Chinese gaming giants Tencent and NetEase acquire more foreign studios

The logo of internet technology company Netease is seen at the China Digital Entertainment Conference & Expo, also known as ChinaJoy, in Shanghai, China, 30 July 2021. Picture taken July 30, 2021. REUTERS /Aly Song

PARIS, Aug 31 (Reuters) – Chinese video game giants Tencent Holdings (0700.HK) and NetEase have continued their search for big foreign game studios, with the former taking a large stake in Japan’s FromSoftware and the latter acquiring developer French Quantic Dream.

Tencent, operator of messaging app WeChat and the world’s largest game company by revenue, has acquired a 16.25% stake in FromSoftware Inc, the developer behind the recent action game “Elden Ring”, its parent Kadokawa said. Corp (9468.T). on Wednesday.

Investments by Tencent and Sony Group Corp (6758.T), which Kadokawa also said on Wednesday it would take a stake in FromSoftware, together will raise 36.4 billion yen ($263 million) for the company.

NetEase, China’s second-largest gaming company, announced moments later that it will acquire Paris-based Quantic Dream, best known for developing the role-playing game “Detroit: Become Human,” for an undisclosed amount of money.

The two high-profile deals reflect the Chinese gaming giants’ continued pivot to the international market as growth in the domestic market, which had been key for both Tencent and NetEase, loses steam.

China’s video game sector revenue declined in the first half of 2022 for the first time, a July report showed. read more

Last year, Beijing launched a sweeping regulatory crackdown on China’s high-growth tech sector, the focus of which has been what regulators called “disorderly capital expansion,” where acquisitions of Chinese tech companies had alarmed regulators, though that is now declining.

Tencent’s deal with FromSoftware follows a series of gaming investments it made in Japan before the crackdown, which gave it stakes in PlatnumGames and Marvelous Inc (7844.T).

“The investment shows that Tencent is still active in expanding its presence outside of China in a big way,” said Serkan Toto, founder of consultancy Kantan Games, describing FromSoftware as a “business and creative powerhouse.”

FromSoftware’s Elden Ring, a collaboration between veteran game director Hidetaka Miyazaki and “Game of Thrones” author George RR Martin, had sold 16.6 million units worldwide by the end of June.

NetEase said the acquisition of Quantic Dream will give it its first studio in Europe. He had bought a minority stake in Quantic Dream, which is working on an upcoming Star Wars game, in 2019.

As the regulatory crackdown in China eases, tech companies are exploring more gaming deals. Last month, US game company Unity spun off its China unit, which will have Alibaba Group and ByteDance as shareholders. read more

Tencent also plans to increase its stake in French gaming giant Ubisoft, the developer behind the “Assassin’s Creed” franchise, Reuters reported last month. read more

Reporting by Josh Ye, Tassilo Hummel, and Sam Nussey; edited by Louise Heavens and Jason Neely

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