Market Insight

Tencent invests Shanda Games for the IP Portfolio

February 08, 2018

Chenyu Cui Chenyu Cui Senior Research Analyst, Games

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Shanda Games confirmed investment of RMB 3 billion ($452million) from Tencent this week. The deal marks the latest games-related investment by Tencent after its acquisition of Supercell. The spokesman from Shanda Games has not revealed the size of stake but suggested that the two companies will expand their partnership beyond online gaming. Also, Shanda Games has indicated it will accelerate the process of becoming an A-shares company (i.e. traded on both the Shanghai and Shenzen stock markets).

Our analysis

Tencent and Shanda Games used to be competitors within China's online-gaming industry, but the latter didn't manage to keep up during the shift from PC to mobile. Also Shanda Games is preoccupied with the process of going private after being delisted from NASDAQ in 2015, which distracted the company’s focus on games.  However, its mobile title Legend of Mir, published by Tencent, generated monthly gross revenue of $105 million in 2016.

This not only enhances Shanda Games’ confidence in the Mir IP but also proves Tencent’s strong capacity for distribution and user acquisition. The strategic investment allows Shanda to leverage Tencent’s WeChat and QQ channel to promote its upcoming mobile titles in a landscape where the rapid growth in user-acquisition cost poses significant challenges to newly-launched titles. Also, after spinning-off from the Shanda Group, Shanda Games is seeking other opportunities to continue expending its business ecosystem beyond online gaming. Tencent’s investment and support should accelerate Shanda Games’ progress to explore other Internet-related industries.

This investment also allows Tencent to access Shanda Games’ IP portfolio including the popular Mir series. It’s true that MOBA and battle-royale titles are grabbing users from traditional role-playing games, but the Mir series, with over a decade of operation, still has a large number of loyal users. And the success of recently-launched browser and mobile games based on the Mir IP have underscored that strength of appeal. As such, Mir IP could help Tencent not only in mobile games, but also film or anime production,

Indeed, Tencent has been enhancing its cooperation with other game companies in recent years. Strategic investment on Season, a Kingsoft’s subsidiary, and partnership with Changyou on its cloud service, have highlighted Tencent’s ambition to consolidate its lead in mobile. These partnerships offer Tencent priority access to license IP that can be adapted as mobile titles, among other things.


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