" dropped by 7% and 30% respectively. They have been launched for 9 and 7 years respectively.

As of press time, Tencent declined to comment on the details of its strategic shift.