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Media & Entertainment

Tencent turns to Nintendo and 5G to reboot game business

Switch console and Qualcomm tie-up generate buzz at Shanghai event

Visitors try out the Nintendo Switch at the China Digital Entertainment Expo and Conference, also known as ChinaJoy, in Shanghai on Aug. 2.   © Reuters

SHANGHAI/GUANGZHOU -- China's Tencent Holdings looks to inject vitality into its sluggish video game business through partnerships with Japanese gaming company Nintendo and U.S. chipmaker Qualcomm, which it hopes lead to stronger content and hardware.

At Friday's opening of the 2019 ChinaJoy gaming conference here, Tencent Senior Vice President Ma Xiaoyi likened Nintendo to a "teacher" to the Chinese internet group. The partnership will further help Tencent grow, Ma said.

Tencent, the top video game company in the world's biggest market, dwarfs Nintendo in size. Its messaging platform WeChat alone has more than 1 billion users.

But its game business has struggled in the face of regulation by authorities concerned about the effects of games on youth.

Now, Tencent has secured a new source of content in the company behind Super Mario. Earlier this year, Tencent, which has focused on online games played on smartphones, received approval to sell the popular Nintendo Switch gaming device in China. 

For the upcoming Chinese launch, Tencent said it will link its mobile payment services with the Japanese company's digital game store to make purchases easier. The partners also aim to use proprietary cloud technology to reduce lag in online play.

The companies have not disclosed what Nintendo titles will be available, but likely candidates include entries in the Super Mario, Pokemon and Legend of Zelda franchises. These long-running, internationally popular series hold great appeal for Tencent, which has few lasting hits of its own. Ma expressed hopes that the Switch would be a catalyst for bringing popular Japanese games to the Chinese market.

The tie-up looks likely to reap benefits for Tencent. Exhibition attendees formed long lines to try the Switch.

"I've wanted to play a Mario game ever since I was a kid," said one 20-year-old university student. "I'm absolutely buying one."

Tencent also announced a partnership with leading mobile chipmaker Qualcomm this week to develop next-generation game devices, aiming to ride the rise of ultrafast 5G mobile networks. At one exhibition booth, Qualcomm let players try out games over 5G on smartphones using its high-performance mobile chips.

The Tencent and Nintendo booths at the 2019 ChinaJoy expo attracted many millennials, some of whom played Mario games for the first time. (Photo by Naoki Matsuda)

Tencent's new partnerships come as the Chinese game market sputters, with annual growth dropping to around 5% in 2018 after years at about 30%.

Government regulations have been a headwind. In March 2018, authorities abruptly froze the approval process for new games, and did not resume until December.

That freeze -- which followed a reshuffle that put the media regulator under the Communist Party's propaganda department -- of factored into a 1% year-on-year drop in revenue for Tencent's game business in January-March 2019. Consumer-facing businesses make up nearly 60% of Tencent's revenue.

Yet from Tencent's perspective, China's maturing video game market still holds room for growth. While smartphones account for more than 60% of the market by device, followed by personal computers at nearly 40%, game consoles like those made by Nintendo make up less than 1%. 

Authorities have been turning up the pressure for game companies to voluntarily self-regulate their games' content. Tencent, for instance, is experimenting with limiting the length of time minors can spend playing a game called Let's Hunt Monsters, considered China's answer to the hit smartphone app Pokemon Go.

In May, Tencent revamped its mobile edition of the internationally popular online fighting game PlayerUnknown's Battlegrounds -- or PUBG -- with a new title, Heping Jingying (or Elite Force for Peaceand sanitized content. Instead of bleeding or dying when shot, as in PUBG, player avatars in Heping Jingying simply wave and then disappear.

Tencent and its peers are motivated to go along with regulations by the memory of a ban on manufacturing, selling or importing game consoles, which the central government imposed in the early 2000s out of concerns over gaming addiction and kept in place for over a decade.

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